Regulatory News (Dec 2016)
/in Regulatory News /by Tony Chan- Market Misconduct Tribunal finds Greencool’s former chairman and senior executives culpable of market misconduct
- SFC bans Lam Yuk Wai for life
- SFC issues further guidance on suitability obligations
- Pilot test on expanded Short Position Reporting
- New SFC measures to heighten senior management accountability
- SFC issues Restriction Notices to two brokers to freeze a client account linked to suspected account hacking and market manipulation
- SFC bans Poon Kin Lung for two years
- SFC revokes licences of Goodcape Securities Limited and its responsible officers Tang Lin Sun and Chang Siu Ming
- SFC publicly criticises Southwest Securities International Investment Limited, Li Zhi Tao and Dong Jiang Wen for breach of the Takeovers Code
- SFC emphasises timely and accurate disclosure of inside information
- SFC and HKEX keep rights issues and open offers under scrutiny
- SFC welcomes appointment of Non-Executive Director
- SFC survey on the selling of investment products
- Update on the SFC’s enforcement approach
- SFC issues second-quarter report
- SFC commences Market Misconduct Tribunal proceedings over alleged insider dealing in Titan Petrochemicals Group Limited shares
- SFC and FINMA sign agreement on Switzerland-Hong Kong Mutual Recognition of Funds
- New event synopsis: SFC Regtech and Fintech Contact Day 2016
- New speech by Christina Choi: The development of Hong Kong as an asset management centre
Newsletter – November 2016
/in Newsletter /by Tony Chan- Court convicts Gold Root Global Investments Limited of unlicensed dealing
- SFC revokes licenses of Richmond Asset Management Limited and its responsible officer Graham frank Bibby and bans him for 10 years
- SFC bans Lawrence Lai for 10 years
- Market Misconduct Tribunal finds AcrossAsia Limited, its CEO and former chairman culpable of late disclosure of inside information
- Court of Final Appeal dismissed leave application of C.L. Management Services Limited and its sole owner
- SFC bans Derek Ong for 10 years
- SFC bans Benedict Ku Ka Tat for one year and fines him HK$150,000
- SFC publicly censures Zheng Dunmu and imposes a cold-shoulder order for breach of the Takeovers Code
- SFC proposes to enhance asset management regulation and point-of-sale transparency
1. Court convicts Gold Root Global Investments Limited of unlicensed dealing
On 27 October 2016, the Eastern Magistrates’ Court convicted Gold Root Global Investments Limited (“GRG Investments”) of dealing in futures contracts through its website between March and April 2013 without a licence from the SFC.
Background
GRG Investments pleaded guilty and was fined HK$10,000 and ordered to pay the SFC’s investigation costs.
Dealing in futures contracts for others as a business needs a SFC licence, but GRG Investments never applied to the SFC for a licence.
The SFC is also prosecuting Mr Jacky Chan Cheuk Ki and Mr Chiang Ching Fung, respectively, the former Dealing Director and Chief Executive Officer of GRG Investments, for aiding, abetting, counselling, procuring or inducing or consenting to or conniving in the commission of GRG Investments’ offence. They both pleaded not guilty.
The case of Chan and Chiang was adjourned to 8 December 2016 for a pre-trial review.
The SFC reminds investors not to deal with unlicensed firms or people in order to protect their own interests. Investors can visit the SFC website (www.sfc.hk) to check whether a firm or person is licensed.
Comment
Readers are reminded that under section 390 of the SFO, if an offence under the SFO by a corporation is proved to have been aided, abetted, counselled, procured or induced by, or committed with the consent or connivance of, or attributable to any recklessness on the part of, any officer of the corporation, or any person who was purporting to act in any such capacity, that person, as well as the corporation, is guilty of the offence and is liable to be proceeded against and punished accordingly.
For further details, please refer to:
https://www.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/doc?refNo=16PR109
2. SFC revokes licenses of Richmond Asset Management Limited and its responsible officer Graham frank Bibby and bans him for 10 years
On 31 October 2016, the SFC has revoked the licences of Richmond Asset Management Limited (“Richmond Asset Management”) and its responsible officer and sole owner, Mr Graham Frank Bibby, and banned him from re-entering the industry for a period of 10 years effective from 31 October 2016 to 30 October 2026.
Background
The disciplinary actions follow a review of the SFC’s decision to sanction Richmond Asset Management and Bibby by the Securities and Futures Appeals Tribunal (“SFAT”).
The SFC’s investigation found that Richmond Asset Management and Bibby are not fit and proper persons in that they procured investment funds from customers which were invested in assets which Bibby and his wife held substantial undisclosed interests. Specifically, Richmond Asset Management and Bibby obtained approximately US$5 million from 36 clients to invest in a company and a plot of land in Phuket of Thailand (“Phuket Land”) in which Bibby and his wife held substantial undisclosed interests.
The clients’ funds procured by Richmond Asset Management and Bibby were routed into three unauthorized funds (“Optimizer Funds”). Richmond Asset Management and Bibby were not only the investment advisers for the Optimizer Funds but also held management powers over the funds.
Richmond Asset Management and Bibby directed monies invested in the Optimizer Funds into two other funds (“Asia Property Funds”) in which Richmond Asset Management and Bibby were also advisers and investment managers.
In November 2007 the Asia Property Funds advanced a loan to The Fairway Holding Company Limited (“Fairway”), a Thailand-based company in which Bibby and his wife held a combined stake of 75%. The loan – essentially monies invested in the Asia Property Funds from the Optimizer Funds – were then used by Fairway to fund the purchase of the Phuket Land. Bibby also paid part of the purchase price of the Phuket Land.
The Optimizer Funds have been suspended since April 2010 and redemption requests from clients have been unsatisfied. The Optimizer Funds have been in limbo since suspension with the Asia Property Funds having become its major assets whilst the Phuket Land remains unsold and Fairway has defaulted on the loan owed to the Asia Property Funds.
Comment
Richmond Asset Management and Bibby failed to properly avoid and disclose potential conflicts of interest to its clients, abusing clients’ trust. In so doing they demonstrate they are unfit to be licensed to conduct regulated activities.
In particular, Bibby played a central role in managing how the clients’ monies in their portfolios were invested and he initiated the structure of funds to channel the clients’ investments to a company and a property in which he and his wife have substantial interests.
Readers are reminded that, according to the General Principle 1 in the Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission (“Code of Conduct”), a licenced or registered person should try to avoid conflicts of interest and when it cannot be avoided, the licensed or registered should ensure that the clients are fairly treated.
For further details, please refer to:
3. SFC bans Lawrence Lai for 10 years
On 2 November 2016, the SFC has prohibited Mr Lawrence Lai, a former representative of UOB Kay Hian (Hong Kong) Limited and UOB Kay Hian Futures (Hong Kong) Limited (collectively, “UOB Hong Kong”), from re-entering the industry for 10 years from 2 November 2016 to 1 November 2026 for breach of the Code of Conduct.
Background
The disciplinary action follows an SFC investigation into the trading of Nikkei Futures contracts in an account of UOB Hong Kong after a tsunami struck Japan on 11 March 2011.
The SFC found that Lai:
- falsely declared that he was not related to a holder of a client account;
- carried out discretionary trading in secret and without proper authorization;
- caused inaccurate and misleading account statements to be issued to a client;
- misled his employer that he was reducing the risk exposure of the client’s account when in fact he was substantially increasing the risk position; and
- acted against the best interests of the client by trading without sufficient equity in the account to meet the margin requirement and margin call, which resulted in a trading loss of nearly HK$50 million.
Comment
Lai’s conduct, which fell short of the standard set out in the Code of Conduct, casts doubts on his fitness and properness to be a licensed person.
