Newsletter – January 2017
/in Newsletter /by Tony Chan- Market Misconduct Tribunal finds Greencool’s former chairman and senior executives culpable of market misconduct
- SFC reprimands and fines MIS Services Limited (formerly known as Standard Chartered Investment Services Limited) HK$3 million for regulatory breaches
- SFC bans Cheung Kwan Po for six months
- SFC reprimands and fines Chang Chyi
- SFC bans Choi Siu Ki for nine months
- Court of Appeal dismisses leave application of Citron Research’s Andrew Left
1. Market Misconduct Tribunal finds Greencool’s former chairman and senior executives culpable of market misconduct
On 30 December 2016, the Market Misconduct Tribunal (“MMT”) has found that the former chairman and chief executive officer of Greencool Technology Holdings Limited, Mr Gu Chujun, and four former senior executives (including its former financial controller) disclosed false or misleading information inducing transactions and so engaged in market misconduct under the SFO following proceedings brought by the SFC.
For a copy for the MMT Report, please refer to:
http://www.mmt.gov.hk/eng/reports/Greencool_Technology_Holdings_Limited_Report_e.pdf
For more details, please refer to:
http://www.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/enforcement-news/doc?refNo=16PR148
2. SFC reprimands and fines MIS Services Limited (formerly known as Standard Chartered Investment Services Limited) HK$3 million for regulatory breaches
On 3 January 2017, the SFC has reprimanded and fined MIS Services Limited (formerly known as Standard Chartered Investment Services Limited) HK$3 million for its failure to comply with regulatory requirements under the SFC Code on MPF Products and Fund Manager Code of Conduct.
For more details, please refer to:
http://www.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/doc?refNo=17PR1
3. SFC bans Cheung Kwan Po for six months
On 5 January 2017, the SFC has banned Mr Cheung Kwan Po, a former employee of Citibank (Hong Kong) Limited, from re-entering the industry for six months from 5 January 2017 to 4 July 2017.
For more details, please refer to:
For a copy of the Statement of Disciplinary Action, please refer to:
4. SFC reprimands and fines Chang Chyi
On 6 January 2017, the SFC has reprimanded and fined Mr Chang Chyi, an employee of Core Pacific – Yamaichi International (HK) Limited, HK$50,000 for breach of the Code of Conduct for Persons Licensed by or Registered with the SFC.
For more details, please refer to:
For a copy of the Statement of Disciplinary Action, please refer to:
5. SFC bans Choi Siu Ki for nine months
On 9 January 2017, the SFC has prohibited Mr Choi Siu Ki, a former financial planning manager of Dah Sing Bank Limited, from re-entering the industry for nine months from 7 January 2017 to 6 October 2017 for forging client signatures.
For more details, please refer to:
For a copy of the Statement of Disciplinary Action, please refer to:
6. Court of Appeal dismisses leave application of Citron Research’s Andrew Left
On 13 January 2017, the Court of Appeal has dismissed Mr Andrew Left’s application for leave to appeal against the determination of the MMT on questions of fact.
For more details, please refer to:
The article is for general information purpose only and is not intended to constitute legal or other professional advice.
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Newsletter – December 2016
/in Newsletter /by Tony Chan
- Market Misconduct Tribunal fines AcrossAsia Limited, its former chairman and CEO a sum of HK$2 million for late disclosure of inside information
- SFC commences Market Misconduct Tribunal proceedings over alleged insider dealing in Titan Petrochemicals Group Limited shares
- SFC revokes licences of Goodcape Securities Limited and its responsible officers Tang Lin Sun and Chang Siu Ming
- SFC bans Poon Kin Lung for two years
- SFC issues Restriction Notices to two brokers to freeze a client account linked to suspected account hacking and market manipulation
- New SFC measures to heighten senior management accountability
- Pilot test on expanded Short Position Reporting
- SFC issues further guidance on suitability obligations
- SFC bans Lam Yuk Wai for life
1. Market Misconduct Tribunal fines AcrossAsia Limited, its former chairman and CEO a sum of HK$2 million for late disclosure of inside information
On 30 November 2016, the Market Misconduct Tribunal (“MMT”) fined AcrossAsia Limited (“AcrossAsia”) HK$600,000, its former chairman Mr Albert Saychuan Cheok HK$800,000, and chief executive officer Mr Vicente Binalhay Ang HK$600,000 after finding they had failed to disclose inside information to the public as soon as reasonably practicable as required under the Securities and Futures Ordinance (“SFO”).
