Hong Kong's Court of Appeal on Wednesday, 11 January, began hearing Moody's appeal against a tribunal decision that partly upheld regulatory action imposed on it for a report on Chinese firms, in what is considered a landmark case for the financial centre.
Moody's Investors Service Hong Kong said in April it would challenge a March 2016 ruling by the Securities and Futures Appeals Tribunal ("SFAT") upholding the securities regulator's claim that Moody's broke rules governing how regulated firms should behave when it published the report.
On Wednesday, Moody's reprised a key argument refuted by the tribunal, that the report did not constitute a credit rating or a preparation for a credit rating, and was therefore not within the Securities and Futures Commission ("SFC") jurisdiction.
The SFAT determined last year that Moody's breached the SFC code of conduct through the publication of the July 2011 report that raised corporate governance concerns over 49 Chinese firms, contributing to a fall in their Hong Kong share prices.
The tribunal found the report did constitute a preparation for a credit rating and therefore came under the SFC's jurisdiction.
But Moody's on Wednesday contested the tribunal's findings, arguing that although the report discussed some specific elements relevant to a company's creditworthiness, namely corporate governance and accounting risks, the report's "red flags" framework was not ultimately used for, nor provided the basis for, evaluating a credit rating.
Moody's barrister Adrian Huggins opened the proceedings at the Hong Kong court on Wednesday arguing there must be a "bright line" between regulated and non-regulated activities.
"We need certainty about what is regulated, where we are regulated and where we are not. The line has been blurred unacceptably," he said.
The case has been closely watched by the financial industry and corporate governance activists, as it is likely to redefine the limits on what can be written in research reports on public companies, potentially curtailing the activities of research firms in the financial centre.