In coming to the decision to prohibit Lai from re-entering the industry for 10 years, the SFC took into account all relevant circumstances, including the misconduct occurred five years ago in 2011.
Readers are reminded that, according to General Principle 1 of the Code of Conduct, a licensed person should act honestly, fairly, and in the best interests of its clients and the integrity of the market. Also, according to paragraph 7.1 of the Code of Conduct, written authorization must be obtained to manage discretionary account of clients.
For a copy of the Statement of Disciplinary Action, please refer to:
For further details, please refer to:
4. Market Misconduct Tribunal finds AcrossAsia Limited, its CEO and former chairman culpable of late disclosure of inside information
On 7 November 2016, the Market Misconduct Tribunal (“MMT”) today found that AcrossAsia Limited (“AcrossAsia”), its former chairman, Mr Albert Saychuan Cheok and chief executive officer, Mr Vicente Binalhay Ang failed to disclose inside information as soon as reasonably practicable as required under the Securities and Futures Ordinance (“SFO”) following proceedings brought by the SFC.
This is the first time the MMT made a finding of breaches of the new disclosure obligations imposed on listed companies since they became effective on 1 January 2013.
Background
AcrossAsia, Cheok and Ang admitted that they had been late in disclosing inside information about a petition filed by AcrossAsia’s subsidiary and major creditor, PT First Media Tbk, against AcrossAsia and a related summons. Cheok and Ang also admitted that they had been negligent which resulted in AcrossAsia’s breach of the disclosure requirement.
In late December 2012, PT First Media Tbk filed a petition under the Indonesian Law on Bankruptcy and Suspension of Obligation for Payment of Debts against AcrossAsia and the Central Jakarta District Court (“CJDC”) issued a summons to AcrossAsia. AcrossAsia did not disclose this information until 17 January 2013.
The SFC alleged that the failure of AcrossAsia, Cheok and Ang to ensure timely disclosure of these court documents had resulted in the investing public not knowing about the possible insolvency of AcrossAsia and the possible loss of control over its major asset, and consequentially, the material increase in financial risks faced by AcrossAsia at the time.
The SFC considers that listed corporations should disclose inside information that has come to their knowledge as soon as reasonably practicable. Timely disclosure of inside information is central to the orderly operation of the market and underpins the maintenance of a fair and informed market.
Comment
AcrossAsia failed or may have failed to disclose to the public inside information constituted by the “Petition for Suspension of Obligation for Payment of Debts” and the Summon dated 28 December 2012 by the CJDC as soon as reasonably practicable after the said inside information had come to its knowledge, contrary to section 307(B) of the SFO.
Cheok and Ang, both officers of AcrossAsia, were or may be guilty of reckless or negligent conduct in failing to ensure AcrossAsia’s compliance with its disclosure obligation, wherein such conduct resulted in the breach of a disclosure requirement by AcrossAsia. Cheok and Ang were accordingly also in breach of a disclosure requirement pursuant to section 307G(2)(a) of the SFO.
The MMT will hear from all parties concerning the orders to be imposed on AcrossAsia, Cheok and Ang on 11 November 2016.
More evidence and detail will be revealed in the upcoming hearing. Our newsletter will continue to follow up on the any further updates.
For a copy of the MMT report, please refer to:
http://www.mmt.gov.hk/eng/rulings/AcrossAsia_Ltd%20_22072015_e.pdf
For further details, please refer to:
5. Court of Final Appeal dismissed leave application of C.L. Management Services Limited and its sole owner
On 15 November 2016, the Court of Final Appeal (“CFA”) has dismissed C.L. Management Services Limited (“C.L. Management”) and its sole owner and director Ms Clarea Au Suet Ming’s application for leave to appeal against their convictions for holding out to provide advisory services on corporate finance without a licence from the SFC.
Background
On 29 April 2014, C.L. Management and Au were convicted on three holding out charges and fined HK$1.5 million. Au was also sentenced to a six months’ imprisonment suspended for 18 months. The Court of First Instance subsequently dismissed their appeals against the convictions.
C.L. Management and Au argued in their CFA leave application that there was an important question of law regarding whether the offence of holding out as carrying on a business of regulated activity without a licence under the Securities and Futures Ordinance requires proof of mental element.
Comment
The CFA held that there was no arguable basis for granting leave to appeal. It is found that the question of whether a conviction could be sustained without proof of mental element did not arise on the facts of this case.
Readers are reminded that under Section 114(1)(b) and 114(8) of the SFO, a person commits an offence when the person, without reasonable excuse, holds/held out as carrying on a business in a regulated activity without a licence. Readers are also reminder that breaching the SFO Section 114 (1) can result in a maximum penalty of a fine of HK$5 million and imprisonment for 7 years. In the case of a continuing offence, a further fine of HK$100,000 will be imposed on the offender for every day during which the offence continues.
For a copy of the determination statement, please refer to:
http://legalref.judiciary.gov.hk/lrs/common/ju/ju_frame.jsp?DIS=106745&currpage=T
For further details, please refer to:
6. SFC bans Derek Ong for 10 years
On 17 November 2016, the SFC has prohibited Mr Derek Ong, a former representative of Deutsche Securities Asia Limited, from re-entering the industry for 10 years from 17 November 2016 to 16 November 2026 for conspiring to manipulate the Korean Composite Stock Price Index 200 (“KOSPI200”) in November 2010.
Background
In February 2011, the Securities and Futures Commission in Korea took enforcement action against Deutsche Securities Korea Co. (“DSK”) for market manipulation through the exploitation of spot-futures and the setting up of speculative derivative position that benefited from the price fall of KOSPI200 during the closing auction period on 11 November 2010.
Ong was the managing director in charge of the Absolute Strategy Group (“ASG”), a subdivision of Global Market Equity of Deutsche Bank AG, for Asian region except Japan, in Hong Kong.
Around September 2010, ASG was brought to the attention that it should unwind its position in light of the balance sheet pressure of Deutsche Bank AG. Eventually, Ong decided to unwind the index arbitrage position of about KRW2,442.4 billion worth of constituent stocks of KOSPI200 during the closing auction period on 11 November 2010.
Instead of solely unwinding the index arbitrage position of Korean stocks, ASG put on a speculative derivative position of about KRW2,473.4 billion comprising short position in synthetic futures and long position in put options before the unwinding.
During the final minutes of trading, ASG successively submitted seven sell orders to dispose its holding of Korean stocks. The order prices for the sell orders were 4.5% or 10% lower than the stock prices before the closing auction period. These orders accounted for 90.5% of the total number of shares traded and 92.0% of the total KRW amount traded during the closing 2 auction period on 11 November 2010. As a result, KOSPI200 was driven down by 2.79%.
Traders of Deutsche Bank AG located in Hong Kong were found to have originated the manipulative order instructions. The manipulation was referred to the prosecution office in Korea to criminally prosecute DSK and the involved traders for violation of the Financial Investment Services and Capital Markets Act.
Following a trial at the Seoul Central District Court, DSK and a Korea-based trader, who executed the manipulative orders, were found guilty of manipulating KOSPI200 for the purpose of making illegal profits for Deutsche Bank AG and DSK. Deutsche Bank AG and DSK were ordered to forfeit about KRW43,695 million profit derived from the manipulative trades. The traders in Hong Kong were not convicted because of their absence from the trial. However, the Court concluded that the traders in Hong Kong conspired to manipulate KOSPI200. Korean trader were sentenced to five years of imprisonment and fined DSK KRW1.5 billion on 25 January 2016.