Background
On 7 November 2016, the MMT found that AcrossAsia, Cheok and Ang had breached the disclosure requirement under the SFO after they admitted to having been late in disclosing inside information about a petition filed against AcrossAsia in Indonesia and a related court summons. The MMT accepted the basis of their admissions that the negligence of Cheok and Ang caused the misconduct and found that AcrossAsia’s disclosure on the inside information to the public was about a week late.
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
The MMT took into consideration the admissions by AcrossAsia and Ang of their misconduct at an earlier stage of the proceedings brought by the SFC in determining the fines against them. The MMT also ordered Cheok and Ang to complete a SFC approved training programme on compliance with the inside information disclosure requirements.
This is the first concluded MMT case in relation to late disclosure of inside information commenced by the SFC.
Readers are reminded that listed corporations should disclose inside information that has come to their knowledge as soon as reasonably practicable.
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:
2. SFC commences Market Misconduct Tribunal proceedings over alleged insider dealing in Titan Petrochemicals Group Limited shares
On 6 December 2016, the SFC has commenced proceedings in the MMT against Mr Augustine Cheong Kai Tjieh, a former senior executive of an affiliate of Titan Petrochemicals Group Limited (“Titan”), and his mother Ms Gan Ser Soon, for alleged insider dealing in Titan shares in 2012.
Background
The SFC alleges that Cheong and Gan knew Titan’s financial position when they sold their Titan shares in January 2012, particularly that Titan and its affiliates would likely default on certain fixed rate senior notes and on the then outstanding bank loans. The financial position of Titan at the time and its affiliates’ likely default on its payment obligations constituted inside information material to Titan’s share price.
As at 2 January 2012, Cheong held 52,500,000 shares of Titan’s while Gan held 1,500,000 shares. The SFC seeks, among other things, orders for Cheong and Gan to disgorge losses they avoided totalling HK$2,425,174 as a result of their disposal of Titan shares.
The SFC also has instituted parallel proceedings in the Court of First Instance under section 213 of the Securities and Futures Ordinance (“SFO”) against Cheong and Gan about their alleged insider dealing in Titan shares. In these proceedings, the SFC seeks an order to restore relevant counterparties to the position in which they were before they had bought shares from Cheong and Gan.
In early December 2012, the Court of First Instance granted an interim order upon the SFC’s application to freeze HK$13,618,203, which represented the proceeds of Cheong’s sale of Titan shares in January 2012. The interim order was subsequently discharged after Cheong paid the same amount into court on 24 January 2013.
Comment
Readers are reminded that, the Court of First Instance has the power to make an order against a person or require a person to pay damages to any other person for intervening section 213 of the SFO. At the same time, insider dealing is a criminal offence. Person who is convicted for insider dealing may face a maximum of 10 years’ imprisonment and a fine of up to HK$10 million.
Our newsletter will follow up on the MMT hearings as more details shall be revealed in the upcoming hearings.
For a copy of the MMT report, please refer to:
http://www.mmt.gov.hk/eng/rulings/Titan_Petrochemicals_Group_Limited_06122016_e.pdf
For further details, please refer to:
3. SFC revokes licences of Goodcape Securities Limited and its responsible officers Tang Lin Sun and Chang Siu Ming
On 15 December 2016, the SFC has revoked the licences of Goodcape Securities Limited (“Goodcape”) and its two responsible officers, Mr Tang Lin Sun and Mr Chang Siu Ming. Tand and Chang have also been prohibited from re-entering the industry for life and three years from 15 December 2016 to 14 December 2019 respectively.
Background
The disciplinary action followed SFC’s investigation which found that Goodcape, which was prohibited from holding client assets and was required to place all orders with an execution broker as part of its licensing conditions as an introducing broker, had deliberately failed to relay trading instructions from a large number of clients to an execution broker.
In breach of Goodcape’s licensing conditions, Goodcape had accepted trading instructions from a large number of clients and had deliberately failed to relay the same to Paul Securities Limited (“Paul”) for execution.
