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28TH LEGCO REPORT TO HKSA COUNCIL By Hon. Eric K.C. Li

I. Highlights

To present orally.

II. Committees and Panels

1. Public Accounts Committee (PAC):

The Committee have held one further day of public hearings to receive evidence on the subject PAC Report 38 No. 5 "Residential services for the elderly ". The hearing highlighted the cumbersome management structure of the service concerned.

2. Financial Affairs Panel:

The Panel held 9 meetings (including 3 special meetings - to discuss the report of the Panel of Inqury on Penny Stocks Incident and related matters; one special meeting to meet with the new Secretary for Financial Services and Treasury as well as to study the Consultancy Study on the Review of the Role of the Official Receivers' Office; an informal meeting to discuss the draft research report on Government of the Hong Kong Monetary Authority) to date and the relevant agenda are attached as Appendix I.

On 20 September 2002, the Panel held a meeting in which I have moved to suspend a research on the Linked Exchange Rated System. The reason was that overseas investors, unsure about the workings of Hong Kong's political system, had wrongly assumed LegCo was empowered to make decisions on the future of Hong Kong's financial system. As a result, Hong Kong dollar one-year forwards surged as high as 240 basis points over the spot rate.

FA Panel members agreed with my suggestion and had voted unanimously to shelve the project.

A proposed list of future agenda items is attached as Appendix II for reference.

3. Economic Services Panel:

The Panel held 3 meetings since the last report.

The Panel focused on the Tung Chung Cable Car Project and Former Marine Police Headquarters. There was also a special meeting to receive a briefing by the new Secretary for Economic Development and Labour.

4. Information Technology and Broadcasting Panel:

The Panel held 4 meetings to date.

The Panel studied the progress of the Cyberport project, progress of the E-government programme as well as the consultation on "Special Number Arrangements" relating to allocation and assignment of telecommunications numbers and codes and related issues.

There were two special meetings to discuss the issues relating to the proposed acquisition of ATV's shares by TOM.COM Limited; to receive a briefing by the Secretary for Commerce, Industry and Technology, to discuss the disruption to telecommunication services on 11 September 2002)

5. Education Panel:

The Panel held only 1 regular meetings (to elect chairman and deputy chairman for the 2002-03 session) to date.

6. Finance Committee and House Committee:

There was only 1 meeting of Finance Committee and 1 meeting of House Committee. TD of HKSA were kept informed of progress on all Bills on a weekly basis.

The introduction of Government Bills in the current legislative session (2002-03) dated 09 October 2002 is attached as Appendix III.

III. Bill Committees Joined

1. Inland Revenue (Amendment) Bill 2000

The Bills Committee which I chair is now waiting to recommence on the Administration's request and subject to the availability of a Bills Committee slot at the time.

2. Drug Trafficking and Organized Crimes (Amendment) Bill 2000

The Bills Committee has held 15 meetings with the Administration to discuss the Bill. The Hong Kong Society of Accountants, the Hong Kong Trustees Association, the Hong Kong Bar Association, the Hong Kong Association of Banks, the Law Society of Hong Kong and the Hong Kong Federation of Insurers have made submissions to the Bills Committee on the Bill.

After two years negotiation, the Bill was finally heavily amended in our favor. To address the concerns of the HKSA, the Government has finally dropped the controversial proposal to amend S.25 and S.25A of the money laundering laws to compel disclosure on information by an untested 'objective' test as described before. To me, this is a classic example of excellent collaboration of HKSA, your LegCo representative and the Administration which in the end produced the best desired results.

The Bill passed on 11 July 2002.

3. Companies (Corporate Rescue) Bill

At the House Committee meeting on 7 December 2001, the Bills Committee recommended that the scrutiny of the Bill should be held in abeyance to allow time for the Administration to conduct consultation on, and work out the details of, a new proposal based on ideas initiated by myself and refined by HKSA. The House Committee agreed to the Bills Committee's recommendation.

4. Subcommittee on Draft Subsidiary Legislation to be Made under the Securities and Futures (Ordinance)

There were 7 meetings held since the last report. The Subcommittee was formed to study the some 38 sets of draft subsidiary legislation to be made under the Securities and Futures Ordinance (SFO) for its commencement. The SFO was passed by the Legislative Council (the Council) on 13 March 2002. The Administration's target is to bring the SFO into operation by end 2002.

HKSA made a written submission to the Subcommittee. There were two main issues (clause 5 "Copy of listing materials to be filed with the Commission" and clause 6 "Copy of ongoing disclosure materials to be filed with the Commission" that HKSA had concerns.

The Administration was made aware of these concerns and the matters will be discussed in the coming meeting to be held on the 24 October 2002.

