2015 年8月份通讯
/在： 合规通讯 /通过： Tony Chan
- 证监会谴责野村国际（香港）有限公司违反监管规定并处以罚款450万港元
- 法国巴黎证券（亚洲）有限公司因干犯与黑池有关的缺失而遭证监会罚款1,500万港元
- 上诉审裁处确认证监会因岑思慧犯有内部监控缺失而撤销核准其出任负责人员的资格的决定
- 证监会发表第一季度报告
- 证监会根据内幕交易者杜军的回复原状命令为投资者追回2,300万港元
1. 证监会谴责野村国际（香港）有限公司违反监管规定并处以罚款450万港元
在2015年7月30日， 证券及期货事务监察委员会（“证监会”）公开谴责野村国际（香港）有限公司（“野村香港”）并处以罚款450万港元，原因是其没有及时汇报一名前交易员（“X先生”）的重大失当行为。
背景资料
2013年6月11日，野村香港通知证监会，指从日本的野村证券株式会社（“野村日本”）借调的交易员X先生于2013年5月23日造成330万美元的交易亏损及于2013年6月5日被调回日本（“6月11日的汇报”）。
然而，证监会其后发现，野村香港在作出6月11日的汇报时已知道X先生承认曾在野村香港的风险管理系统内输入虚假记录以隐瞒他的交易的真实风险水平，及承认曾向野村香港提供虚假资料。但野村香港并无根据《证监会持牌人或注册人操守准则》（“《操守准则》”）的规定立即向证监会披露该等事宜。
证监会亦发现，在X先生因借调至野村香港的安排被终止而离港之前，野村香港已察觉到他的实际交易活动与他向管理层提供的资料从表面看有一些不符之处。在证监会接获适当通知及野村香港完成其就X先生的行为进行的内部调查之前，X先生已被调回野村日本。
证监会进一步发现，于2013年6月19日或之前，野村香港已就其对X先生的交易活动进行的调查编制了初步报告草拟本。报告草拟本载列了多项初步调查结果，包括X先生曾就他的交易活动向管理层作出若干失实陈述；及X 先生曾在野村香港的风险管理系统内进行人手调整，以减低他的即日风险及盈亏，但并无合理理由支持他作出该等调整。在证监会于2013年7月10日就野村香港检视X先生的交易的结果作进一步查询之前，野村香港并无向证监会提供初步报告草拟本或其后的草拟本或当中所载的资料。野村香港在其于2013年7月17日给予证监会回应时，才首次通知证监会X先生曾作出不当行为。野村香港最终于2013年7月19日向证监会提供初步报告。
纪律处分行动
在此情况下，证监会认为，野村香港在向证监会作出 6 月 11 日的汇报中遗漏了极为相关的资料，并仅在催促下才作出适当汇报。因此，野村香港作为持牌人的适当人选资格受到质疑。野村香港解释，其需要完成就X先生的行为进行的调查，才可敲定其报告及釐定是否须要向证监会汇报此事。证监会并不接受，因此举有违《操守准则》第12.5段所确立，一旦发现失当行为或涉嫌失当行为，应立即作出汇报的职责。
证监会在决定对野村香港採取纪律处分行动时，已考虑到所有相关情况，包括证监会在过往发表的声明中已强调中介人有责任立即向证监会汇报不当行为，以及野村香港在证监会进行调查期间表现合作。
证监会法规执行部执行董事施卫民先生（Mr Mark Steward）表示：“对于需要证监会即时关注的事宜，没有任何情况能成为延迟汇报的借口。这些延迟汇报的行为会助长失当行为，并会影响调查工作。中介人必须立即向证监会汇报问题，而不是在完成内部调查或取得法律意见后才作出汇报，并且不能遗漏任何重要资料。”
分析
根据《证券及期货条例》（“该条例”）第194条，在某受规管人士（包括持牌人及某持牌法团的负责人员）犯失当行为，或按证监会的意见，某受规管人士并非担任或留任同一类受规管人士的适当人选的情况下，证监会有权对该受规管人士採取纪律行动。该受规管人士最高可被罚款$10,000,000港元或该受规管人士因失当行为获取的利润金额或避免的损失金额的3倍(以金额较大者为准)。
《操守准则》第12.5段规定，如持牌法团本身或其僱用或委任以替客户或其他持牌人进行业务的人士严重地违反、触犯或不遵守任何法例、证监会执行或发出的规则、规例及守则，或怀疑有任何该等违反、触犯或不遵守事宜发生，持牌法团应立即向证监会作出汇报。
此外，该条例第129条规定，证监会在考虑某人是否获发牌的适当人选时，除考虑其认为有关的任何事宜外，亦可考虑有关人士是否有能力称职地、诚实地而公正地进行有关的受规管活动。
是次纪律行动突显出不延误地向证监会报告不当或可疑行为的重要性。持牌法团，尤其是中介人应注意不遵守此责任可能会导致巨额罚款和声誉受损。
2. 法国巴黎证券（亚洲）有限公司因干犯与黑池有关的缺失而遭证监会罚款1,500万港元
在2015年8月3日，证券及期货事务监察委员会（“证监会”）因法国巴黎证券（亚洲）有限公司（“法国巴黎证券亚洲”）在其黑池交易服务方面干犯的缺失对其罚款1,500万港元。
背景资料
是项纪律处分行动源于证监会对法国巴黎证券亚洲名为BNP Internal Exchange（BIX）的黑池交易服务展开的调查。证监会按照一份依据《证券及期货条例》（“该条例”）第 201 条而订立的协议採取上述纪律处分行动。第201条允许证监会在有关人士的同意下，不需经过该条例所列明的正式聆讯程序而解决纪律处分行动。
未能确保 BIX 按照预期的方式运作
法国巴黎证券亚洲于其向证监会提出的第 7 类受规管活动牌照申请内所载的业务计划（“业务计划”）中表示，BIX 内的买卖指示将会按照买卖盘价格的优先次序对盘及执行。例如价格较高的买盘将会比价格较低的买盘享有更高的优先次序。该公司亦向其客户作出相同陈述。
实际上，于2009年11月至2011年4月期间，BIX并没有优先处理价格较高的买盘指示，而只是按数量比例作出分配，犹如所有买卖指示都有着相同的优先次序。这对每组具有两个或以上不同价格的买卖指示的BIX竞价构成潜在影响，并确实曾令到部分BIX竞价受到影响。
根据《证券及期货事务监察委员会持牌人或注册人操守准则》（“《操守准则》”）第2条一般原则，法国巴黎证券亚洲于进行其受规管活动业务时应以适当的技能、小心审慎和勤勉尽责的态度行事，以维护其客户的最佳利益。法国巴黎证券亚洲作出的实际操作与其向客户所作出的陈述不一，因而违反此原则。尤其是，部分向 BIX 发出较佳价格的买卖指示，并相信该等指示会在执行上享有较高优先次序的客户因而受到影响。
没有就 BIX 服务中断作出汇报
法国巴黎证券亚洲于发现买卖指示并非按照买卖盘价格的优先次序对盘后，在2011年4月暂停BIX服务。BIX服务于七个月后才完全恢复，而法国巴黎证券亚洲于事隔21个月后在2013年1月才通知证监会该项服务曾遭暂停。
就法国巴黎证券亚洲的第 7 类受规管活动所施加的发牌条件中，其中一项是法国巴黎证券亚洲必须在 BIX 的运作出现影响其用户的重大服务故障或中断事件的情况下，将有关事件通知证监会。法国巴黎证券亚洲没有及时就服务暂停一事向证监会汇报违反了此项发牌条件。
没有就业务计划的重大改变通知证监会
法国巴黎证券亚洲在申请提供自动化交易服务牌照的业务计划中订明，会于取得客户同意后才把他们的买卖指示发送至BIX进行对盘。然而，拟于香港联合交易所执行的客户买卖指示在法国巴黎证券亚洲未征得客户明确同意的情况下，便已于BIX自动获得执行。法国巴黎证券亚洲并未按规定知会证监会其业务计划的变动。
根据《操守准则》第7條一般原則及第12.1段，法国巴黎证券亚洲有责任遵守所有适用的法例及规例。《证券及期货(发牌及注册)(资料)规则》（“《发牌资料规则》”）第4条规定，凡持牌法团就发牌申请向证监会提供的业务计划出现重大改变，便须在发生改变后七个营业日内向证监会发出书面通知。法国巴黎证券亚洲没有在時限內向证监会发出通知，违反了《发牌资料规则》及《操守准则》。
没有就 BIX 备存足够的交易纪录及以文件载明 BIX
法国巴黎证券亚洲没有就 BIX 备存足够的交易纪录及以条理清楚的文件载明对盘逻辑。因此，证监会难以计算法国巴黎证券亚洲未能实施预期的对盘逻辑所带来的确切影响。
证监会认为以条理清楚的文件载明 BIX 的对盘逻辑，对于了解 BIX 如何运作及 BIX 的运作透明度亦非常重要。客户有权知道 BIX 如何运作，从而让他们能够就使用服务与否作出有根据的决定。
宽减因素
证监会在厘定纪律处分行动时，已考虑到：
– 法国巴黎证券亚洲在与证监会合作解决证监会提出的关注事项的过程中表现合作；
– 自2012年起，法国巴黎证券亚洲已于取得客户同意后，才容许他们的买卖指示于BIX中进行对盘；
– 法国巴黎证券亚洲已于2011年采取措施纠正BIX的对盘逻辑；
– 法国巴黎证券亚洲同意委聘独立的检讨机构就BIX的运作进行前瞻性的检讨；及
– 法国巴黎证券亚洲过往并无就其第7类受规管活动的业务遭受纪律处分。
分析