Ong was one of the traders in Hong Kong. He was responsible for the decision to liquidate the holding of Korean stocks, which caused KOSPI200 to fall 2.79%, and to establish an option position to profit from the KOSPI200 fall. His conduct has cast serious doubts on his fitness and properness to be a licensed person.
Comment
Given that Ong was instrumental to the violation of the manipulation law in Korea, the SFC is of the opinion that he is not a fit and proper person to be licensed.
Readers are reminded that, according to section 7.1.1 in the Fit and Proper Guidelines issued by the SFC, if an individual is convicted of a criminal offence or is the subject of unresolved criminal charges which are of direct relevance to fitness and properness, without proper and detailed explanation, the SFC is not likely to be satisfied that a person is fit and proper.
For a copy of the Statement of Disciplinary Action, please refer to:
For further details, please refer to:
http://www.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/doc?refNo=16PR121
7. SFC bans Benedict Ku Ka Tat for one year and fines him HK$150,000
On 21 November 2016, SFC has prohibited Mr Benedict Ku Ka Tat, a former employee of The Pride Fund Management Limited, from re-entering the industry for one year from 18 November 2016 to 17 November 2017 and fined him HK$150,000 for failings relating to his sale of a fund to a client.
Background
An SFC investigation revealed that when Ku recommended a fund to a client in 2008, he failed to provide her with material information on the commission she would be charged for investing in the fund and his personal benefit from the commission.
In March 2008, Ku introduced his friend, Client H, to the Fund. Unbeknown to the Client H, Ku received HK$93,600 as commission, equivalent to 12 percent of the client’s intended investment of HK$780,000.
Also, the SFC found that Ku has failed to ensure that the Fund was suitable to Client H. Apart from Ku’s informal understanding of Client H’s personal background as a friend, he did not conduct proper “know your client” process, including seeking adequate information from Client H to understand her financial situation, investment experience, investment objectives and risk tolerance.
Apart from Ku’s alleged understanding that Client H had investment experience and could bear higher risks, he did not appear to know Client H’s personal circumstances and financial situation. There was no formal assessment of whether the Fund was suitable to Client H in view of her personal circumstances. There were no documentary records of the rationale of his recommendation of the Fund to Client H, and why he considered the Fund to be suitable to her.
The SFC found that Ku failed to ensure that the fund he recommended was suitable for the client in view of her personal circumstances. Ku failed to conduct proper “know your client” process, including seeking adequate information about the client’s financial situation, investment experience, investment objectives and risk tolerance.
In deciding the penalty, the SFC took into account all relevant circumstances, including that this was a one-off incident.
Comment
Ku has breached multiple sections of the Code of Conduct, including:
- General Principle 2 (Diligence)
- General Principle 5 (Information for clients)
- Paragraph 3.4 (Advice to clients: due skill, care and diligence)
- Paragraph 5.2 (Know Your Client: Reasonable Advice)
Having considered all the circumstances, the SFC is of the view that Ku is not fit and proper to be a licensed person for the purpose of Section 194 of the SFO. Ku is banned for 1 year and fined for HK$150,000.
For a copy of the Statement of Disciplinary Action, please refer to:
For further details, please refer to:
8. SFC publicly censures Zheng Dunmu and imposes a cold-shoulder order for breach of the Takeovers Code
On 22 November 2016, the SFC has publicly censured and imposed a 24-month cold-shoulder order against Zheng Dunmu for breaching the mandatory general offer obligation of the Takeovers Code.
Background
At the relevant time, Zheng was chairman, executive director and a controlling shareholder of Changgang Dunxin Enterprise Company Limited and held a 56.25% interest in Changgang Dunxin indirectly through three companies wholly owned by him. Part of this interest was pledged to a lender as collateral for a loan.
On 23 February 2015, the lender sold the pledged shares, reducing Zheng’s indirect interest in Changgang Dunxin to 46.18%. Shortly after becoming aware of the disposals, Zheng personally acquired 1.01% and 2.97% of Changgang Dunxin on 26 and 27 February 2015 respectively. A mandatory general offer obligation under the Takeovers Code was triggered on 27 February 2015 as Zheng increased his interest in Changgang Dunxin to 50.16%, but no offer was made.
Zheng told the Executive Director of the SFC’s Corporate Finance Division or his delegate that he was not aware of the mandatory general offer obligation. He accepts that he has breached the Takeovers Code and deprived Changgang Dunxin’s shareholders of the right to receive a general offer for their shares. Zheng agreed to the current disciplinary action against him.
Zheng will be denied direct or indirect access to the Hong Kong securities market for a period of 24 months commencing on 22 November 2016 to 21 November 2018.
Comment
Readers are reminded that under Rule 26.1 (d) of the Takeovers Code, when two or more persons are acting in concert, and they collectively hold not less than 30%, but not more than 50%, of the voting rights of a company, and any one or more of them acquires additional voting rights and such acquisition has the effect of increasing their collective holding of voting rights of the company by more than 2% from the lowest collective percentage holding of such persons in the 12 month period ending on and inclusive of the date of the relevant acquisition, that person shall extend offers, on the basis set out in this Rule 26, to the holders of each class of equity share capital of the company, whether the class carries voting rights or not.
For a copy of the Executive Statement, please refer to:
For further details, please refer to:
http://www.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/doc?refNo=16PR123
9. SFC proposes to enhance asset management regulation and point-of-sale transparency
On 23 November, 2016, the SFC launched a three-month consultation on proposals to enhance the regulation of the asset management industry in Hong Kong to better protect investors’ interests and ensure market integrity.
Background
The SFC formulated the proposals following a review of the major international regulatory developments, and taking into account observations and views of industry stakeholders.
“A robust and responsive regulatory regime is fundamental to the development and growth of an international asset management centre. As part of the SFC’s broader initiative to enhance Hong Kong’s position as a major international asset management centre, it is important to ensure that our regulations are properly benchmarked to evolving international standards,” said Mr Ashley Alder, the SFC’s Chief Executive Officer.
The proposed changes will be made to the SFC’s Fund Manager Code of Conduct (“FMCC”) and the Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission (Code of Conduct). Details are set out in the consultation paper.
Comment
The key areas of enhancements under the FMCC are in respect of securities lending and repurchase agreements, custody of fund assets, liquidity risk management, and disclosure of leverage by fund managers.
The proposed changes to the Code of Conduct aim to address the potential conflicts of interest in the sale of investment products and enhance disclosure at the point-of-sale by:
(i) restricting an intermediary from representing itself as “independent” or using any term(s) with a similar inference if the intermediary receives commission or other monetary or non-monetary benefits or it has links or other legal or economic relationships with product issuers which are likely to impair its independence; and
(ii) requiring an intermediary to disclose the range and maximum dollar amount of any monetary benefits received or receivable that are not quantifiable prior to or at the point of sale.
CompliancePlus is currently looking into the consultation paper and would submit a detailed response to the SFC later.
For a copy of the consultation paper, please refer to:
http://www.sfc.hk/edistributionWeb/gateway/EN/consultation/openFile?refNo=16CP5
For further details, please refer to:
http://www.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/doc?refNo=16PR124
The article is for general information purpose only and is not intended to constitute legal or other professional advice.
