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Hong Kong SFC Enforcement Trends十一月 22, 2016
In a speech given earlier this month, the new Hong Kong Securities & Futures Commission (SFC) Director of Enforcement Thomas Atkinson provided some insight into what the SFC’s enforcement division would be focusing on under his direction. The indications given by him serve as a good reminder, especially to listed companies, as to what the SFC is most concerned about.
SFC areas of focus
The speech was delivered at the 7th Pan Asian Regulatory Summit and made it clear that the SFC’s key areas of concern remain heavily focused on Hong Kong-listed companies. In particular, Atkinson highlighted corporate fraud and misfeasance, market manipulation, and intermediary misconduct. The SFC’s activity in these areas has been increasing year on year, and Atkinson indicated that would continue, as those kinds of issues are seen as the greatest threat to the interests of the investing public in Hong Kong.
Under Atkinson’s direction, the enforcement division has established a number of specialist teams, both permanent and temporary, to tackle particular areas of concern. The permanent teams reflect the key areas of concern that have been identified and are focused on:
- Corporate Fraud
- Corporate Misfeasance
- Insider Dealing and Market Manipulation
- Intermediary Misconduct, which will focus on regulated entities and practices such as short selling, mishandling of client orders and assets, and investment bank malpractice.
The temporary teams have been established to consider issues such as sponsor misconduct, which remains a live issue following recent reforms to sponsor liability in Hong Kong. There is also a team that will focus on AML and KYC issues. Atkinson indicated that new teams may be formed as necessary to deal with emerging issues. It will be interesting to see whether there is an increase in specific types of investigations being commenced in light of the formation of these specialist teams.
Cooperation with other regulators
Atkinson specially referred to the need to ensure close collaboration with regulators in mainland China given the number of Hong Kong-listed companies with operations there. In his speech, Atkinson noted that it was critical for the SFC to maintain a close relationship with the China Securities Regulatory Commission and specially referred to the staff exchange program in place between the two regulators.
In our experience, it is often the kinds of companies that Atkinson referred to (listed in Hong Kong, but with business based in the mainland) that find themselves the subject of investigations by not only the SFC, but also the Hong Kong Exchange. This is due in large part to different regulatory regimes in place in Hong Kong and directors of Hong Kong listed companies who are based in the mainland not being aware of their duties and obligations as directors of Hong Kong companies. Companies of this kind are well-advised to arrange regular training for their directors to ensure that they are familiar with Hong Kong regulations and statutory directors duties. (O’Melveny provides such training.)
Compliance with disclosure obligations
One of the areas that Atkinson’s speech did not specifically touch on, but which is an area where we are seeing increased activity, relates to listed companies’ compliance with disclosure obligations. The 2013 amendments to the Securities and Futures Commission Ordinance introduced stronger disclosure obligations for listed companies, and since then, the SFC has commenced a number of actions in the Market Misconduct Tribunal (MMT) arising from what it alleges are failures to comply. Earlier this month, we saw the first decision in one of those cases, with the SFC being successful, and we are awaiting the MMT’s decision on penalties. We will provide a full report on that case once that decision is known. There are two other cases pending before the MMT in relation to this issue. Once those decisions are delivered, listed companies will have a better idea of how the MTT intend to interpret the new obligations and the kinds of penalties it will impose for failing to comply with them.
This memorandum is a summary for general information and discussion only and may be considered an advertisement for certain purposes. It is not a full analysis of the matters presented, may not be relied upon as legal advice, and does not purport to represent the views of our clients or the Firm. Denis Brock, an O'Melveny partner licensed to practice law in Hong Kong (Solicitor-Advocate), England & Wales (Solicitor-Advocate), Australia, New Zealand and New York, Amanda Beattie, an O'Melveny Counsel licensed to practice law in Hong Kong and New South Wales, Australia, contributed to the content of this newsletter. The views expressed in this newsletter are the views of the authors except as otherwise noted.
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