近年，使用黑池（又稱“另類交易平台”或“ALP”）进行交易的数字有上升的趋势。黑池交易服务供应商及营运商必须提供足够的资讯给客户，使他们明白其订单如何执行。证监会法规执行部执行董事施卫民先生（Mr Mark Steward）在总结此纪律处分行动时表示∶“营运商必须就黑池的运作制订清晰的规则及程序，而同样重要的是，他们的运作应该与向客户作出的陈述贯彻一致，从而让客户可在清晰和掌握充分资料的情况下同意进行黑池交易。”
证监会于早月宣布加强另类交易平台监管制度将于2015年12月1日生效。其中，所有个人投资者（包括个人专业投资者及其全资拥有并用作持有投资的公司）均不可使用另类交易平台。
证监会牌照申请人必须确保他们在提交予证监会的业务计划所提供的资讯为真实及准确。根据《证券及期货条例》（“该条例”）第 201 条第 1节：「任何人 － (a) 作出在要项上属虚假或具误导性的陈述(不论该陈述属书面或口头或其他形式)，以支持该人或其他人根据或依据本条例任何条文向证监会提出的申请；且 (b) 知道该陈述在要项上属虚假或具误导性，或罔顾该陈述是否在要项上属虚假或具误导性，即属犯罪」。此罪行的最高刑罚为罚款1百万港元及监禁两年。
3. 上诉审裁处确认证监会因岑思慧犯有内部监控缺失而撤销核准其出任负责人员的资格的决定
在2015年8月13日，证券及期货事务上诉审裁处（“上诉审裁处”）裁定岑思慧（“岑”）涉及中国平安证券（香港）有限公司（“平安”）在2010年8月至2011月4月期间（“有关期间”）的严重内部监控缺失，并确认证券及期货事务监察委员会（“证监会”）撤销核准其出任负责人员的资格的决定。
背景资料
岑在2010年8月至2011月4月期间作为平安的两个负责人员之一，负责平安的合规职能。在2015年1月25日，证监会发出公告裁定岑没有发现及跟进平安母公司的行政总裁及平安的3名客户之间的可疑交易。与此同时，岑亦没有为平安制定反洗钱的内部指引及没有对平安的员工进行反洗钱的训练。
证监会在调查后发现岑在有关第三方付款（3PPs）的事宜上没有依照合适的程序。另外，岑亦没有在有关僱员处理及开户问题上作出沟通及执行平安的内部指引。岑似乎对合规重要性的意识较低，而且在有关期间内大致上没有执行合规职能。
有鉴于以上所列的内部缺失，证监会撤销核准岑出任负责人员的资格的决定。在其向上诉审裁处所作出的上诉申请中，岑并没有挑战证监会对其作出有所缺失并须承担责任的裁决。岑挑战的是相关纪律处分的适当性。
上诉审裁处的裁决
上诉审裁处注意到岑作为负责人员的缺失在整体上是严重及持续的。在此案件中，证监会十分关注平安在有关期间内并没有任何反洗钱指引。上诉审裁处指出洗钱在世界各地的政府、银行及财务机构均属受高度关注的范畴。
上诉审裁处强调持牌机构的负责人员应负上遵从所有适用的监管标准的主要责任。在此案件中，岑在设立及履行有效内部监管上的缺失十分严重。其缺失威胁到香港金融市场的诚信及声誉。故其没有违反诚信责任以及其客户没有受到损失亦只能作为比重很少的宽减因素。
上诉审裁处认为撤销核准岑出任负责人员的资格的决定是合适的。此撤销决定只针对岑作为负责人员的身份。岑依然能根据《证券及期货条例》（“该条例”）第120条在金融业界中担任重要性较低的职位如持牌代表等。
分析
本案关注基金负责人在现行监管法例下的适当位置和职责，其中《操守准则》内的第2条一般原则和第9条一般原则最为重要。第2条一般原则规定持牌人应以适当的技能、小心审慎和勤勉尽责的态度行事,以维护客户的最佳利益及确保市场廉洁稳健。 第9条一般原则规定高级管理人员须承担的首要责任是确保机构能够维持适当的操守标准及遵守恰当的程序。
《操守准则》第1.3段指出，在考虑负责人员的行为时，证监会将考虑他们在公司内所负责的职务 。第4.2段亦规定，持牌人应勤勉尽责地监督获其雇用或委任以代表其经营业务的人士。而第14.1段则规定高级管理人员应定期评核风险管理程序。
持牌机构应就着鑑定及报告可疑交易维持合适的系统及监管。首先需要的是对客户的业务及财政状况有足够的认识（可从客户尽职审查及及持续监督所得）以發現任何不尋常的交易。持牌机构亦应设立内部报告机制，而且负责合规的人员应作为中间人向联合财富情报组作出报告。与此同时，打击洗钱及恐怖分子资金筹集指引第7.21段也列明合规主任在报告可疑交易的事宜上应担任主要的角色。
在2015年8月17日，证券及期货事务监察委员会（“证监会”）发表《季度报告》，概述2015年4月至6月期间的重要发展。
《季度报告》阐述证监会的规管工作重点，包括证监会就加强及划一施加于另类交易平台营运商的监管责任的建议，以及修订《证券及期货条例》以让证监会向香港以外地方的规管者提供监管协助的建议，分别发表了谘询总结。为实施新的场外衍生工具制度，经修订的《证券及期货(场外衍生工具交易 ─ 汇报及备存纪录责任)规则》亦已于2015年5月在宪报刊登。
此外，证监会就基金互认安排与中国证券监督管理委员会签署监管合作备忘录，让内地及香港的合资格基金直接在对方的市场上出售。
在执法事宜上，证监会对干犯市场失当行为的两家公司及七名人士作出检控，并对八名持牌人采取纪律处分。证监会亦解决了针对Descartes Athena Fund SPC的法律程序，为约340名海外投资者追回一个已倒闭私人对冲基金的1.91亿港元资产。
报告中亦提及证监会在今季收到1805宗牌照申请，较去年同期上升15.1%。
完整《季度报告》载于证监会网站的〈资料库〉>〈机构刊物〉>〈季度报告〉一栏，网址为:
http://www.sfc.hk/web/EN/files/ER/Reports/QR/201504-06/Chi/00_final.pdf
5. 证监会根据内幕交易者杜军的回复原状命令为投资者追回2,300万港元
法庭委任管理人（李约翰企业管理咨询有限公司的李约翰先生（Mr. John Lees）及吴宓先生）已完成向所有297名（当中3人除外）曾与被定罪的内幕交易者杜军进行交易的对手方发放杜军根据回复原状命令而须支付的款项。
背景资料
摩根士丹利亚洲有限公司前董事总经理杜军此前被裁定就有关中信资源控股有限公司（中信资源）的股份进行内幕交易。根据高等法院颁布的回复原状命令，杜军须向名297投资者支付2,390万港元。
截至2015年8月18日，已经支付的款项共23,086,314港元。证券及期货事务监察委员会（“证监会”）及管理人已采取所有可行方法联络其余三名投资者，但不成功。余下而应支付予其余三名投资者的813,686港元的款项经法庭批准后已退回给杜军。
中国证券监督管理委员会、美国证券交易委员会、泰国证券及交易事务监察委员会及管理人亦在此事上协助证监会查找有关的海外投资者。
分析
回复原状命令并不是赔偿命令，其目的是使内幕交易者在财政上对与他们进行交易的对手方负责，并在财务上，令那些对手方回复至他们在交易前的状况。有关金额相等于受影响投资者出售中信资源股份予杜军的实际价格，与投资者在假设市场已得知有关中信资源的股价敏感资料的情况下本可出售股份的价格之间的差额。
证监会已公开地清楚列明其与内幕交易相关的执法理念：「内幕交易会导致市场运作不公正、破坏运作秩序，并损害市场信心。我们采取一切法律措施来打击内幕交易，包括检控内幕交易人士，或将个案转介至市场失当行为审裁处，以施加刑事或民事处分。我们亦会向法院寻求命令，以冻结内幕交易者的收益，并对失当行为造成的破坏采取补救措施。」
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监管新闻 (2015年8月)
/在： 监管新闻 /通过： Tony ChanNewsletter – July 2015
/在： 合规通讯 /通过： Tony Chan- Takeovers Panel sanctions Chow Yei Ching, Oscar Chow Vee Tsung and Joseph Leung Wing Kong for breach of Takeovers Code
- SFAT affirms SFC decision to reprimand and fine The Pride Fund Management Limited for failing to enter into mediation managed by the Financial Dispute Resolution Centre
- SFC suspends Tai Nga Chun for operating secret account
- SFC bans Laura Kiang Mang Yi for three years for misconduct
- SFC proposes changes to financial resources rules
- Fund management business reached record high in 2014