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Regulatory News (Nov 2016)
/in Regulatory News /by Tony Chan- Market Misconduct Tribunal fines AcrossAsia Limited, its former chairman and CEO a sum of $2 million for late disclosure of inside information
- Mandatory online submission of individual licensing applications, notifications and annual returns
- Launch of Shenzhen-Hong Kong Stock Connect
- Joint Announcement of the China Securities Regulatory Commission and the Hong Kong Securities and Futures Commission
- SFC proposes to enhance asset management regulation and point-of-sale transparency
- SFC publicly censures Zheng Dunmu and imposes a cold-shoulder order for breach of the Takeovers Code
- SFC bans Benedict Ku Ka Tat for one year and fines him $150,000
- SFC bans Derek Ong for 10 years
- Court of Final Appeal dismissed leave application of C.L. Management Services Limited and its sole owner
- New speech by Ms Bénédicte Nolens: Fintech and Regtech: A Securities Regulator’s Perspective
- New speech by Thomas Atkinson: 7th Pan Asian Regulatory Summit
- Market Misconduct Tribunal finds AcrossAsia Limited, its CEO and former chairman culpable of late disclosure of inside information
- SFC hosts Regtech and Fintech Contact Day 2016
- SFC bans Lawrence Lai for 10 years
Newsletter – October 2016
/in Newsletter /by Tony Chan- SFC bans William Wong Yick Lok for three years
- SFC bans Chen Chia Hui for life
- SFC seeks compensation and disqualification orders against former and current directors of Freeman FinTech Corporation Limited
- SFC suspends Lo Tsz On for one year
- SFC reprimands and fines FXCM Asia Limited HK$4 million
- SFC reprimands and fines two JP Morgan Entities HK$5.6 million for regulatory breaches
- Market Misconduct Tribunal bans Andrew Left of Citron Research from trading securities in Hong Kong
- Takeover Panel upholds ruling on offer for L&A International
1. SFC bans William Wong Yick Lok for three years
On 3 October 2016, the SFC has prohibited Mr. William Wong Yick Lok (“Wong”), a former employee of Hang Seng Bank Limited (“Hang Seng Bank”), from re-entering the industry for three years from 30 September 2016 to 29 September 2019 following his conviction for forgery.
Background
The Court found that Wong, who was responsible for promoting insurance policy to customers of Hang Seng Bank at the material time, forged a customer’s signatures on an insurance application and a policy cancellation form without the customer’s knowledge.
Wong was sentenced to perform community service of 140 hours at the Fanling Magistrates’ Court on 10 December 2015 after his conviction for two counts of forgery under the Crimes Ordinance.
The affected customer had been compensated by Hang Seng Bank and received a refund of the paid premium of HK$2,054 for the insurance policy.
The case was referred to the SFC by the Hong Kong Monetary Authority.
Comment
The SFC considers that Wong is not a fit and proper person to be licensed or registered to carry on regulated activities as a result of his conviction and a 3-year ban on Wong is imposed.
Readers are reminded that, according to section 7.1.1 in the Fit and Proper Guidelines issued by the SFC, if an individual is convicted of a criminal offence or is the subject of unresolved criminal charges which are of direct relevance to fitness and properness, without proper and detailed explanation, the SFC is not likely to be satisfied that a person is fit and proper.
For further details, please refer to:
2. SFC bans Chen Chia Hui for life
On 5 October 2016, the SFC has banned Ms. Chen Chia Hui (“Chen”), a former employee of The Hongkong and Shanghai Banking Corporation Limited (“HSBC”), from re-entering the industry for life following her conviction for bribery.
Background
In May 2016, the District Court found that Chen, a relationship manager of HSBC at the material time, accepted a secret commission in the sum of HK$500,000 on 9 February 2013 as compensation for recommending and selling to a HSBC customer an insurance policy issued by a competitor. Chen also did not make it clear to the customer that the insurance policy was not a product of HSBC which was to the detriment of the bank’s interests.
Comments
Bribery is a serious criminal office and it can draw a maximum penalty of 7 years of imprisonment and a fine of HK$500,000 and Chen was sentenced by the District Court on 6 May 2016 to 18 months of imprisonment for contravening sections 9(1)(a) and 12(1) of the Prevention of Bribery Ordinance.
The SFC considers Chen is not a fit and proper person to be licensed or registered to carry on regulated activities as a result of her conviction.
Readers are reminded that, according to section 7.1.1 in the Fit and Proper Guidelines issued by the SFC, if an individual is convicted of a criminal offence or is the subject of unresolved criminal charges which are of direct relevance to fitness and properness, without proper and detailed explanation, the SFC is not likely to be satisfied that a person is fit and proper.
For a copy of the Reason of Sentence (Only Traditional Chinese version is available), please refer to:
For further details, please refer to:
3. SFC seeks compensation and disqualification orders against former and current directors of Freeman FinTech Corporation Limited
On 7 October 2016, the SFC has commenced legal proceedings in the Court of First Instance to seek disqualification orders against 10 former and current directors of Freeman FinTech Corporation Limited (“Freeman”), including managing director, Mr. Quincy Hui Kwong Hei (“Hui”), and former non-executive director, Mr. Andrew Liu (“Liu”), for breaching their director duties in Freeman’s acquisition and disposal of a stake in Liu’s Holdings Limited (“Liu’s Holdings”).
The SFC alleges that, as a consequence, Hui and Liu caused Freeman to suffer loss and damage. The SFC is seeking a court order that Hui and Liu pay HK$76,812,543.58 as compensation to Freeman.
Background
The other eight former and current Freeman directors involved in the legal proceedings are: Mr. Lo Kan Sun, Ms. Sue Au Shuk Yee, Mr. Philip Suen Yick Lun, Mr. Scott Allen Phillips, Mr. Agustin V Que, Mr. Roger Thomas Best, Mr. Gary Drew Douglas, and Mr. Peter Temple Whitelam.
The SFC’s action follows its investigation into the acquisition in January 2011 (“Acquisition”) and subsequent disposal in July 2011 (“Disposal”) of a 24.43% interest in Liu’s Holdings by Ambition Union Limited (“Ambition”), a subsidiary of Freeman, which caused a loss of HK$76,812,543.58 to Freeman/Ambition.
The SFC alleges that Liu and Hui caused Freeman to indirectly buy a stake in Liu’s Holdings in disregard of the ability of other Liu family members to object to the purchase. The other Liu family members did object and Freeman could not complete the acquisition and sold the interest back at a loss.
Specifically, the SFC alleges that the 10 directors have:-
- failed to act in good faith and in the best interests of Freeman including a duty to disclose relevant material information to Freeman and its shareholders;
- allowed or caused false or misleading statements in Freeman’s announcements and circulars relating to the Acquisition and Disposal;
- failed to exercise reasonable care, skill and diligence in procuring or allowing Ambition to enter into the Acquisition and/or the Disposal; and
- failed to take steps to pursue Liu and/or others for the loss suffered by Ambition/Freeman.
Furthermore, Liu failed to disclose to Freeman and its shareholders that the Acquisition was opposed by some shareholders of Liu’s Holdings and the Disposal was motivated by self-interest and/or the interest of his parents, rather than the interest of Freeman.
Hui was responsible for discussing and liaising with Liu for the Acquisition and Disposal. He failed to make full and proper inquiries with Liu as to the stance of the other shareholders of Liu’s Holdings before procuring Freeman’s shareholders to approve the Acquisition.
Comments
The legal proceedings were commenced under section 214 of the SFO. Pursuant to section 214 of the SFO, the court may:-
- make orders disqualifying a person from being a company director or being involved, directly or indirectly, in the management of any corporation for up to 15 years, if the person is found to be wholly or partly responsible for the company’s affairs having being conducted in a manner involving defalcation, fraud or other misconduct.
- Order a company to bring proceedings in its own name against any person specified in the order and may make any other order it considers appropriate.
The first hearing of the petition filed by the SFC under section 214 of the SFO will be heard in the Court of First Instance on 24 February 2017.
More evidence and detail will be revealed in the upcoming proceeding of the case. Our newsletter will continue to follow up on any further updates.