Chang had withheld trading orders from clients and passed them to Tang instead of Paul in accordance with Tang’s instructions. At the request of Chang and other licensed representatives of Goodcape, clients were asked to deposit funds into the GL BOC Account or GL NCB Account in purported settlement of their transactions.
With a view to concealing their dishonest acts, Goodcape and/or Tang then created bogus Goodcape statements and issued them to clients. Our investigation revealed that funds deposited by clients into the GL BOC Account and GL NCB Account were withdrawn by cash or transferred to the personal bank account of Tang or his wife.
By holding client funds in the GL BOC Account and GL NCB Account, Goodcape had breached its licensing condition not to hold client assets. During the period from February 2008 to December 2014, a total sum of approximately HKD$90.05 million had been withdrawn from the GL BOC Account and GL NCB Account.
Comment
As licensed persons, Goodcape and Tang are under a duty to act honestly, fairly, in the best interests of its clients and the integrity of the market under General Principle 1 of the Code of Conduct for Persons Licensed by or Registered with the SFC (the “Code of Conduct”). Chang is also under a duty to act with due skill, care and diligence, in the best interests of its clients and the integrity of the market under General Principle 2 of the Code of Conduct.
The SFC is of the view that Goodcape, Tang and Chang are guilty of misconduct and are not fit and proper to remain licensed. In deciding the penalty, the SFC took into account all relevant circumstances including that the misconduct was egregious and serious; the significant losses suffered by Goodcape’s clients and the need to remove Goodcape, Tang and Chang from the industry to protect the investing public.
For a copy of the Statement of Disciplinary Action, please refer to
For further details, please refer to:
4. SFC bans Poon Kin Lung for two years
On 15 December 2016, the SFC has prohibited Mr Poon Kin Lung, a former account executive of Phillip Securities (Hong Kong) Limited (“Phillip”), from re-entering the industry for two years from 15 December 2016 to 14 December 2018 over breaches of the SFC’s Code of Conduct.
Background
The SFC found that from 1 January 2014 to 28 June 2014, Poon had effected transactions for two of his clients without obtaining the proper authorization required under the Code of Conduct. Although the clients had given Poon a degree of discretionary authority to conduct trades in their accounts, Poon did not have their written authorization to operate their accounts on a discretionary basis, and there were uncertainties as to the scope of the authority given to him.
Poon’s conduct was also in breach of Phillip’s internal policies which did not permit him to operate the clients’ accounts on a discretionary basis.
The SFC further found that Poon had received order instructions from one of these two clients and another client via WhatsApp and mobile phone, but he had failed to keep a proper record of their instructions in accordance with Phillip’s internal policies.
Comment
As a licensed person, Poon was required to comply with the standards set out in the Code of Conduct, in particular:
- in terms of the authorization required before a transaction can be effected for a client, paragraph 7.1 of the Code of Conduct requires that either:
- the client (or a person designated in writing by the client) has specifically authorized the transaction, or
- the client has authorized in writing the licensed or registered person (or someone in its employ) to operate his or her account on a discretionary basis;
- paragraph 3.9 provides, among others, that a licensed person should record and immediately time stamp records of order instruction particulars; and
- GP 2 requires a licensed person to act with due skill, care and diligence, in the best interests of his clients and the integrity of the market when conducting his business activities.
The SFC considers that Poon had failed to act with due skill, care and diligence in performing his duties as a licensed representative and to meet the standards required of him under the Code of Conduct. As a result, his fitness and properness as a licensed person has been called into question.
For a copy of the Statement of Disciplinary Action, please refer to:
For further details, please refer to:
5. SFC issues Restriction Notices to two brokers to freeze a client account linked to suspected account hacking and market manipulation
On 16 December 2016, the SFC has issued notices to Interactive Brokers LLC (“IBLLC) and Interactive Brokers Hong Kong Limited (“IBHK”) prohibiting them from dealing with or processing certain assets held in a client account which the SFC suspects are the proceeds of market manipulation and/or fraud conducted in conjunction with unauthorized internet trades in hacked securities accounts at other firms between 7 and 15 October 2015.
Background
The SFC is not investigating either IBLLC or IBHK, which have cooperated with the SFC’s ongoing investigation. The notices do not affect the operations of IBLLC and IBHK or their other clients.