- EY’s appeal over audit working papers discontinued
- SFC commences MMT proceedings against AcrossAsia Limited, its Chairman and CEO for late disclosure of inside information
1. Takeovers Panel sanctions Chow Yei Ching, Oscar Chow Vee Tsung and Joseph Leung Wing Kong for breach of Takeovers Code
On 2 July 2015, The Takeovers and Mergers Panel (“Takeovers Panel”) imposed Cold Shoulder Orders against Mr Chow Yei Ching (“Mr Chow Y.C.”), Mr Oscar Chow Vee Tsung (“Mr Oscar Chow”) and Mr Joseph Leung Wing Kong (“Mr Leung”) and publicly censured them for breach of the Code on Takeovers and Mergers and Share Repurchases (“Takeovers Code”).
Background
On 20 November 2013, the Securities and Futures Commission (“SFC”) Takeovers Executive commenced disciplinary proceedings before the Takeovers Panel against Mr Chow Y.C., Mr Oscar Chow and Mr Leung over a serious breach of the Takeovers Code. The SFC’s allegations were that the three actively co-operated to assist the late Ms Nina Kung (“Ms Kung”) to obtain or consolidate control of ENM Holdings Limited (“ENM”) and avoid the triggering of a mandatory general offer under the Takeovers Code. At the relevant time, Ms Kung was the largest shareholder of ENM. She was also the chairwoman and the sole beneficial owner of the Chinachem Group.
Between 2000 and 2002, Mr Chow Y.C. acquired a total of 160 million shares of ENM (approximately 9.69% of ENM’s issued share capital) on Ms Kung’s behalf and at her request. Mr Chow Y.C. paid for the purchase of the ENM shares and was subsequently reimbursed by Ms Kung. The reimbursement was handled by Mr Oscar Chow and Mr Leung. Mr Chow Y.C. held the ENM shares under four British Virgin Island (“BVI”) companies he owned through the issuance of bearer shares until December 2009. To comply with the changes to BVI law requiring greater transparency in the ownership of bearer shares, Mr Chow Y.C. arranged for the ownership of the 160 million ENM shares to be split equally between one of his daughters and Mr Oscar Chow in December 2009.
The Takeovers Code treats persons acting in concert as being the equivalent of a single person and aggregates their shareholdings. Therefore, Mr Chow Y.C.’s acquisitions increased the collective shareholding of the concert group in ENM from 34.64% to 44.33%, thus triggering a mandatory general offer obligation under the Takeovers Code. However, none of the share acquisitions in ENM by Mr Chow Y.C. on Ms Kung’s behalf were publicly disclosed and remained undisclosed for a protracted period. This “warehousing” arrangement enabled Ms Kung to secretly hold the ENM shares and avoid an obligation under the Takeovers Code to make a general offer. As a result, ENM shareholders were deprived of their fundamental right to receive a general offer to buy their shares. Mr Chow Y.C. brought the matter to the SFC’s attention after receiving a letter in late April 2012 from the joint administrators of Ms Kung’s estate making enquiries about shares of ENM that belonged to the estate.
The Cold Shoulder Order
The Cold Shoulder Order against Mr Chow Y.C. denies him direct or indirect access to the securities markets for 10 years from 2 July 2015 to 1 July 2025. Mr Oscar Chow and Mr Leung are denied direct or indirect access to the securities markets for two years from 2 July 2015 to 1 July 2017. The Takeovers Panel published its written decision on 16 April 2015 setting out the reasons for finding them in breach of the abovementioned mandatory offer requirement under the Takeovers Code when they acted in concert with Ms Kung to obtain and consolidate control over ENM Holdings Ltd through the acquisition of voting rights and failed to make the required general offer.