For further details, please refer to:
4. SFC suspends Lo Tsz On for one year
On 12 October 2016, the SFC has suspended Mr. Lo Tsz On (“Lo”) for one year from 12 October 2016 to 11 October 2017 following his conviction for fraud.
Background
The Magistrates’ Court found that Lo fraudulently presented three false entertainment claim forms to his then employer, Core Pacific-Yamaichi International (H.K.) Limited (“CPY”), in which he overstated the amount of money he had spent on team meals in 2012 and 2013. This caused CPY to reimburse HK$3,430 more to Lo than he had actually spent.
The case was referred to the SFC by the Independent Commission Against Corruption.
Comments
The SFC considers Lo’s conviction has called into question his fitness and properness as a licensed person.
According to section 7.1.1 in the Fit and Proper Guideline by the SFC, if an individual is convicted of a criminal offence or is the subject of unresolved criminal charges which are of direct relevance to fitness and properness, without proper and detailed explanation, the SFC is not likely to be satisfied that a person is fit and proper.
Readers are reminded that fraud is a form of criminal offense contrary to section 16A of the Theft Ordinance. Individuals who are convicted are subjected to a maximum of 14 years’ imprisonment.
For further details, please refer to:
5. SFC reprimands and fines FXCM Asia Limited HK$4 million
The SFC has reprimanded and fined FXCM Asia Limited (“HK FXCM”) (now known as Rakuten Securities Hong Kong Limited) HK$4 million for regulatory breaches in relation to its order execution practice for foreign exchange (Forex) trading.
Background
An SFC investigation found that from December 2006 to December 2010, HK FXCM and its affiliate kept profits totalling US$1,452,926.69 from favourable price movements in Forex trading that occurred between receipt of client orders and execution of orders, while unfavourable price movements were passed on to clients.
HK FXCM admitted the existence of Asymmetric Treatment of Slippage in the order execution practice of the FXCM Group including HK FXCM during the Relevant Period. HK FXCM acknowledged that when there was a Negative Slippage, the client would receive the worse price, whereas when there was a Positive Slippage, the client would receive the originally requested price. A total of 3,739 accounts of HK FXCM were affected.
The SFC considers that HK FXCM did not treat its clients fairly, and failed to execute their orders on the best available terms and to act in their best interests as required by the Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission (“Code of Conduct”).
HK FXCM also inaccurately represented to its clients that their orders would be executed at the best available prices when in practice. HK FXCM made representations in its website and email notification to its clients that it maintained a model whereby it sourced Forex pricing from external liquidity providers and that the orders would be executed at the next best market price. HK FXCM’s clients were deprived of receiving benefits of price improvements in relation to their trades.
The SFC further found that HK FXCM did not have proper internal policies and controls in place to ensure its order execution practice effectively complied with all regulatory requirements applicable to a licensed corporation.
The Compliance Manuals of HK FXCM which were effective between the Relevant Period did not have specific provisions governing best execution, client order handling or dealing practice.
In deciding the sanctions, the SFC took into account that HK FXCM:
- co-operated with the SFC in resolving the SFC’s concerns;
- has voluntarily agreed to make full restitution to the affected clients in the amount of US$1,452,926.69;
- is now under new ownership of which 100% shares are held by Rakuten Securities, Inc. in Japan from September 2015 and the failures were attributable to the former management of HK FXCM which has been replaced; and
- has no previous disciplinary record with the SFC.
Comment
HK FXCM has breached multiple paragraphs and General Principles stated in the Code of Conduct:
- General Principle 1 (Honesty and fairness)
- General Principle 2 (Diligence)
- General Principle 3 (Capabilities)
- Paragraph 2.1 (Accurate representations)
- Paragraph 3.2 (Best execution)
- Paragraph 3.10 (Best interests of clients)
- Paragraph 4.3 (Internal control, financial and operational resources)
- Paragraph 12.1 (Compliance: in general)
Readers are reminded that “best execution” and “best interests of clients” are two very important principle as a license corporation or representative. Adequate internal control policies have to be implemented to ensure “best execution” and “best interests” of clients are followed during operation. Readers should also pay attention that statements made on website and in emails must be accurate and executed in accordance to the statements.
For a copy of the Statement of Disciplinary Action, please refer to:
For further details, please refer to:
6. SFC reprimands and fines two JP Morgan Entities HK$5.6 million for regulatory breaches
On 20 October 2016, SFC has reprimanded J.P. Morgan Securities (Asia Pacific) Limited (“JPMSAP”) and JPMorgan Chase Bank, National Association (“JPMCB”), and fined them HK$3 million and HK$2.6 million respectively for regulatory breaches including disclosure failures in research reports and offering offshore listed index options without the required licences.
Background
Failure to disclose JP Morgan’s financial interest in research reports
An SFC investigation revealed that JPMSAP failed to disclose JP Morgan’s financial interests in respect of certain listed issuers covered in its research reports. The failure was caused by deficiencies in JP Morgan’s global securities position reporting system which failed to include stock borrow and options positions in the calculation of positions in relevant securities. The deficiencies were first identified by JP Morgan in the US in October 2013 and brought to JPMSAP’s attention in January 2014.
Despite the SFC’s enquiries, it is unclear precisely when JP Morgan’s system failed to capture stock borrow and options in its calculation of the firm’s financial interests. Given that the macro that failed to include options in the relevant position calculations had been in use since at least 2010, it appears that there might have been deficiencies in JP Morgan’s system since at least 2010.
Also, the standard disclosure clause that should be included at the end of all its equity research reports, irrespective of whether JP Morgan made a market in the relevant securities or whether the research reports involved securities traded or to be traded in Hong Kong did not disclose whether the firm made or would make a market in the securities covered in the research report at all. It merely informed investors the possibility that JP Morgan might be a liquidity provider or market maker in respect of such securities, and that investors could ascertain this fact from the HKEX website.
Offering of offshore index options without Type 2 and/or Type 5 registration
In a separated investigation, the SFC found that during the Relevant Period, JPMCB offered certain Index Options (which the SFC considers to be futures contracts for the purpose of the SFO) to its clients without a Type 2 (dealing in futures contracts) and/or Type 5 (advising on futures contracts) registration. During an internal compliance review in June 2015, JPMCB obtained preliminary advice from external counsel to the effect that the offering of the Index Options to the clients would require a Type 2 and/or Type 5 registration. JPMCB has ceased to offer the Index Options to its clients since
23 July 2015.
JPMCB executed 708 transactions concerning these Index Options for 37 clients involving premium of about US$90 million during the Relevant Period (169 of these transactions were executed for 24 Hong Kong contracting clients).
Delay in reporting breaches to the SFC
JPMSAP and JPMCB did not report the breaches or suspected breaches to the SFC in a timely manner as required under the Code of Conduct. In both instances, JP Morgan self-reported the breaches to the SFC around five months after discovery of the breaches.
In determining this disciplinary action, the SFC took into account that:
- JPMSAP and JPMCB co-operated with the SFC in resolving the SFC’s concerns;
- JP Morgan has taken remedial measures to rectify the deficiencies in its securities position reporting system; and
- JPMCB has stopped offering offshore listed index options to clients.
Comment
JPMSAP has breached multiple sections of the Code of Conduct, including:
- General Principle 7 (Compliance)
- Paragraph 12.1 (Compliance: in general)
- Paragraph 16.5(a) (Disclosure by firms of relevant financial interest)
- Paragraph 16.5(b) (Disclosure by firms of relevant market making activities)
JPMCB has breached the SFO Section 114 (1) for carrying out business in regulated activities without relevant license.
JPMSAP and JPMCB both delayed their notification of the incident to the SFC, therefore both of the entities are in breach of Paragraph 12.5 (Notification to the Commission) of the Code of Conduct.