The notices prohibit IBLLC and IBHK, without the SFC’s prior written consent, from dealing with the suspected proceeds or processing any instructions from the client, or any authorized representative, for those proceeds, including: (i) entering into securities or futures transactions; (ii) withdrawing securities, futures or cash; and/or (iii) transferring sales proceeds of securities or futures. IBLLC and IBHK must notify the SFC if they receive any account instructions.
Comment
The SFC considers that the issue of the notices is desirable in the interest of the investing public or in the public interest and the investigation is continuing.
For further details, please refer to:
6. New SFC measures to heighten senior management accountability
On 16 December 2016, the SFC issued a circular to all licensed corporations to introduce measures to heighten the accountability of the senior management of these firms and to promote awareness of senior management obligations under the current regulatory regime.
Background
The circular aims to provide more guidance on who should be regarded as the senior management of a licensed corporation. It identifies eight core functions which are instrumental to the operations of licensed corporations. Licensed corporations are expected to designate fit and proper individuals to be Managers-In-Charge of each of these functions. Those who have overall management oversight of the licensed corporations and those in charge of key business line functions are also expected to seek the SFC’s approval as responsible officers.
“Senior managers bear primary responsibility for the effective and efficient management of their firms, and they should be well aware of the obligations currently imposed on them as well as their potential liability if they fail to discharge their responsibilities,” said Mr Ashley Alder, the SFC’s Chief Executive Officer. “These measures will provide more clarity to the industry and strengthen our licensed firms’ governance structures so as to better align with the present responsible officer and regulated persons regime.”
Starting from 18 April 2017, corporate licence applicants and existing licensed corporations will have to submit up-to-date management structure information and organisational charts to the SFC. All existing licensed corporations should submit the required information by 17 July 2017. In addition, their Managers-In-Charge of the overall management oversight and key business line functions who are not already responsible officers should have applied for approval to become responsible officers by 16 October 2017.
The SFC has also published over 40 frequently asked questions to provide more guidance to the industry on the measures. The SFC will organise a series of industry workshops in the first quarter of 2017 to help the industry further understand the measures.
Comment
The introduced measures are consistent with the existing provisions of the SFO, subsidiary legislation made by the SFC, and codes and guidelines published by the SFC under the SFO.
The eight core functions which are identified by the SFC to be instrumental to the operations of licensed corporations are:
- overall management oversight,
- key business line,
- operational control and review,
- risk management,
- finance and accounting,
- information technology,
- compliance and
- anti-money laundering and counter-terrorist financing.
For a copy of the Circular, please refer to:
http://www.sfc.hk/edistributionWeb/gateway/EN/circular/intermediaries/licensing/doc?refNo=16EC68
For a copy of the Frequently Asked Questions, please refer to:
http://www.sfc.hk/web/EN/faqs/intermediaries/licensing/manager-in-charge-regime.html
For further details, please refer to:
http://www.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/doc?refNo=16PR143
7. Pilot test on expanded Short Position Reporting
On 20 December 2016, the SFC announced that it will run a pilot test of the Short Position Reporting Service from 11 January to 10 March 2017 to facilitate market participants’ preparations for the expanded short position reporting requirements.
Background
The Short Position Reporting Service Pilot will run from 11 January to 10 March 2017. During pilot testing, there will be a separate Reportable Short Position Form under Short Position Reporting Service for testing purpose.
With effect from 15 March 2017, reporting will be required for reportable short positions in all Designated Securities eligible for short selling specified by The Stock Exchange of Hong Kong Limited.
Market participants may receive news updates on the short position reporting regime by subscribing to the SFC’s email alert service at https://www.sfc.hk/CampaignHelper/campaignForm.jsp?lang=EN.
Comment
Market participants are reminded to ensure that they have systems and procedures in place to comply with the new requirements.
For a copy of the Frequently Asked Questions, please refer to:
http://www.sfc.hk/web/EN/files/SOM/SPR/FAQ/FAQs_on_SPR_EN_25%20May%202016.pdf
For further details, please refer to:
http://www.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/doc?refNo=16PR145
8. SFC issues further guidance on suitability obligations
On 23 December 2016, the SFC issued further guidance in the form of two circulars on the existing suitability obligations of licensed or registered persons when recommending or soliciting investments.