Comment
Rule 26 is the overriding rule in the Takeovers Code and provides the circumstances in which a mandatory general offer must be made. This reflects General Principle 1 of the Takeovers Code and underpins the requirement for equal treatment of shareholders. Failure to make an offer that is required to be made under Rule 26.1 constitutes a serious breach of the Takeovers Code.
Pursuant to Rule 26.1, which came into force in December 2000, a mandatory general offer is required to be made for all the shares in the company if a person or group of persons acting in concert acquired shares resulting in either:
- the person or concert group collectively holding 35% or more of the voting rights (known as the “trigger”). The trigger threshold was reduced to 30% on 19 October 2001; or
- the person or concert group collectively holding between 35% and 50% of the shares and then going on to acquire, either individually or as a group, more than 5% in any 12 month period (known as the “creeper”). The creeper threshold was reduced to 2% on 19 October 2001.
In particular, the Takeovers Code defines persons acting in concert as comprising persons who, pursuant to an agreement or understanding, actively co-operate to obtain or consolidate control of a company through the acquisition by them of voting rights of the company.
For details, please refer to:
http://www.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/doc?refNo=15PR70
2. SFAT affirms SFC decision to reprimand and fine The Pride Fund Management Limited for failing to enter into mediation managed by the Financial Dispute Resolution Centre
On 2 July 2015, the SFC reprimanded and fined The Pride Fund Management Limited (“Pride Fund Management”) HK$400,000 over its failure to enter into mediation with an eligible claimant under the Financial Dispute Resolution Scheme (“FDRS”) administered by the Financial Dispute Resolution Centre (“FDRC”).
Background
The above disciplinary action follows a review of the SFC’s decision to sanction Pride Fund Management by the Securities and Futures Appeals Tribunal (“SFAT”). This is the first time the SFC has enforced obligations of intermediaries to comply with the FDRS under the Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission (“Code of Conduct”).
The FDRS, which is administered by the FDRC, is an important part of Hong Kong’s regulatory framework under which banks and brokers are obliged to enter into mediation and potentially arbitration proceedings to resolve certain financial disputes with clients or persons who have been provided with financial services. The SFC states that Pride Fund Management refused to mediate a dispute with an eligible claimant despite requests by FDRC staff, even after FDRC issued a Notice of Non-Compliance to Pride Fund Management in June 2013. It was only after the SFC commenced disciplinary proceedings against Pride Fund Management that it eventually agreed to enter into mediation with the claimant.
Pride Fund Management claimed it had not understood that it was required to comply with the FDRS. However, the Hon Mr Justice Hartmann NPJ, Chairman of the SFAT, who upheld the SFC’s decision but varied the fine from HK$700,000 to HK$400,000, found that Pride Fund Management’s non-compliance was deliberate and that although the obligations under the FDRS may not be generally understood, after consideration of the SFAT’s reasons in this case and public reprimand, there can be no further excuse “on the part of members of the financial industry for a lack of understanding, at least, of the scheme’s basic architecture”. The Hon Mr Justice Hartmann also warned that “sterner penalties can be expected in the future”.
Comment
The FDRC was set up in November 2011 to administer the FDRS, an independent financial dispute resolution scheme which requires financial institutions who are its members to resolve monetary disputes with their customers through mediation and, failing which, arbitration. Other than firms which carry on Type 10 (providing credit rating services) regulated activity under the SFO, financial institutions or financial service providers authorized by the Hong Kong Monetary Authority or licensed by the SFC are to be members of the FDRS. In particular, the FDRC facilitates the resolution of monetary disputes between individual customers and financial institutions in Hong Kong.
The SFC takes non-compliance with the FDRS seriously and has stated that it will continue to take action against SFC-licensed intermediaries who fail to comply with the scheme. Specifically, paragraph 12A of the Code of Conduct requires a licensed person to comply with the FDRS for managing and resolving disputes administered by the FDRC in full and be bound by the dispute resolution processes provided for under the FDRS. Paragraph 12.6 of the Code of Conduct further requires a licensed person to render all reasonable assistance to the FDRS.
For further information, please refer to the Reasons of Determination issued by the SFAT:
http://www.sfat.gov.hk/english/determination/AN-2-2015-Determination.pdf
For details, please refer to:
http://www.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/doc?refNo=15PR71
3. SFC suspends Tai Nga Chun for operating secret account
On 13 July 2015, the SFC suspended Ms Tai Nga Chun (“Ms Tai”) for eight months from 10 July 2015 to 9 March 2016.
Background
The disciplinary action follows an SFC investigation which found that from January to June 2013, Ms Tai operated a secret account and conducted 85 personal trading activities through the account, in breach of her employer’s internal control policies with regard to employee dealings. At the time, Ms Tai was employed by Kingston Corporate Finance Limited.
The SFC considers Ms Tai’s conduct was dishonest and made it impossible for her employer to identify and monitor her trading activities, without which licensed corporations would not be able to detect potential malpractices arising from staff trading.
The SFC looked into the trading in Ms Tai’s account and found no sign of any other misconduct. The SFC has therefore reduced the period of suspension taking into account that Tai has expressed remorse for her misconduct.
Licensed persons are required to follow the employee dealing procedures implemented by their employers in accordance with the Code of Conduct, because such controls are not purely internal to their employers but constitute an integral part of the regulatory system, as they seek to ensure integrity in the manner in which employees conduct personal trading.
Comment
Pursuant to Paragraph 12.2 of the Code of Conduct, a licensed or registered person must have a written policy issued to employees specifying whether or not they can deal or trade for their own accounts in securities or futures contracts. If employees are permitted to deal or trade, the policy should specify the following matters:
- the conditions on which employees may do so;
- that employees should identify all related accounts and report them to senior management (“related accounts” refers to accounts of minor children and all accounts in which employees have a beneficial interest.);
- that employees should generally be required to deal through the licensed or registered person or its affiliates;
- that if employees are allowed to deal in securities and/or futures contracts on a recognized stock or futures market respectively or in their derivatives, through other licensed or registered persons, the licensed or registered person (principal) and the employees should arrange for duplicate trade confirmations and statements of account to be provided to the senior management of the licensed or registered person (principal);
- that any transactions covered by this section should be separately recorded and identified in the licensed or registered person’s records;
- that transactions on employees’ and related accounts should be reported to and actively monitored by senior management, who should ensure that there are no irregularities and that the transactions are not prejudicial to the interests of clients; and
- that a licensed or registered person should not knowingly have another licensed or registered person’s employee as a client without the written consent of that employee’s principal.
If the employee breaches his/her employer’s policies issued under Paragraph 12.2 of the Code of Conduct, this may reflect negatively on his/her fitness and properness to remain licensed. This could lead to suspensions or revocations of licenses.
For further details, please refer to:
http://www.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/doc?refNo=15PR74
4. SFC bans Laura Kiang Mang Yi for three years for misconduct
On 13 July 2015, the SFC banned Ms Laura Kiang Mang Yi (“Ms Kiang”) from re-entering the industry for three years from 13 July 2015 to 12 July 2018.
Background
Ms Kiang joined Bank Julius Baer & Co. Ltd (“BJB”) in July 2013 and represented to her employer that she had obtained a master’s degree from New York University (“NYU”) in 2008. In fact, she had only studied at the University but did not complete all the requirements to be awarded a master degree.When asked to provide evidence to support her academic qualification, rather than telling the truth, Ms Kiang obtained a fake diploma purporting to have been issued by NYU and submitted it to BJB.