Readers are reminded that it is required to notify the commission immediately once a material breach is spotted. Readers are also reminder that breaching the SFO Section 114 (1) can result in a maximum penalty of a fine of HK$5 million and imprisonment for 7 years. In the case of a continuing offence, a further fine of HK$100,000 will be imposed on the offender for every day during which the offence continues.
For a copy of the Statement of Disciplinary Action, please refer to:
For further details, please refer to:
7. Market Misconduct Tribunal bans Andrew Left of Citron Research from trading securities in Hong Kong
On 20 October 2016, The Market Misconduct Tribunal (“MMT”) has ordered that Mr Andrew Left of Citron Research be banned from trading securities in Hong Kong for the maximum period of five years without the leave of the court after finding him culpable of disclosing false or misleading information inducing transactions under the SFO in the publication of a research report on Evergrande Real Estate Group Limited (“Evergrande”) in June 2012.
Background
On 21 June 2012, Left published a report on Citron Research’s website (www.citronresearch.com) that contained false or misleading information about Evergrande. The report stated that Evergrande was insolvent and had consistently presented fraudulent information to the investing public.
The SFC commenced proceeding in the MMT in 2014 against Left.
On 26 August 2016, the MMT has found that Mr Andrew Left of Citron Research disclosed false or misleading information inducing transactions and so engaged in market misconduct under Section 277 of the SFO following proceedings brought by the SFC.
Comment
The MMT has issued a cease and desist order against Left. Left shall not again perpetrate the market misconduct specified in the order.
Left is also ordered to disgorge his profit of HK$1,596,240 from shorting shares of Evergrande and to pay the SFC investigation and legal costs.
Readers are reminded that under section 257(1)(b) of the SFO, a cold shoulder order is an order that the person shall not, without the leave of the Court of First Instance, in Hong Kong, directly or indirectly, in any way acquire, dispose of or otherwise deal in any securities, futures contract or leveraged foreign exchange contract, or an interest in any securities, futures contract, leveraged foreign exchange contract or collective investment scheme for the period (not exceeding five years) specified in the order.
For further details, please refer to:
8. Takeover Panel upholds ruling on offer for L&A International
On 12 October 2016, The Takeovers and Mergers Panel (“Takeovers Panel”) has upheld the ruling of the Takeovers Executive in relation to an offer for the shares of L&A International Holdings Limited.
Background
On 22 July 2016 Favourite Number Limited (“the Offeror”) informed L&A’s board of directors that it intended to make an offer for the shares of L&A with a combination of cash and securities as consideration. It subsequently came to light that in early July a concert party of the offeror had dealt in L&A shares prior to the approach. As a result the Takeovers Executive required the Offeror to match the terms of its offer so that the consideration offered for each L&A share would have a value of at least equal to the highest purchase price paid by the concert party. The offer was publicly announced on 18 August 2016 on this basis.
Subsequently, L&A made an application requesting the Takeovers Executive to rule that the offer did not comply with the Code on Takeovers and Mergers (“Takeovers Code”) and should be altered so that the consideration offered to shareholders reflected the same ratio of cash to securities as contained in the offeror’s earlier private letter to L&A’s board. The Takeovers Executive ruled that the consideration offered already complied with the Takeovers Code as the purchases were made before the terms of the offer had been publicly announced. L&A applied to the panel to review the ruling.
On 22 September 2016 the panel met to consider the matter and upheld the Takeovers Executive’s decision and concluded that there is no basis to alter the offer in the way as requested by L&A. The panel agreed with the Takeovers Executive’s ruling that the requirement to maintain the same ratio of cash to securities as requested by L&A only arises under the Takeovers Code if a concert party has purchased shares after the formal announcement of an offer.
Comment
Readers are reminded that under Rule 24.2 of the Takeovers Code, if an offer involves a combination of cash and securities and further purchases of the offeree company’s shares oblige the Offeror to increase the value of the offer, the Offeror must endeavour, as far as practicable, to effect such increase while maintaining the same ratio of cash to securities as is represented by the offer.
For a copy of the Takeovers Panel’s decision, please refer to:
For further details, please refer to:
http://www.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/doc?refNo=16PR101
The article is for general information purpose only and is not intended to constitute legal or other professional advice.
Receipt of this newsletter indicates that CompliancePlus has been using your email address to market to you the compliance services that CompliancePlus is able to provide you.
CompliancePlus provides compliance consulting services to financial companies, hedge fund managers and individuals. Our dedicated team of compliance officers has years of professional experience equipped with in-depth knowledge of both functional and compliance experience in managing and minimizing regulatory, operational and reputational risks. By partnering with CompliancePlus, our clients gain access to compliance solutions that they can trust and the latest knowledge of regulatory policies and procedures.
For enquiries, please email: [email protected] or call at +852-3487 6903.
To subscribe, update your email address or unsubscribe, please email [email protected]
Newsletter – September 2016
/in Newsletter /by Tony Chan- SFC notifies the industry of anti-money laundering concerns
- SFC reprimands and fines BNP Paribas Wealth Management HK$4 million
- SFC bans Chau Hang Yu and Steve Chow Chun Yin for life following their criminal convictions
- SFC commences MMT proceedings against former CEO of China AU and related parties for false trading
- SFC reprimands and fines HSBC HK$2.5 million for regulatory breaches
- SFC issues Restriction Notice to a broker to stop two clients from withdrawing shares and transferring money connected with suspected insider dealing
- SFC launches public consultation regarding proposal to enhance position limit regime
1. SFC notifies the industry of anti-money laundering concerns
On 21 September, the SFC announced that the Enforcement Division is investigating a number of cases of SFC licensed brokerages with suspected inadequate anti-money laundering (“AML”) internal controls and it expects to bring a number of enforcement proceedings as a result.
Background
On 21 September 2016, the SFC wanted to draw the attention of licensees that they are expected to enhance their AML internal controls immediately as they have had ample time to develop their internal controls since the Anti-Money Laundering and Counter-Terrorist Financing (Financial Institutions) Ordinance (“AMLO”) and the SFC Guideline on Anti-Money Laundering and Counter-Terrorist Financing (“Guideline”) came into force in 2012.
During the SFC’s onsite inspections of licensees and AML investigations, the SFC identified the following areas of concern:
- failure to scrutinise cash and third party deposits into customer accounts
- ineffective monitoring of transactions in customer accounts
- failure to take adequate measures to continuously monitor business relationships with customers which present a higher risk of money laundering
- inadequate enquiries made to assess potentially suspicious transactions to determine whether or not it is necessary to make a report to the Joint Financial Intelligence Unit, and lack of documentation of the assessment results
- failure to monitor and supervise the ongoing implementation of anti-money laundering and counter-terrorist financing policies and procedures
Comment
The AMLO and Guideline require SFC licensees to conduct due diligence on customers before the start of a business relationship and as it continues to ensure that licensees understand who their clients are and what business they do and to monitor for transactions that are inconsistent with their identity and business so as to be able to identify transactions that may be used to launder the proceeds of crime or finance terrorism.
Since licensees are vulnerable to being used to launder the proceeds of crime and to finance terrorism, the SFC relies on them to implement effective AML measures to prevent and detect these criminal activities and expects them to take their AML responsibilities seriously.
Readers are reminded that when corporations are found to contravene the AMLO, they are liable to a maximum term of imprisonment of 2 years and a fine of HK$ 1 million. Also, if corporations are found to contravene the AMLO with intention to defraud the relevant authorities, they are liable to a maximum term of 7 years imprisonment and a fine of HK$ 1 million upon conviction. They are advised to conduct regular review on their AML process.