5. Bills Committee on Prevention of Child Pornography Bill

There were 1 meeting held since the last report. The objectives of the Bill are to:

(a) create offences of making, producing, publishing, importing, exporting, distributing, advertising and possessing pornography that depicts children under the age of 16;

(b) create an offence for any person who uses, procures or offers another person who is under the age of 18 for making pornography, or for a live pornographic performance, in which that other person is pornographically depicted;

(c) extend the application of certain sexual offence provisions to acts committed against children outside Hong Kong and prohibiting the making of any arrangement relating to commission of those acts and advertisements for such arrangement; and

(d) make consequential amendments to various Ordinances.

The Administration also consulted the LegCo Security Panel about the proposals in the Bill at its meeting on 6 December 2001. Members generally supported the principles and spirit of the legislative proposals which offer better protection to children. Members also raised several concerns, including enforcement difficulties, over the Bill.

6. Bills Committee on United Nations (Anti-Terrorism Measures) Bill

The Bills Committee has held 15 meetings with the Administration. The Bills Committee has met with 10 organisations/individuals, and has received 8 written submissions from other organisations.

The Bill seeks to provide anti-terrorism measures such as specification of terrorists, terrorist associates and terrorist property; freezing of funds; prohibition of activities related to terrorism; disclosure of knowledge or suspicion of terrorist property; and obtaining of evidence and forfeiture of terrorist property.

In fact, there are similar proposals on dealing with property and disclosure of knowledge or suspicion based on the Drug Trafficking and Organized Crimes (Amendment) Bill 2000. As the result of strong opposition by myself (you representative) as well as other legislators, the Administration eventually reversed all the controversial amendments.

The Bill passed on 12 July 2002.

7. Bills Committee on Public Officers Pay Adjustment Bill

The Bills Committee held seven meetings. In view of the wide implications of the Bill on the civil service and subvented sector, the Bills Committee met with the four central consultative councils (staff sides), major civil service unions and deputation from the subvented sector. It received seven submissions from the civil service and subvented sector. It also exchanged views with the Law Society on the legal issues involved in the Bill. The Bill was passed on 11 July 2002.

The implementation of the civil service pay cut decision through legislation was highly controversial and had aroused substantial confrontation between the Government and the civil servants. I have consulted the accountancy functional constituency through sample circulars and my website.

The result and my speech on the Second Reading of the Public Officers Pay Adjustment Bill was published in a separate circulars to members shortly afterwards.

8. Bills Committee on Land (Miscellaneous Provisions) (Amendment) Bill 2002

There were 2 meetings held since the last report. The Bill seeks to improve the regulation of excavation in unleased land by -

(a) Prescribing a fee (including the economic cost in some cases) for excavation permits;

(b) Widening the scope of enforcement of excavation permit conditions.

The maximum fine for making or maintaining an excavation without a permit or in breach of a permit condition will also be increased from $5,000 to $50,000 to reflect the inflation over the past 30 years. Liability to 6 months imprisonment will remain the same.

It is also proposed that the control regime be extended so as to bind the Government in so far as it relates to excavations in unleased land which is a street maintained by the Highways Department (HyD). Government departments which carry out such excavations will therefore have to apply for a permit, pay the prescribed fees and bound by its conditions. However, any non-compliant department will, instead of being made liable to criminal proceedings, be made subject to a reporting mechanism to the Secretary for Works.

9. Bills Committee on Telecommunications (Amendment) Bill 2002

There were 3 meetings held since the last report. The Bill seeks to amend the Telecommunications Ordinance (Cap. 106) to provide a clear and comprehensive regulatory framework to regulate mergers and acquisitions in the telecommunications market with a view to promoting fair and effective competition in the market.

The Bill proposes to confer on the Telecommunications Authority a specific regulatory power to regular any change or proposed change in the ownership or control over a carrier licensee which, in the opinion of TA, has, or is likely to have, anti-competitive effect. A number of procedural safeguards are proposed to ensure the fair exercise of the proposed statutory power. Non-compliance with the provisions of the Bill will render a carrier licensee liable to sanctions including financial penalties, suspension or cancellation of licence.

I had strong reservations about the over-concentration of power in TA in regulating the industry, enforcing legislation, conducting investigation and prosecution, and making determinations. Besides, TA also had vast powers in formulating guidelines for reference/compliance by the industry.

I also considered that important issues and requirements contained in the guidelines should be incorporated into legislation. In addition, I recommended that appeals against TA's decision should not lie with the Secretary for Information Technology and Broadcasting who normally would rely on TA's professional advice when making relevant decisions.

10. Bills Committee on Inland Revenue (Amendment) (No.2) Bill 2001

I was elected as the Chairman of this Bills Committee. The Committee met once since the last report.