Ms Kiang knowingly made a false representation to her former employer about her academic qualification and her misconduct was aggravated by the manufacture of the fake diploma.
The SFC considers Ms Kiang’s conduct called into question her fitness and properness to be a regulated person.
Comment
Pursuant 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”. As Ms Kiang’s behaviour is not acting honestly and fairly, it reflects adversely on her fitness and properness to remain as a regulated person.
For further details, please refer to:
http://www.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/doc?refNo=15PR75
5. SFC proposes changes to financial resources rules
On 17 July 2015, the SFC released a consultation paper on proposed changes to the Securities and Futures (Financial Resources) Rules (“FRR”) relating to capital and other prudential requirements for licensed corporations engaged in over-the-counter derivatives activity. The consultation paper also proposes certain changes to non-over-the-counter derivatives-related FRR requirements. The three-month consultation ends on 16 October 2015.
Background
The proposals aim to ensure that licensed corporations maintain their capital and liquidity at levels which are commensurate with the risks they undertake pertaining to derivative businesses as well as to encourage them to adopt more advanced risk management standards. The proposed FRR treatments can be calibrated to permit different capital approaches for different levels of over-the-counter derivatives activity.
The SFC proposes a small number of changes to FRR treatments applicable to licensed corporations which do not engage in over-the-counter derivatives activity. These include lowering the haircut percentages for certain types of shares and funds and introducing measures to better facilitate third-party clearing by general clearing brokers.
“The proposed changes aim to enhance our prudential regulatory regime to better align with recent developments in international capital standards for investment intermediaries. This will help maintain Hong Kong’s position as an international financial centre,” said Mr Ashley Alder, the SFC’s Chief Executive Officer.
In summary, the consultation paper’s proposals cover seven key areas:
- minimum capital requirements for licensed corporations engaging in over-the-counter derivatives activity;
- capital treatments for market risks of over-the-counter derivatives and other proprietary trading positions;
- capital treatments for counterparty credit risks arising from over-the-counter derivatives transactions;
- introduction of an internal models approach to calculate the capital requirements for market risk for proprietary investments and counterparty credit risk arising from over-the-counter derivatives transactions;
- measures to address operational risks of licensed corporations engaging in certain types of regulated over-the-counter derivatives activities or opting into certain capital approaches;
- notification and reporting requirements related to over-the-counter derivatives activity; and
- miscellaneous technical changes to other areas of the FRR.
Following the consultation, the SFC plans to further consult the public on subsidiary legislation which sets out the proposed changes. The public is invited to submit their comments to the SFC by 16 October 2015. Written comments may be sent online via the SFC website (www.sfc.hk), by email to [email protected], by post or by fax to 2523 4598.
For further details, please refer to:
http://www.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/doc?refNo=15PR76
6. Fund management business reached record high in 2014
On 21 July 2015, the SFC released its annual Fund Management Activities Survey (“FMAS”) which shows that the combined fund management business in Hong Kong sustained another year-on-year increase to reach a record high of HK$17,682 billion, up 10.5%, as of the end of 2014.
FMAS indicate that Hong Kong remained a preferred platform for international investors, who contributed an historic high of HK$12,404 billion and accounted for 71% of the fund management business. Assets managed in Hong Kong increased by nearly 18% to a record level of HK$6,856 billion.
“The latest survey underscored the trend of sustained growth in assets managed in Hong Kong, driven by our role as an intermediary for capital between the Mainland financial markets and the rest of the world,” said Ms Julia Leung, the SFC’s Executive Director of Investment Products. “The launch of the Mainland-Hong Kong Mutual Recognition of Funds scheme on 1 July will further encourage growth in this area and promote Hong Kong as a fund domicile and investment management centre.”
All market players recorded strong performance during 2014.
- The aggregate business of licensed asset management and fund advisory corporations amounted to HK$12,920 billion at the end of the year, up 9.6% and once again representing the largest proportion of the combined asset management business.
- Registered institutions recorded an 11.6% increase in their aggregate asset management and other private banking businesses, which reached HK$4,104 billion.
- Insurance companies reported a 24.2% increase in their assets under management to HK$452 billion.
Some other findings of the survey are set out below:
- Non-REIT (real estate investment trust) asset management business increased by 11.9% to HK$12,770 billion, of which HK$6,856 billion (or 53.7%) was managed in Hong Kong.
- 72.5% of the assets managed in Hong Kong were invested in Asia.
- Other private banking business increased by 12.5% to HK$3,095 billion.
- Fund advisory business decreased by 3% to HK$1,611 billion.
- The market capitalisation of SFC-authorized REITs increased by approximately 16.4% to HK$206 billion.
The FMAS report notes that a robust regulatory regime is fundamental to Hong Kong’s development as an international asset management centre. In this connection, the SFC will continue to work closely with Mainland and overseas regulators as well as stakeholders to maintain an effective and progressive regulatory framework for the benefit of both the financial industry and investing public.
The FMAS has been conducted annually since 1999 to help the SFC assess the state of the industry for policy and operational planning. This year, a total of 587 institutions responded to the survey on a voluntary basis. They included 519 licensed asset management and fund advisory corporations, 47 registered financial institutions and 21 insurance companies.
For further details, please refer to:
http://www.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/doc?refNo=15PR77
7. EY’s appeal over audit working papers discontinued
On 23 July 2015, EY has discontinued its appeal against court orders compelling production to the SFC of specified accounting records in its possession.
Background
On 23 May 2014, the Court of First Instance (“CFI”) ordered EY to produce specified accounting records relating to its work as the reporting accountant and auditor for Standard Water Limited (“Standard Water”) to the SFC. In 2012, the SFC brought proceedings against EY to compel the production of these documents after EY failed to provide them as part of an SFC investigation into the proposed listing of Standard Water. EY claimed it was not in possession of the papers and that they could not be produced because of restrictions under PRC law. In the judgment, the CFI rejected EY’s arguments and ordered EY to produce the required material to the SFC finding that EY had “deliberately withheld from SFC information in its knowledge”.
Since the decision of the Court of First Instance was handed down, the specified accounting records have been produced by EY to the SFC. The SFC is satisfied that all requested records have been produced and EY has complied with the court orders and agrees that the appeal is now academic.
The SFC now reminds Hong Kong audit firms that accounting or audit working papers relating to work carried on by Hong Kong accounting firms should be produced to the SFC in response to requests made under the SFO. This will be the case even if the requested documents/records are held on behalf of Hong Kong auditors by their Mainland affiliates or agents, subject to clearance by the Mainland authorities. Further, the obligation to identify records held in the Mainland and to seek their clearance lies with the auditor.
The SFC states that Hong Kong auditors should cooperate fully with the SFC in the investigation of suspected corporate wrongdoing, and that EY could have avoided litigation by conducting proper searches of its own offices here in Hong Kong and, where necessary, cooperating with the Mainland authorities to seek clearance of records created by its affiliate firms on the Mainland.
Comment
Under section 183 of the SFO, the SFC is empowered to request information from persons whom it believes may have information relevant to an investigation. If a person fails to comply with such a request without a reasonable excuse, the SFC can bring proceedings under section 185 of the SFO which empowers the CFI to inquire into the circumstances of non-compliance. The court can order the person to comply with the SFC’s request if it is satisfied that the person does not have any reasonable excuse for not complying.