Background
One circular (Frequently Asked Questions (FAQs) on Triggering of Suitability Obligations) seeks to clarify what may trigger the suitability obligations. It explains that posting an advertisement for an investment product or disseminating a research report may not trigger the suitability obligations in the absence of a direct communication with a client.
The circular also provides examples of when the suitability obligations may be triggered and provides guidance on how they are discharged when providing discretionary account services.
Another circular (Frequently Asked Questions on Compliance with Suitability Obligations) updates guidance on complying with the suitability obligations and clarifies that the suitability obligations are relevant to all licensed or registered persons making a recommendation or solicitation.
It also provides, among others, guidance on product due diligence as well as the documentation of investment recommendations which are to be maintained in audio or written form.
“Suitability obligations are the cornerstone of investor protection,” said Ms Julia Leung, the SFC’s Executive Director of the Intermediaries Division. “These circulars aim to provide clarity on what may trigger the suitability obligations, particularly when brokers or distributors deal with clients in person, by telephone or by other direct means of communication, and on what needs to be done when such obligations are triggered.”
The SFC plans to launch a consultation in the first quarter of 2017 on proposed guidelines on online distribution and advisory platforms which aim to provide more tailored guidance to the industry in complying with the applicable conduct and other regulatory requirements, including the suitability obligations.
Comment
Readers are reminded of the suitability obligations (as set out in paragraph 5.2 of the Code of Conduct) that a licensed or registered person, when making a recommendation or solicitation, ensures that the suitability of the recommendation or solicitation for the client is reasonable in all the circumstances, having regard to information about the client of which the licensed or registered person is or should be aware through the exercise of due diligence.
For a copy of the FAQs on Triggering of Suitability Obligations, please refer to:
http://www.sfc.hk/edistributionWeb/gateway/EN/circular/doc?refNo=16EC73
For a copy of the FAQs on Compliance with Suitability Obligations, please refer to:
http://www.sfc.hk/edistributionWeb/gateway/EN/circular/doc?refNo=16EC71
For further details, please refer to:
http://www.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/doc?refNo=16PR146
9. SFC bans Lam Yuk Wai for life
On 29 December 2016, the SFC has banned Mr Lam Yuk Wai, a former staff of HSBC Broking Securities (Asia) Limited, HSBC Broking Futures (Asia) Limited, HSBC Broking Futures (Hong Kong) Limited and HSBC Broking Forex (Asia) Limited (collectively, “HSBC Broking”), from re-entering the industry for life.
Background
The disciplinary action follows an SFC investigation which found that between September 2011 and July 2015, Lam had:
- conducted over 100 unauthorized transactions in the accounts of seven clients, causing them to suffer substantial losses;
- deceived his clients by providing them with false and misleading account information which substantially overstated the equity value of their accounts, with an intent to conceal the extent of their investment losses; and
- attempted to conceal his misconduct from HSBC Broking by creating deceptive telephone calls in which he pretended to engage in conversations with clients and take order instructions from them.
As a result of Lam’s misconduct, HSBC Broking had paid over HK$70 million to the affected clients to compensate for their losses.
The SFC considers that Lam’s dishonesty calls into serious question his fitness and properness to be a licensed person and decided to ban him for life.
Comment
As a licensed person, Lam was required to comply with the standards set out in the Code of Conduct, in particular:
- General Principle 1 (honesty and fairness) of the Code of Conduct which requires a licensed person to act honestly, fairly, and in the best interests of its clients and the integrity of the market;
- Paragraph 2.1 (accurate representation) of the Code of Conduct which requires a licensed person to ensure that any representations made and information provided to the client are accurate and not misleading; and
- Paragraph 7.1(a) (authorization and operation of a discretionary account) of the Code of Conduct which provides that: “A licensed or registered person should not effect a transaction for a client unless before the transaction is effected (i) the client, or a person designated in writing by the client, has specifically authorized the transaction; or (ii) the client has authorized in writing the licensed or registered person or any person employed by the licensed or registered person (who must in turn be a licensed or registered person) to effect transactions for the client without the client’s specific authorization.”
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=16PR147
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]