HONG KONG (BLOOMBERG) – The staid accounting profession is the latest to be rattled by the chaotic changes sweeping through Hong Kong.
The government, via a blog post, this month proposed putting all accountants in the city under the supervision of its Financial Reporting Council (FRC), cutting out the self-regulating body that has held sway for almost five decades. It also moved to take licensing power away from the Hong Kong Institute of Certified Public Accountants (CPA), building on reforms from 2019 to tighten oversight and bring the city closer to international standards.
But, like with many recent changes, the proposal skips the formal public consultation process, adding to growing concerns over the rule of law and the waning influence of professional groups in the city after China imposed a security law last year. There is also worry about whether the authorities will now have access to the finances of local parties and institutions critical of the government at a time when Beijing is cracking down on voices of dissent.
“Changing the regulatory regime isn’t a simple process,” said CPA president Raymond Cheng, who only found out about the plan the morning it was revealed. “We urge the government to undertake it in a measured and considered manner, after extensive consultations and assessment of all its impacts.”
The authorities said they are giving ample time for the industry feedback and that the narrow nature of the proposal makes a broader public consultation unnecessary. It is scheduled to be heard by the legislature on July 5.
Mr Christopher Hui, the secretary for Financial Services and the Treasury, said in a question-and-answer on the government’s website that the proposal only changes the scope of the regulatory function and not its nature. “The consultation has already started and we have engaged a few of the key accounting organisations here in Hong Kong to gauge their views on our proposals,” he said. “So on that front, basically it is a continuous process.”
The government declined to comment further.
This is the second major step to tighten control over the city’s accounting industry. In October 2019, the FRC was given oversight of listed company audits. The latest move will expand the agency’s monitoring to more than 46,000 certified public accountants, including more than 5,100 practising members who are entitled to sign off financial reports.
FRC chairman Kelvin Wong has sought to reassure the industry, especially those who do private company audits and work as financial controllers, saying that oversight will remain largely the same.
The FRC earlier this month released a scathing report over the state of accounting in the city, which has in the past been plagued by a proliferation of shell companies. In an inspections of audits, more than 73 per cent of the cases showed a need for “improvement” or “significant improvement”, the FRC said in its first annual report after commencing the new regulatory regime.
Even so, some accounting professionals said the loss of independent oversight could endanger groups that are critical of the government, such as local parties and humanitarian groups that need to meet annual audit rules as registered companies or partnerships.
One accountant, who was previously part of the industry group able to vote on Hong Kong’s chief executive, said they feared the transfer of oversight means the government-appointed council would have power to obtain the audit working paper of these organisations, putting their donors at risk. Still, others said the threat was negligible since the government is unlikely to drill down that far in its oversight. All the accountants asked not to be named discussing sensitive matters.
“It would then be paramount for the FRC to make sure these critical organisations receive proper audit,” said Mr Kenneth Leung, a former lawmaker for the accountancy sector, who was ousted last year in the crackdown on the pro-democracy opposition.
Professional groups are becoming more and more reluctant to voice their opinions over fear of breaching the security law. The government has this month arrested top editors of pro-democracy newspaper Apple Daily.
Mr Leung said the move on accountants is part of a broader threat to the influence of professional groups in the financial hub.
The accounting industry has a decidedly pro-democracy tilt. In a 2019 election to the CPA council, at the height of protests that rocked the city, pro-democracy candidates pulled off a clean sweep against a mix of pro-Beijing and independent opponents.
The legal profession is also facing similar challenges. The government recently proposed to allow that its legal officers be named senior counsels. That is an official title previously bestowed by the Law Society and the city’s Bar Association, which has been an outspoken critic of the encroachments on freedoms and the rule of law.
The authorities have also pushed through changes to the company registry, censorship of films, arrested opposition figures and changed election laws without input from residents and professionals in the city.
The city’s main economic engine of finance is also dealing with a new landscape. Banks have had to freeze accounts of activists and were recently warned not to do business with jailed media tycoon Jimmy Lai, whose Apple Daily newspaper is now being forced to close.
A recent survey by the local American Chamber of Commerce found that more than 40 per cent of its members said they might leave Hong Kong, highlighting the business community’s concerns over the security law and the government’s strict policies related to Covid-19.
“Every significant policy should undergo a proper public consultation to detail the rationale, timing, essence and consequences,” Mr JP Lee, chairman of the International Chamber of Commerce – Hong Kong, said in an interview after the government decided to restrict information in the company registry. “It should never just proceed at the will of administrative officials and approved by a now crippled legislature.”