For further details, please refer to:
http://www.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/doc?refNo=15PR79
8. SFC commences MMT proceedings against AcrossAsia Limited, its Chairman and CEO for late disclosure of inside information
The SFC has commenced proceedings in the Market Misconduct Tribunal (“MMT”) against AcrossAsia Limited (“AcrossAsia”) for failing to disclose highly sensitive inside information as soon as reasonably practicable.
Background
The SFC has also commenced proceedings in the MMT against Mr Albert Saychuan Cheok (“Mr Cheok”), the Chairman of AcrossAsia, and Mr Vicente Binalhay Ang (“Mr Ang”), the Chief Executive Officer of AcrossAsia, for their reckless or negligent conduct causing the alleged breach by the company of the provisions of the statutory corporate disclosure regime.
This is the first set of proceedings in the MMT brought by the SFC in relation to the disclosure obligations imposed on listed companies under the Securities and Futures Ordinance since they became effective on 1 January 2013.
The SFC’s allegations arise from the litigation in Indonesia between AcrossAsia and its subsidiary, PT First Media Tbk (“PT First Media”). At dispute was the failure of AcrossAsia to repay the money owed to PT First Media. The litigation led to enforcement proceedings by PT First Media against AcrossAsia, including insolvency-related proceedings in Indonesia against AcrossAsia by way of a petition dated 20 December 2012 and a summons dated 28 December 2012. These proceedings sought, among other things, to suspend AcrossAsia’s obligation for payment of debts temporarily to enable a composition plan to be presented to PT First Media and to appoint an Indonesian judge and administrators to manage AcrossAsia’s assets.
Copies of the court documents, which were in Bahasa Indonesian, were received by AcrossAsia’s Hong Kong office on 2 January 2013, and their English translations were circulated to Mr Cheok and Mr Ang on 4 January 2013. However, AcrossAsia did not disclose such information to the public until 17 January 2013 after the Indonesian court made these insolvency-related orders against AcrossAsia on 15 January 2013. AcrossAsia sought a suspension of trading on 15 January 2013 and when trading resumed on 22 February 2013, the share price fell by 22.5%.
The SFC alleges that the issue of the insolvency-related proceedings in Indonesia together with their contents were specific information regarding AcrossAsia, highly price sensitive and not generally known to the public at the material time because these proceedings threatened AcrossAsia with loss of control of its major asset, including its stake in PT First Media in Indonesia, and could lead to AcrossAsia being put into liquidation.
For further 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 – June 2015
/在： 合规通讯 /通过： Tony Chan- SFC statement on Hanergy Thin Film Power Group Limited
- SFC reprimanded BNP Paribas Securities (Asia) Limited HK$11 million for failing to report cross trades to the Stock Exchange
- SFC banned Yu Chun Chieh for life for misappropriating client’s money
- SFC concluded consultation on supervisory assistance to regulators outside Hong Kong
- SFC reprimanded and fined Phillip Securities (Hong Kong) Limited HK$1 million over mis-selling of investment product
- Lo Chun Lam convicted of unlicensed futures contracts business
- Former licensee given community services and cold shoulder order for false trading
- SFC statement on the SEHK’s draft proposal on weighted voting rights
1. SFC statement on Hanergy Thin Film Power Group Limited
On 28 May 2015, the Securities and Futures Commission (“SFC”) issued a statement on Hanergy Thin Film Power Group Limited in accordance with the SFC’s Disclosure Policy given the public interest following reports denying such measures have been taken.
The SFC wishes to clarify that a formal investigation into the affairs of Hanergy Thin Film Power Group Limited has been active and is continuing.
The SFC will make no further comment about the investigation.
For details, please refer to:
2. SFC reprimanded BNP Paribas Securities (Asia) Limited HK$11 million for failing to report cross trades to the Stock Exchange
On 1 June 2015, the SFC reprimanded and fined BNP Paribas Securities (Asia) Limited (“BNP”) a total of HK$11 million for its failures to report its direct business transactions (“cross trades”) to The Stock Exchange of Hong Kong Limited (“SEHK”) over a 10-year period.
Background
The SFC’s investigation found that BNP failed to report a total of 4,443 pairs of cross trades to the SEHK involving a total of over HK$6 billion worth of shares conducted by BNP from December 2002 to January 2013. BNP’s reporting failures breached the trading requirements of the SEHK and the Code of Conduct.
As a licensed corporation, BNP also failed to employ effectively resources and procedures needed for the proper performance of its business, including the failure to provide the dealers responsible for the reporting at BNP with sufficient resources to enable them to discharge their reporting duties. The SFC considered that BNP’s failures were particularly serious as they lasted for an extended period of time and involved a large number of trades.
Mr. Mark Steward, the Executive Direct of Enforcement of the SFC, said, “This case demonstrates that reporting failures cannot be taken lightly. This is because market transparency and displaying accurate information to the investing public are essential not only to aid informed investment decisions but also to maintain a fair and orderly market.”
Comment
Readers should note that pursuant to General Principle 7 and paragraph 12.1 of the Code of Conduct, a licensed person should comply with all regulatory requirements applicable to the conduct of its business, including the rules of any exchange of which it is a participant.
In this case, the relevant rules applicable to BNP includes Rule 526 of the Rules of the Exchange, which requires Exchange Participants to report cross trades to the SEHK within specific timeframes. Furthermore, pursuant to General Principles 2 and 3 of the Code of Conduct, licensed persons or corporations are required to conduct their business activities with due skill, care and diligence, in the best interests of its clients and the integrity of the market, employ adequate resources and adopt effective procedures which are needed for the proper performance of its business activities. Paragraph 4.2 of the Code of Conduct also requires licensed corporations to supervise diligently persons employed by it to conduct business on its behalf. Failure to comply with the abovementioned rules may reflect adversely on the fitness and properness of the licensed individual or corporation to remain licensed, and could lead to suspension or revocation of a license. Therefore, readers may find it beneficial to consult external compliance firms to ensure that such rules are complied with.
For details, please refer to:
http://www.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/doc?refNo=15PR57
3. SFC banned Yu Chun Chieh for life for misappropriating client’s money
On 2 June 2015, the SFC banned Mr Yu Chun Chieh (“Mr Yu”), a former licensed representative, from re-entering the industry for life for misappropriating an investor’s money and misleading him with false account statements.
Background
In around May 2013, Mr Yu persuaded a Taiwan-based investor to deposit money for fund investment into Mr Yu’s private bank account in Hong Kong on the false basis that a bank account in Hong Kong was needed to open a securities account with his employer, a licensed corporation. Mr Yu claimed that he will return the money to the investor after the securities account is opened.
The investor subsequently transferred around HK$3.9 million into Mr Yu’s bank account which Mr Yu then misappropriated by transferring the money to another private account in Taiwan. None of the moneys were used to open any securities account or to acquire securities for the investor. To cover up his misconduct, he falsified account statements with his firm’s letterhead to mislead the investor into believing that the money was invested in the funds as agreed. The SFC considers that Mr Yu’s dishonest conduct calls into serious question his fitness and properness to be a licensed person and decided to ban him for life.
Comment
General Principle 1 of the Code of Conduct states that a licensed or registered person “should act honestly, fairly and in the best interests of its clients and the integrity of the market.” Specifically, representations and information to clients should be accurate and not misleading. Failure to adhere to the Code of Conduct could call into question the person’s fitness and properness to remain licensed, and could lead to suspension or revocation of a SFC license.
