In spring 2018, an art piece was installed on the ceiling of the Hong Kong Exchange Connect Hall to commemorate the opening of its financial museum. With countless crawling legs, two outspread wings and changing lighting, it has been called all kinds of names – headless dragon, centipede or chameleon.

But within days, it was taken down, despite the millions of dollars spent on it. Bad Fung Shui was said to be the cause. The Fung Shui master told the bourse’s top management they would be harmed if the art stayed.

The same management has, however, chosen to be much less wary on a matter that every regulator would make a top priority – its integrity – despite all the signs on the wall.

At question is the joint head of its IPO vetting team, who was arrested by the Independent Commission Against Corruption for “suspected corruption and misconduct in public office in relation to his vetting of listing applications of two companies”.

The anti-graft body gave his title but no identity. However, two sources with close knowledge identified the joint head as Eugene Yeoh, who resigned recently. Several media outlets, including Bloomberg and the Financial Times, have made the same connection.

There had been warnings. A whistleblower had written to the Exchange in 2016 to complain about his role in several listings on the Growth Enterprise Market (GEM) board, according to two sources.

The GEM board hosts growth companies that do not have a track record or profitability requirements to be listed on the stock exchange’s main board. Listings require no greenlight from the 28-member Listing Committee, but need the approval of the Listing Department. Yeoh’s team would study the prospectus and raise questions which would have significant bearing on the approval.

Eugene Yeoh. Photo: Hong Kong Biotechnology Organization.

The exchange started an internal investigation which soon concluded that there was no case. Yeoh was not only left unscratched, he was promoted to the Managing Director in January, said the sources.

His new title came as a surprise to many – both within the exchange and the industry – not only because of the complaint, which was widely known, but also the speed of his promotion.

Joining the Hong Kong Stock Exchange (HKEX) in late 2013 as a Senior Vice President, Yeoh has climbed to the top job within five years despite an unimpressive background. Between 2010 and 2013, he was a small cap analyst with Deutsche Bank and then spent six months as a stock dealer in a small brokerage firm, CIMG Securities.

Soon after his promotion, a letter with more specific allegations reached the regulators, according to the sources. It was directed to both the HKEX chairman Laura Cha and the Securities and Futures Commission.

File photo: GovHK.

The Exchange launched a fresh round of investigations but these yielded no result as Yeoh had turned uncooperative. He is understood to have hired a lawyer to represent himself in the probe.

Sources said Yeoh was advised to resign immediately in late May by HKEX top management. An internal memo said he was leaving to spend more time with his family.

A list of 11 questions on the above happenings has been sent to the corporate communication department of the Exchange. A spokesperson declined to comment due to “regulatory and legal obligations.” Neither would she explain the bourse’s standard procedure for handling integrity complaints.

The Exchange has insisted that the problem is not with the listing system but the individual. Charles Li said: “No system is perfect enough to catch a bad apple. We found a bad apple and discarded it.”

HKEX Chairman Laura Cha.

What Li has ignored – or tried to get the market to ignore – is that the decay goes beyond an individual or the listing vetting system. It is about the Exchange’s governance which cannot be addressed with a “bad apple” statement from the management at the sidelines of a listing ceremony.

An independent investigation should be conducted to answer the following questions. Under the current system, IPO applications are assigned to a dozen teams of regulators at random to avoid corruption. What has gone wrong with this mechanism that has made it possible for an individual to promise applicants approval? Was more than one official involved?

What has been done to investigate the first complaint letter? Who was responsible for the investigation and conclusion? On what basis did he or she decide there was no case to answer? Was the board informed of the letter, the investigation and the findings?

Who decided to promote Yeoh? On what basis was the promotion made? Has the board been informed of this decision?

Hong Kong Stock Exchange. File photo: In-Media.

Upon receiving the second complaint letter, what has been done to investigate? What is the conclusion of this investigation? Who has decided to ask Yeoh to resign immediately and on what basis? Has the board been informed throughout this whole process? Has the Exchange consulted or informed any law enforcing agency on Yeoh’s case? If not, why not?

An easy excuse from an independent investigation will be the ongoing probe by the ICAC. Yet, the precedent set by the Bank of China Hong Kong in 2003 has shown how it can be done and should be done.

Under massive regulatory pressure, the Bank conducted an investigation into its approval of an HK$1.77 billion loan to Shanghai Land Holdings. The company announced an improper arrangement behind the loan following the arrest of its Chairman Chau Ching-ngai and his wife by mainland authorities and ICAC respectively.

A special committee – comprising all the bank’s independent directors and the former Managing Director of the UK Financial Services Authority as a special advisor – was formed to steer the investigation.

The Hong Kong Monetary Authority. Photo: Wikicommons.

Two external auditors – with the approval of the Hong Kong Monetary Authority – were appointed to review things at two different levels. Moores Rowland studied the approval process of the loan while KPMG probed the bank’s system in corporate governance, credit approval process, internal control and board-level controls.

All these inquiries were completed within three months of the scandal’s exposure, resulting in public criticism of the bank’s two top officials.

The government should stop taking a back seat but push for such an investigation. That’s the only way to restore market confidence in the integrity of our regulatory regime.

Shirley Yam

Shirley Yam is a journalist and broadcaster who started off in politics but changed track to enter China finance and business, which she finds much more fascinating. She spent 11 years writing Money Matters, an award-winning weekly column at the South China Morning Post. Shirley is now the Senior Editor of REDD Intelligence.