Understanding Social Media Regulation For Capital Markets Communications: A View From Hong Kong

Around the world, guidance on how listed companies vary, leaving companies reluctant to embrace social media as fears that they may ultimately put investors at risk creep in. The United States have clearly issued guidance, but in other major markets, like the UK, Australia, and Hong Kong that guidance is a little less clear. This series on Capital Markets Communications outline each market.

Hong Kong: HKEX

While the use of social media by corporates to communicate financial performance is common practice in many parts of the world, in Hong Kong listed companies have been more cautious about utilising this medium. Hong Kong is not subject to China’s “Great Fire Wall” and a mix of social media platforms are used. The top 50 firms on the Hang Seng Index (HSI) are active on social media to varying degrees. The two most popular platforms are LinkedIn and WeChat. Linkedin is the only western social media platform that is permitted on the mainland, however, WeChat is by far the preferred platform used by the business community. The nature of the content on these platforms is generally company news and related to either their service offering or CSR initiatives. Most companies have not used social media platforms to discuss company performance with their followers. In the future, these companies will increasingly turn to social media to better demonstrate transparency surrounding their financial performance and share performance amongst investors and other key stakeholders. It is critical to understand what the rules of engagement when are it comes to using social media. 

General Social Media Responsibilities 

In response to the growing use of social media in communicating financial results, the Securities and Futures Commission (SFC) has made clarifications on the statutory requirement in the SFC Corporate Regulation Newsletter dated March 2016. 

• According to section 307C of the Securities and Futures Ordinance (SFO), companies listed in Hong Kong should provide inside information in a manner that can provide for equal, timely and effective access by the public. They are also required to disclose inside information that is not false or misleading as to a material fact, or false or misleading through the omission of a material fact, with reference to section 307B of the SFO. 
• While there is no particular system set out to ensure such disclosure, a company is considered to be complying with the statutory requirement if it has disseminated the inside information only through the electronic publication system (i.e. the HKEXnews website) operated by the Hong Kong Exchange and Clearing Limited (HKEX) according to the SFO and the Listing Rules. While conveying inside information exclusively on corporate website and social media is not acceptable, there are currently no regulations or guidance on simultaneous information dissemination on HKEXnews, corporate websites and social media.¹ 

What Do Companies Need To Consider? 

While the SFC has yet to issue specific guidance regarding reporting on social media, the newsletter has addressed several possible areas where the use of social media may breach financial reporting standards and regulations: 

Reporting on social media may breach the “equal” and “timely” principle stated in 307C of SFO because social media may not be used by everyone and part of the companies’ stakeholders may not be alerted and may only pick up the information at a later time 

Reporting on social media may breach the “effective” principle stated in 307C of SFO as information contained in messages may not be comprehensive and clear enough with certain inbuilt limitations such as the restrictions on the maximum number of characters that can be used to compose a message. 

A higher risk that companies may breach section 307B with “false, misleading to and omission of a material fact” is also highlighted since they may pay less attention to the content of the information disseminated through social media.² 

In this particular communication from the SFC, the regulator has emphasised that it views social media under corporate communications. It also asserted that listed companies should strive for accuracy, clarity and balance. In short, the SFC does not have any issue with communication over social media, as long as the proper channels have been used first to communicate with the key shareholders and stakeholders via the HKEXnews website. The SFC stresses that communicating through other methods, runs the risk of uneven disclosure. 

FTI View

In Hong Kong, very few companies use social media for investor relations, one example being Lenovo who direct their followers on twitter to their earnings. While the use of social media is not common play for the dissemination of company performance among the HSI listed companies, we do expect this to change as social media channels grow. Investors are turning to social media platforms for up-to-the-minute market news and sentiment. It is no surprise that these platforms have become increasingly important channels for communicating a company’s investor proposition. 

We live in an era where heightened governance standards and listed companies the world over are increasingly tasked with sharing greater information, offering up more transparency and demonstrating that they have adopted the right corporate culture. Failure to share information in a timely manner could leave a company in a vulnerable position during a market event or during a period in which the company is undergoing significant change. 

Due to the interconnected nature of capital markets and with increased demand for access to Chinese companies, we strongly advise HSI listed companies who have international ambitions to have clear information about the company in English as well as Chinese. Failing to do so could be a lost opportunity from a brand awareness perspective. 

FTI strongly urges listed companies to embrace a forward-looking approach when it comes to financial communication, adhere to the guidance from the SFC and make sure their organisation is well prepared to manage its corporate reputation through digital channels. FTI Consulting’s team are experts in helping companies tell their story including strategic communication with stakeholders via social media. 

References

1 http://www.sfc.hk/web/EN/files/ER/Reports/CRN/ CRN20160303.pdf

2 http://www.sfc.hk/web/EN/files/ER/Reports/CRN/ CRN20160303.pdf