Furthermore, such conduct could be charged as theft under section 9 of the Theft Ordinance (Cap. 210), which is a criminal offence. Upon conviction, a person who commits theft could be liable to imprisonment for up to 10 years.
For further details, please refer to:
http://www.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/doc?refNo=15PR58
4. SFC concluded consultation on supervisory assistance to regulators outside Hong Kong
On 5 June 2015, the SFC released consultation conclusions on proposed amendments to the Securities and Futures Ordinance (“SFO”) for providing assistance to regulators outside Hong Kong.
Background
On 19 December, the SFC issued the Consultation Paper on Proposed Amendments to the Securities and Futures Ordinance for Providing Assistance to Overseas Regulators in Certain Situations for public consultation until 16 January 2015.
After considering the comments of all the respondents, the SFC has decided to propose legislative changes to enable the SFC to provide a particular form of supervisory assistance to regulators outside Hong Kong upon request by making enquiries and obtaining certain records and documents from licensed corporations or their related corporations. These proposed amendments relate to sections 180 (in respect of supervisory powers of the SFC) and 186 (in respect of assistance that may be provided by the SFC to regulators outside Hong Kong) of the SFO. The proposed supervisory assistance will be subject to both existing and new legislative safeguards.
These proposals will also enhance the SFC’s ability to enter into reciprocal supervisory arrangements with regulators outside Hong Kong that will include two-way exchanges of relevant supervisory information. The proposed amendments will give the SFC discretion to provide supervisory assistance to a regulator outside Hong Kong but will not impose an obligation to do so. Information obtained in this manner may only be used for non-enforcement purposes. It should also be noted that while the proposals are incremental to the SFC’s existing information gathering powers, they do not alter existing positions regarding legal professional privilege or privilege against self-incrimination.
Comment
The purpose of the proposed amendments are to enable to the SFC to adhere more closely to international regulatory standards, and to perform more effective supervision of licensed corporations which operate in multiple jurisdictions. Global supervisory cooperation is considered very important among international regulators as it assists regulators to better assist the financial and regulatory risks of industry participants and their likely effects on investors.
For further details, please refer to:
http://www.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/doc?refNo=15PR60
5. SFC reprimanded and fined Phillip Securities (Hong Kong) Limited HK$1 million over mis-selling of investment product
On 16 June 2015, the SFC reprimanded and fined Phillip Securities (Hong Kong) Limited (“Phillip Securities”) HK$1 million for failings over its sale of a fund to four clients
Background
An SFC investigation revealed that Phillip Securities sold the American Pegasus Fixed Income Fund – Series II Segregated Portfolio to the four clients around August 2004, involving transaction amount of approximately HK$819,000. The fund was liquidated in July 2011 and the clients have not been able to recover their investment. The American Pegasus Fixed Income Fund – Series II Segregated Portfolio is a viatical settlement which invested in senior life settlement insurance policies issued by investment grade insurance companies in the United States. It is not a product authorised by the SFC. In June 2010, investors were notified that the fund would be wound up as it did not have sufficient value to continue to pay life insurance policy premiums until the expected maturity of the life settlement policies held by it. The fund was placed into official liquidation under Cayman Islands law in July 2011.
The SFC therefore found that Phillip Securities had failed to:
- conduct adequate due diligence on the fund before selling it to clients;
- provide adequate training and/or sufficient product information to its sales staff to ensure they fully understand the nature of the fund, risks involved, and for which types of investors the fund would have been suitable; and
- implement sufficient measures to ensure that its sales staff had assessed the suitability of the fund to clients, and to monitor and review the selling process.
In addition to the fine, Phillip Securities has also agreed to repurchase the fund from the clients at the principal amount less dividends plus interest if the amount had been invested in a 12-month fixed term deposit over the same period of time.
In deciding the sanction, the SFC took into account that Phillip Securities had co-operated with the SFC in resolving the disciplinary proceedings.
Comment
Pursuant to General Principles 2 and 5, and paragraphs 3.4 and 5.2 of the Code of Conduct, licensed corporations are required to ensure that, through the exercise of due diligence, their investment recommendations are based on thorough analysis and are reasonable in all the circumstances, and relevant material information was disclosed to clients.
Furthermore, General Principle 7 and paragraphs 4.3 and 12.1 of the Code of Conduct require licensed corporations to implement and maintain measures appropriate to ensuring compliance with relevant regulatory requirements and internal control procedures to protect their clients from financial losses arising from professional misconduct or omissions. Paragraph 4.2 of the Code of Conduct supplements this by requiring a licensed corporation to ensure that it has adequate resources to supervise diligently and does supervise diligently persons employed by it to conduct business on its behalf. Therefore, it may be useful to consult external compliance firms to implement comprehensive checks and procedures to ensure such requirements and always complied with.
For further details, please refer to:
http://www.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/doc?refNo=15PR65
6. Lo Chun Lam convicted of unlicensed futures contracts business
On 17 June 2015, the Eastern Magistrates’ Court convicted Mr. Lo Chun Lam (“Mr. Lo”) of carrying on a business of advising futures contracts when he was not licensed by the SFC to do so.
Background
The court found that between May and August 2013, Mr Lo gave advice on futures contracts in the name of “Cat Sir” or “Trader Cat” to subscribers who had paid to join private discussion groups he had set up in Facebook and LINE, a smartphone application. Subscribers paid fees of HK$3,750 in order to access the private discussion groups for three months. Mr Lo, who pleaded guilty, was fined HK$7,500 and was ordered to pay the SFC’s investigation costs.
Comment
According to section 114 of the a person who carries on a business in a regulated activity or holds himself out as carrying on a business in a regulated activity commits an offence unless he has obtained a license from the SFC. Readers who are unsure of how to apply for licenses and which license to apply for should consult external compliance firms specializing in licensing.
For further details, please refer to:
http://www.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/doc?refNo=15PR62
7. Former licensee given community services and cold shoulder order for false trading
On 19 June 2015, the Kowloon City Magistrates’ Court sentenced Mr Wong Chun (“Mr Wong”) to a statutory maximum of 240 hours of community service and imposed a cold shoulder order against him for two years for false trading in the shares of Sino-Tech International Holdings Limited (“Sino-Tech”).
Background
On 27 May 2015, the Eastern Magistrates’ Court convicted Mr. Wong of false trading in respect of the shares of Sino-Tech. Between December 2010 and January 2011, Mr Wong created a false or misleading appearance of active trading in shares of Sino-Tech, using matched trades and some wash trades between his own account and the accounts of two other investors he was able to control to grossly inflate trading volume by more than 400%. As a result, the securities accounts controlled by Mr Wong were able to off-load more than 200 million shares, making a gross profit of more than HK$2 million that he would otherwise not be able to do so
Mr. Wong was remanded in custody pending the sentencing on 19 June 2015, after he was found guilty. The Court also ordered Mr. Wong to pay to the SFC’s investigation costs.
Comment
Under section 303(2)(b) of the SFO, where a person is convicted of an offence under the SFO, the court may, in addition to any penalty, make an order that the person shall not, without the leave of the court, 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. Such order may last for up to 5 years. Persons who are subject to cold shoulder order will be registered on the SFC website under “Current Cold Shoulder Orders”.
