SFC urges SEHK to tighten internal controls and auditor oversight

The new measures will reduce reliance on director confirmations for oversight.

The Securities and Futures Commission (SFC) has recommended that The Stock Exchange of Hong Kong Limited (SEHK) strengthen oversight of internal controls and auditor resignations.

The SFC advises SEHK to enhance vetting of internal control reviews, requiring an independent consultant’s opinion on the adequacy and effectiveness of controls.

This replaces reliance on director confirmations, which may fail to ensure proper systems are maintained, and aims to guarantee that issuers address deficiencies and safeguard assets.

The report also proposes updates to market guidance to reduce late auditor resignations, which can delay the release of financial information.

Under the proposed rules, issuers would need shareholder approval before requesting auditor resignations, and clarify audit fees early to avoid disagreements.

The SFC also recommends that SEHK scrutinise audit committees’ management of financial reporting and audit performance.

The review examined the operations, processes, and procedures of the SEHK Listing Division, building on recommendations from a report published in late 2024.