At present, electronic filing of Tax Returns - Individual and Property Tax returns with the use of digital signatures under the Government Electronic Service Delivery (ESD) Scheme and the filing of Profits Tax returns in e-form are provided for in the Electronic Transactions Ordinance (Cap. 553) (ETO). The Inland Revenue Department (IRD) proposes to provide alternative means for tax return filing, i.e. filing of tax returns by telephones and the use of a password for filing of tax returns under the ESD scheme. There are, however, no provisions, in either the ETO or the Inland Revenue Ordinance (Cap. 112) (IRO) for these alternative means.

The Bill seeks to provide a legal basis for: (a) the use of password for authentication and fulfillment of signature requirement for tax returns filed under the ESD Scheme; and (b) the filing of tax returns by telephones.

The Panel on Financial Affairs (FA) was briefed of the legislative proposal at its meeting on 7 January 2002. During the meeting, I advised the Panel of the position of HKSA with regard to the proposal new services. HKSA did make some suggestions regarding the terminology and some drafting aspects of the Bill. The main points included:

(a) HKSA in principle supported the early implementation of the proposed new services as additional channels to facilitate the submission of tax returns;

(b) For the integrity of the legal framework governing electronic transactions, HKSA considered it preferable to have provided for in the ETO the changes sought to be effected by the Bill;

(c) HKSA, however, accepted that internet filing and telefiling of tax returns with the use of password warranted specific arrangement as provided for under section 14 of ETO;

(d) The Administration should review ETO as a matter of priority to examine whether and how the ETO should cater for cases where the use of password might be accepted for satisfying the alternative requirement in other ordinances. In the course of the review of the ETO, any inadequacies in the IRO in relation to electronic transactions should also be addressed.

11. Bills Committee on Companies (Amendment) Bill 2002

There were 2 meetings held since the last report. The objective of the Bill is to amend the Companies Ordinance (Cap. 32) (the Ordinance) so as to implement 17 of the recommendations made in the Report of the Standing Committee for Company Law Review (SCCLR) on the Recommendations of a Consultancy Report of the Review of the Hong Kong Companies Ordinance and to provide for other miscellaneous and consequential amendment. The implementation of 17 recommendations includes:

(a) Abolishing corporate directors which will result in individuals being held responsible for corporate acts;

(b) Making a director vicariously liable for acts and omissions of his alternates;

(d) Giving every shareholder a personal right to sue to enforce the terms of a company's Memorandum and Articles of Association.

The Administration also takes the opportunity to implement at list of improvement to the Company Ordinance ("the Ordinance") for various purposes such as simplifying the filing requirements, improving the charge registration procedures in the Ordinance, making technical amendments to certain winding-up provisions, streamlining the existing requirements and facilitating electronic communication between a company and a shareholders.

The Panel on Financial Affairs was consulted of the legislative proposal at its meeting on 29 March 2001. During the meeting, while expressing support for the Administration to expedite reform the Ordinance to strengthen the corporate governance regime in Hong Kong, I stressed that the reform should also aim at reducing compliance costs for business and enhancing the competitiveness of the Hong Kong market. I suggested that the Administration should consider introducing them into LegCo by separate bills within the same term so as to facility Members' scrutiny of the legislative proposals.

HKSA made a written submission to the Bill. In principle, HKSA supports most of the proposals contained in this Bill, it was believed that legislation of this nature is important for the business and investment environment in Hong Kong. HKSA, however, expresses concern about a number of provisions of the Bill (such as clause 54 - Directors vicariously liable for acts of alternates; clause 57 - Removal of directors; clause 58 - Prohibition of loans, etc. to directors and other person; clause 63 - Particulars in accounts of loans to officers; clause 65 - Contracts with sole member who is also a director; clause 66 - Provisions as to liability of officers and auditors; clause 108 - Meeting by electronic means and clause 7 (section 22 of the Companies Ordinance) - Change of name). Detailed comments on the Companies (Amendment) Bill is attached as Appendix IV.

12. Subcommittee on Solicitors (Group Practice) Rules

There was 1 meeting held since the last report. The Subcommittee seeks to study the Solicitors (Group Practice) Rules (which are made by the Law Society of Hong Kong under section 73 of the Legal Practitioners Ordinance (Cap. 159). Section 73 of the Legal Practitioners Ordinance) that provides for, amongst other things, the regulation of solicitors' practice in Hong Kong.

The new Rules provide that 2 or more solicitors or firms of solicitors conducting their business from the same address "separately but in mutual co-operation" are members of a group practice. They also provide that the members of a group practice must maintain a company incorporated with limited liability, of which only member solicitors or principals of firms are eligible to be directors or shareholders.

According to the Law Society, the purpose of establishing this new mode of practice is to enable solicitors to share premises, staff and facilities and thus lower their overheads and to provide an environment in which they would have the support of other solicitors and assist one another.

V. Motion Debate

List attached as Appendix V. In addition, I have written one 'Letters to Hong Kong' on 25 August 2002 for the RTHK. Speeches on my Web Page and highlights will be published in my circulars to members.

VI. General Political Background

To present orally.

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