For further details, please refer to:
http://www.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/doc?refNo=16PR95
2. SFC reprimands and fines BNP Paribas Wealth Management HK$4 million
On 31 August 2016, the SFC reprimanded and fined BNP Paribas Wealth Management (“BNPPWM”) HK$4 million for overcharging its clients between 1 January 2011 and 31 December 2013.
Background
In September 2013, BNPPWM reported to Hong Kong Monetary Authority (“HKMA”) and the SFC about monetary benefits it received from certain “back-to-back transactions” with its clients might have exceeded the levels set out in its documentation provided to the clients.
Later, the SFC’s investigation found that at the material time, BNPPWM received different levels of monetary benefits from client transactions in different product categories and clients were provided with documentation that indicated the levels of monetary benefits BNPPWM would charge for each product category. BNPPWM overcharged from around 2,300 client transactions and the total overcharged amount was around HK$9.5 million. The affected transactions covered different types of investment products, including equities, bonds, structured products, options, swaps and funds.
Comments
BNPPWM’s conduct was in breach of General Principle 2 and paragraph 2.2 of the Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission (“Code of Conduct”) for not acting in the best interests of its clients, and failed to exercise due skill, care and diligence to ensure the monetary benefits it received from client transactions were fair and reasonable, and in accordance with its representations to the clients.
In determining the sanction, the SFC considers that the level of fine would have been higher but for the followings:
- BNPPWM agreed to engage an independent reviewer to review and ensure all overcharged amounts are returned to the affected clients;
- BNPPWM has repaid all overcharged amounts received from current clients and is in the process of repaying former clients, which no longer retain an account with BNPPWM;
- BNPPWM self-reported the matter to the SFC and HKMA;
- BNPPWM proactively co-operated with the SFC in resolving the concerns; and
- BNPPWM has an otherwise clean disciplinary record.
Readers are reminded that license corporation shall clearly state the required charges, mark-ups and fees affecting a client and charge the clients according to the agreed charge. Proper internal control shall also be implemented to ensure that no discrepancy occurred.
For a copy of the Statement of Disciplinary Action, please refer to:
For a further detail, please refer to:
3. SFC bans Chau Hang Yu and Steve Chow Chun Yin for life following their criminal convictions
On 7 September 2016, the SFC banned Ms Chau Hang Yu and Mr Steve Chow Chun Yin, both former employees of The Hongkong and Shanghai Banking Corporation Limited (“HSBC”), from re-entering the industry for life following their criminal convictions.
Background
The District Court found that Chau and Chow, both of whom were responsible for selling and promoting investment products at HSBC and knew one another at the material times, made false claims in 2012 and 2014 that certain HSBC customers had agreed to subscribe for unit trust funds (“UTFs”). They received sales commission after HSBC processed the subscription orders in the belief that they had sold the UTFs to the customers when in fact it was not the case.
The District Court also found that Chau referred her customers to Chow so that he could obtain more sales commission after she had reached the cap for receiving sales commission. Chau later asked Chow for customer referral fees. He gave her HK$100,000.
The SFC considers Chau and Chow are not fit and proper persons to be licensed or registered to carry on regulated activities as a result of their convictions.
Comments
Chau (formerly known as Aixingero Chat Yung) and Chow were relevant individuals engaged by HSBC to carry on Type 1 (dealing in securities) and Type 4 (advising on securities) regulated activities under the Securities and Futures Ordinance. Both Chau and Chow are currently not registered with the Hong Kong Monetary Authority or licensed by the SFC.
On 23 February 2016, Chau was sentenced to 12 months of imprisonment after her conviction for two counts of fraud under the Theft Ordinance. Chow was sentenced to 18 months of imprisonment after his conviction for two counts of fraud under the Theft Ordinance and one count of offering an advantage to an agent under the Prevention of Bribery Ordinance.
According to General Principle 1 of the Code of Conduct, a licensed or registered person should act honestly, fairly and in the best interests of its clients and the integrity of the market.
Based on Paragraph 6.1.1 (b) of the SFC Fit and Proper Guidelines, the licensed person or registered person is not seen as fit and proper when that person has evidenced incompetence, negligence or mismanagement, which may be indicated by the person having been disciplined by a professional, trade or regulatory body; or dismissed or requested to resign from any position or office for negligence, incompetence or mismanagement.
In this case, Chau and Chow have made false representation on the subscription results of the UTFs to their former employer, HSBC. Such dishonest acts are served as evidence for both parties who violated General Principle 1 of the SFC Code of Conduct with impact on mistrust from the public towards the Fund Management industry. They are also not fit and proper as described in Paragraph 6.1.1 (b) of the SFC Fit and Proper guideline as a result of their convictions from the District Court.
Therefore, readers are reminded that a licensed person or relevant individual should perform his/her regulated activities with integrity and diligence. Otherwise, not only the wrongdoer’s license will be suspended, he/she may also be subject to certain criminal liabilities like this case.
Although HSBC was not subject to any liabilities in this case, this incident has also reminded HSBC and other licensed corporate or authorized financial institution to conduct adequate internal control and policy in order to ensure the staff is fit and proper in order to satisfy the above regulatory requirements and also Paragraph 4 of the SFC Code of Conduct. For instance, on-boarding and regular training should be conducted to licensed or registered staff relevant to the SFC requirements.
For a copy of the Reasons for Sentence in this Case (Case No: DCCC 130/2015), please refer to:
For further details, please refer to:
4. SFC commences MMT proceedings against former CEO of China AU and related parties for false trading
On 9 September 2016, the SFC announced that it has commenced proceedings in the Market Misconduct Tribunal (“MMT”) against Ms Samantha Keung Wai Fun, former CEO of China AU Group Holdings Limited (“China AU”), Ms Wu Hsiu Jung and Mr Chen Kuo-chen, for false trading in the shares of China AU.
Background
China AU, now known as Skynet Group Limited, has been listed on the Growth Enterprise Market of The Stock Exchange of Hong Kong Limited (“SEHK”) since 19 February 2002.
Between August 2009 and March 2010, China AU launched two fundraising exercises to finance the proposed acquisition of a property to set up a training institute for beauticians in the Mainland and for general working capital purposes.
In between the two fund raising exercises conducted by China AU, Wu and Chen traded substantial amounts of China AU shares, using 14 securities accounts in the names of themselves and others. Keung provided a majority of funding for Wu and Chen’s China AU trades.
The SFC alleges that Keung assisted or connived with Wu and/or Chen to create a false or misleading appearance of active trading or with respect to the market for, or the price for dealings in China AU shares which supported and/or benefited China AU’s fundraising.
Comments
Readers are reminded that false trading is a form of market misconduct and a contravention of section 274 of the SFO. Such breach may result in civil sanctions on people who are found to have engaged in false trading by the MMT.
For a copy of the SFC’s Notice to the MMT, please refer to:
http://www.mmt.gov.hk/eng/rulings/SkyNet_Group_Limited_09092016_e.pdf
For further details, please refer to:
5. SFC reprimands and fines HSBC HK$2.5 million for regulatory breaches
On 14 September 2016, the SFC reprimanded and fined HSBC HK$2.5 million for regulatory breaches and internal control failings related to position limit failures.
Background
The disciplinary action follows an SFC investigation into the holding by HSBC of open positions in Hang Seng China Enterprises Index (“HSCEI”) futures and options contracts in breach of the prescribed limit on 18 occasions from 26 May to 1 August 2014.
It was found that HSBC has no staff responsible for monitoring the positions of HSCEI related products entered into the house account. There was also no centralized intra-day monitoring of HSBC’s positions in Hong Kong Futures Exchange’s (“HKFE”) listed products. No position limit monitoring systems and controls were introduced in the daily operational processes either.
