Hong Kong industry group pushes to soften CARF rules

Hong Kong’s major business associations are intensifying lobbying efforts targeting key financial regulators to reassess the stringency of the Corporate Alternative Regulatory Framework (CARF). Industry representatives, primarily led by the Federation of Hong Kong Industries (FHKI) and the Hong Kong General Chamber of Commerce (HKGCC), argue that the current iteration of CARF places a disproportionate compliance burden on small and medium-sized enterprises (SMEs) and certain publicly listed companies. The framework, designed to enhance financial transparency and corporate governance post-implementation of new audit standards, is being criticized for its high execution costs and complexity.

The industry groups are specifically pushing for the softening of rules related to capital adequacy reporting and internal control documentation. Their proposal highlights the necessity of implementing tiered compliance, allowing SMEs to utilize simplified reporting standards and reducing the required auditing frequency for entities below a specific market capitalization threshold. They contend that the lack of proportionality in current regulations is diverting significant resources—both financial and human capital—away from core business operations, thereby inhibiting growth, particularly in the manufacturing and export sectors which rely heavily on cross-border financing.

While regulators, including the Financial Reporting Council (FRC), acknowledge the importance of minimizing compliance friction, they maintain that strict oversight is crucial for preserving Hong Kong’s status as a premier international financial centre. The FRC confirmed that submissions regarding the proportionality of CARF implementation are under review, emphasizing that any potential softening of the rules must not compromise investor protection or systemic stability.

Source: Hong Kong industry group pushes to soften CARF rules