The proposal will hamper the ability of investors, banks, property agents, researchers and journalists to carry out due diligence on transactions and counterparties.
Hong Kong’s FSTB (Financial Services and the Treasury Bureau) on Wednesday (31 March) proposed to allow companies to block access to information about their directors’ identities in the Companies Registry.
Under the proposed rules, the government will stop requiring companies to reveal certain information about their directors, such as their home addresses, passport numbers and ID numbers.
Under a second phase of the plan, such information contained in all documents filed for registration can be hidden from public view, starting from October 2022. Phase three will allow companies to apply to have the information shielded from public view even in documents filed prior to the commencement of phase two.
The new law also would limit the reasons for granting access, with no option for researchers or journalists planned. The move is said to be driven by a need to balance transparency and personal privacy.
According to Breakingviews, the proposal “goes firmly against a worldwide push from investors for better governance and disclosure, and only stands to taint the Asian financial hub’s business standing.”
“Couched as a data privacy issue, it might sound reasonable. In a region with easily confused names and labyrinthine corporate structures, however, losing access to unique identifiers will make it harder for businesses to be certain about who they’re dealing with.”
Indeed, the document submitted to LegCo cites ‘doxing’ and ‘personal data misuse’ as reasons for the proposal. However, corporate governance experts and accountants reportedly say the proposal will make it difficult for investors and banks to carry out due diligence on transactions and business partners and erode individual director accountability to shareholders and creditors.
Real estate agents have also expressed concerns that they won’t be able to carry out adequate due diligence to prevent property scams, as required by law. Others say the proposal will draw organised crime groups to Hong Kong to launder money, and further corrode the city’s reputation as a tax evasion hub.
“The proposed law will facilitate corruption, fraud and other crimes,” said Hong Kong-based activist investor David Webb, who campaigned against a similar change proposed in 2013. “Allowing directors to obscure their identities reduces the ability of researchers and journalists to shine a light in shady places.”
The proposal, available here, is set to undergo negative vetting in LegCo next month before it takes effect.