Specifically, the SFC found that:
- HSBC failed to identify its position limit breaches promptly;
- there was a lack of adequate knowledge within HSBC regarding HSBC’s position limits and its state of compliance with the relevant regulatory requirements; and
- HSBC lacked policies or procedures in place for position limit monitoring of HKFE’s futures and options contracts and failed to implement any position monitoring control over these contracts.
The SFC concludes that HSBC was in breach of the SFC’s Code of Conduct for failing to implement adequate internal controls to monitor its positions in HKFE’s futures and options contracts to ensure compliance with the prescribed position limit and breaching on multiple occasions on the prescribed position limit for HSCEI futures and options contracts.
Comments
In deciding the penalty, the SFC has taken into account that HSBC has since taken steps to improve its internal controls on monitoring of position limit and co-operated with the SFC in resolving the SFC’s concerns.
Readers are reminded that Section 4(1) of the Securities and Futures (Contracts Limits and Reportable Positions) Rules provides that no person, except persons authorized by the SFC or the Hong Kong Exchanges and Clearing Limited, may hold or control futures contracts or stock options contracts in excess of the prescribed limit. Each type of future contracts would have its own limit. For further details, please refer to https://www.hkex.com.hk/eng/market/dv_tradfinfo/lop.htm
Readers are also reminded that under General Principles 3 and 7 of the Code of Conduct, a registered institution is required to have and employ effectively the resources and procedures which are needed for the proper performance of its business activities and to comply with all regulatory requirements applicable to the conduct of its business activities respectively.
Under Paragraph 12.1 of the Code of Conduct, a registered institution is required to comply with and maintain appropriate measures to ensure compliance with all applicable regulatory law, rules, regulations and codes administered or issued by the SFC, exchanges, clearing houses and other regulatory authorities which apply to the registered institution.
For a copy of the Statement of Disciplinary Action, please refer to:
For further details, please refer to:
6. SFC issues Restriction Notice to a broker to stop two clients from withdrawing shares and transferring money connected with suspected insider dealing
On 20 September 2016, the SFC issued a Restriction Notice to BOCI Securities Limited (“BOCI”) prohibiting it from processing shares and/or money held in two client accounts that hold the proceeds of suspected insider dealing.
Background
BOCI is not subject to the SFC’s investigation into suspected insider dealing and the Restriction Notice does not affect BOCI’s operations or its other clients. BOCI has rendered full assistance to the SFC during the investigation.
The SFC considers that the issue of the Restriction Notice, which prevents dissipation of the suspected proceeds of insider dealing held in the two accounts, is desirable in the interest of the investing public or in the public interest.
Comment
The Restriction Notice is issued under sections 204 and 205 of the SFO. These two sections of the SFO allows the SFC to prohibit a licensed corporation from processing any instructions from clients or anyone authorized to operate the involved accounts with respect to the shares of a Hong Kong-listed company, including: (i) withdrawing the shares and/or transferring monies arising from the disposal or the cancellation of the shares; and/or (ii) disposing or dealing with the shares. Licensed corporation is also required to notify the SFC upon receipt of any of these instructions.
Readers are reminded that insider dealing is a very serious criminal offence. The maximum criminal sanctions were increased by the SFO to a maximum of 10 years’ imprisonment and fines of up to HK$10 million. In addition, the court may make disqualification, cold shoulder and disciplinary referral orders. Failure to comply with a disqualification or cold shoulder order is an offence liable to a maximum fine of HK$1 million and up to 2 years’ imprisonment.
For further details, please refer to:
7. SFC launches public consultation regarding proposal to enhance position limit regime
On 20 September 2016, the SFC launched a consultation proposing enhancements to the position limit regime to expand its scope and make it more responsive to financial market developments.
Background
The proposed policy changes to the position limit regime includes: –
- To raise the cap on the excess position limit that may be granted under the existing Client Facilitation Excess Position Limit from 50% to 300% and tighten one of the financial requirements for applicants
- To introduce an ETF Market Maker Excess Position Limit
- To introduce an Index Arbitrage Activity Excess Position Limit
- To introduce an Asset Manager Excess Position Limit, and asset managers who satisfy the following conditions are eligible for the excess position limit: –
- Be an intermediary licensed or registered for Type 9 regulated activity under the SFO and its total value of assets under management should be no less than HK$100 billion;
- Must demonstrate that it has a genuine business need to use HSI and HHI futures and options contracts to facilitate its asset management activity; and
- Has effective internal control procedures and risk management systems to manage the potential risks arising from the excess position.
- To increase the position limit for stock options contracts to 150,000
The proposal aims at ensuring a proper balance is struck between maintaining financial stability and facilitating market development. It is expected to make the position limit regime more responsive to changing developments in the financial market.
Comment
Under the existing position limit regime, an Exchange Participant or its affiliate may seek authorization from the SFC to hold or control Hang Seng Index and Hang Seng China Enterprises Index futures and options contracts in excess of the statutory limit for the purposes of hedging risks that arise in the course of providing services to clients. The current cap on the excess that may be authorized by the SFC is 50% of the statutory limit.
The initiative of the SFC to raise the cap from 50% to 300% is to encourage market participants to establish more of their derivative positions on the exchange markets. The SFC believes that this will not only result in greater market transparency but also enable the SFC to better assess the potential implications on market stability. The SFC also expressed that they will regularly review the position limits to ensure they remain appropriate and would not hinder market development.
Apart from raising the cap on excess position limit that may be granted under the existing Client Facilitation Excess Position Limit, the proposal has proposed a few more important changes. CompliancePlus is currently looking into the consultation paper and would publish a detailed response to the SFC in late October.
For a copy of the consultation paper, please refer to:
http://www.sfc.hk/edistributionWeb/gateway/EN/consultation/openFile?refNo=16CP3
For further details, please refer to:
http://www.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/doc?refNo=16PR93
The article is for general information purpose only and is not intended to constitute legal or other professional advice.
Receipt of this newsletter indicates that CompliancePlus has been using your email address to market to you the compliance services that CompliancePlus is able to provide you.
CompliancePlus provides compliance consulting services to financial companies, hedge fund managers and individuals. Our dedicated team of compliance officers has years of professional experience equipped with in-depth knowledge of both functional and compliance experience in managing and minimizing regulatory, operational and reputational risks. By partnering with CompliancePlus, our clients gain access to compliance solutions that they can trust and the latest knowledge of regulatory policies and procedures.
For enquiries, please email: [email protected] or call at +852-3487 6903.
To subscribe, update your email address or unsubscribe, please email [email protected]
Regulatory News (Oct 2016)
/in Regulatory News /by Tony Chan- SFC revokes licences of Richmond Asset Management Limited and its responsible officer Graham Frank Bibby and bans him for 10 years
- Process Review Panel Report 2015-2016
- Court convicts Gold Root Global Investments Limited of unlicensed dealing
- SFC hosts IOSCO Board meeting in Hong Kong
- Market Misconduct Tribunal bans Andrew Left of Citron Research from trading securities in Hong Kong
- SFC reprimands and fines two JP Morgan entities HK$5.6 million for regulatory breaches
- SFC welcomes re-appointment of Non-Executive Director
- Takeovers Panel upholds ruling on offer for L&A International
- SFC suspends Lo Tsz On for one year
- SFC seeks compensation and disqualification orders against former and current directors of Freeman FinTech Corporation Limited
- SFC bans Chen Chia Hui for life
- SFC bans William Wong Yick Lok for three years
Apple Daily article on best performing IPO in the world
/in Media Coverage /by Tony Chan- 半新股貨源歸邊歷來最勁 聯旺累升64倍 冠絕全球新股 (2016-10-13)