Moody's challenges Hong Kong regulator over $3M fine for China "red flags" report

Moody's Investors Service is challenging a $3 million fine by Hong Kong's securities regulator over a 2011 report that flagged potential problems at Chinese companies.

Lawyers for Moody's Hong Kong unit and the Securities and Futures Commission were outlining their arguments at a two-day hearing that began Thursday.

The case is the first of its kind and has raised fears about the chilling effect it may have on critical financial research in the semiautonomous Chinese city.

A former British colony until 1997, Hong Kong is an Asian financial center that retains civil liberties such as free speech not seen on the mainland.

The regulator's complaint last year accused Moody's of breaching its code of conduct when it issued a report that found "red flags" at 49 of 61 Chinese companies.