For further details, please refer to:
http://www.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/doc?refNo=15PR67
8. SFC statement on the SEHK’s draft proposal on weighted voting rights
On 25 June 2015, the SFC issued the statement in relation to the SEHK draft proposal on weighted voting rights (“WVR”).
Background
The SEHK’s Consultation Conclusions on WVR published on 19 June 2015 outlined some of the relevant features of the draft proposal for a second stage consultation on WVR. The SFC has considered a more detailed version of the proposal.
The Board of the SFC has unanimously concluded that it does not support the draft proposal for primary listings with WVR structures.
The Board of the SFC’s views are set out below.
Eligible applicants would be required to have a very high expected market capitalization:
- Size offers no assurance that a company would treat its shareholders fairly. Any corporate misconduct by an issuer with a large market capitalisation will likely affect more investors and have a greater impact on our markets. For example, these issuers are more likely to become index components which will compel index funds and other types of “passive” institutional investors (which invest public money) to buy and hold their stocks even if fund managers disagree with their WVR structures.
The SEHK would expect eligible applicants to have certain features relating to their businesses and the contribution of their founders as identified in a set of “enhanced suitability” criteria:
- The SFC has significant concerns about these proposals that require regulators to assess compliance with the criteria for companies to be eligible for WVR (for example, whether the applicant has some unique features that cannot be easily replicated and are likely to provide a sustainable competitive advantage, as well as the contribution of the founder or founders). Such criteria can only be applied subjectively and are therefore inherently vague. A regime that relies on the subjective judgement of regulators to determine which listing applicants are eligible for WVR would give rise to regulatory uncertainty and could result in inconsistent and unfair decision-making. The SFC is opposed to proceeding on this basis.
WVR structures would be permitted for new listing applicants only (with appropriate anti-avoidance measures):
- The SFC is of the view that Hong Kong’s securities markets and reputation would be harmed if WVR structures became commonplace. Among other things, the SFC considered whether the draft proposal justifiably restricts the extent to which WVR structures would be permitted and whether there were effective measures to prevent circumvention of these restrictions by ineligible applicants.
- For example, the draft proposal limits WVR structures to new applicants only. This means that existing listed companies and future issuers that list without WVR structures would not be permitted to adopt such structures. For this feature to work, there must be effective measures to prevent ineligible issuers from bypassing the limitation through arrangements such as spin-offs, assets transfers or other forms of corporate restructuring. The SFC has significant concerns regarding the effectiveness of anti-avoidance provisions proposed by the SEHK.
- It is insufficient to look only at controlling the number of WVR issuers. The SFC is concerned, for example, with the potential impact of acquisitions of existing listed assets by WVR issuers. Unrestricted, post-listing transactions could over time result in the transfer of a significant proportion of existing listed businesses and assets to WVR structures. In the SFC’s view, such a development would be detrimental to our markets and the interests of the investing public generally.
- Separately, the draft proposal does not explain how many proposed safeguards and conditions (for example, whether a founder remains actively involved in management) can be monitored on an ongoing basis and what actions can be taken either by regulators or by public shareholders if they are not complied with.
A focus of the discussion to date on WVR has been competition from the United States for the listing of Mainland China businesses. Hong Kong’s business and competitive environment is affected by many factors and can change significantly within a relatively short period. In carrying out its regulatory functions, the SFC considers both long term and short term objectives and seeks to uphold the core principles of fairness and transparency which underpin Hong Kong’s reputation as an international financial centre.
The Board of the SFC has noted the extensive local and international public debate on and widespread coverage of the WVR issue over many months and has discussed the importance of Hong Kong’s reputation as an international financial centre. Against this background, the Board decided that it is in the public interest to issue this statement.
For further details, please refer to:
http://www.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/doc?refNo=15PR69
The article is for general information purpose only and is not intended to constitute legal or other professional advice.
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监管新闻 (2015年7月)
/在： 监管新闻 /通过： Tony Chan监管新闻 (2015年6月)
/在： 监管新闻 /通过： Tony ChanNewsletter – May 2015
/在： 合规通讯 /通过： Tony Chan- SFC emphasizes proper disclosure of inside information
- SFC commences Market Misconduct Tribunal proceedings over alleged insider dealing in Warderly shares
- SFC reprimands and fines Kingston HK$500,000 for fitness and properness concerns
- SFC bans Wong Wai Hong for six months for breaching the Code of Conduct
- SFC recovers HK$190 million for investors of collapsed hedge fund
- SFC bans Benjamin Zhu Zhiwei for 18 months for misconduct
- Hong Kong Game Theory Association Limited and sole director convicted of unlicensed activities
- Intermediaries reminded full compliance with Know Your Client and account opening procedures
- Update on reporting and record keeping rules for OTC derivatives
- SFC enhances regime to regulate alternative liquidity pools
- SFC launches new register of cold shoulder orders
- Joint Announcement of China Securities Regulatory Commission and SFC on Mutual Recognition of Funds
- SFC and CSRC sign agreement on Mainland-Hong Kong Mutual Recognition of Funds
- SFAT affirms SFC decision to ban Sun Xiao for 13 months
- Former licensee convicted of false trading
1. SFC emphasizes proper disclosure of inside information
On 29 April 2015, the SFC published the latest edition of its Corporate Regulation Newsletter highlighting the importance of the proper disclosure of inside information by listing applicants and listed companies.
Background
The newsletter describes, through a number of examples, some of the factors that should be considered when determining whether information needs to be disclosed. These include, among others, the certainty and materiality of the information as well as whether it diverges from market expectations. The newsletter also advises companies to be careful when they repeat information which was either included in their prospectuses or otherwise already announced.
The newsletter also addresses disclosures by listing applicants. In particular, it reinforces the obligation on sponsors to conduct reasonable due diligence to ascertain the accuracy of the information disclosed in listing documents. The newsletter further states that where the identities of a listing applicant’s major customers are not included in the prospectus, that information cannot be supplied at roadshows or in marketing materials. The SFC also encouraged listing applicants to take particular care in ensuring that incentive schemes for initial public offerings are appropriate and easy to understand.
Comment
Pursuant to section 307D of the SFO, listed companies have an obligation to disclose inside information to the public as soon as reasonably practicable after the information has come to their knowledge, subject to specified exceptions under section 307B of the SFO. Inside information is considered to have come to the knowledge of a listed corporation if (a) an officer of the corporation, in the course of performing his duties as an officer of the corporation, has or ought reasonably to have known about the inside information; and (b) a reasonable person, acting as an officer of the corporation, would consider that the information is inside information in relation to the corporation. If this obligation is breached, the listed corporation and/or its directors may be subject to civil liability of a regulatory fine up to HK$8 million and/or other sanctions under section 307N of the SFO.
To view the Corporate Regulation Newsletter, please visit:
http://www.sfc.hk/web/EN/files/ER/Reports/CRN/CR_201504.pdf
For details, please refer to:
http://www.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/doc?refNo=15PR39
2. SFC commences Market Misconduct Tribunal proceedings over alleged insider dealing in Warderly shares
On 4 May 2015, the SFC commenced proceedings in the Market Misconduct Tribunal (“MMT”) against Mr Lo Hang Fong (“Mr Lo”), a former Company Secretary of Warderly International Holdings Limited (“Warderly”), and Mr Luu Hung Viet Derrick (“Mr Luu”), a lender and potential investor of Warderly, for alleged insider dealing in Warderly shares.
Background
The SFC alleges that Mr Lo and Mr Luu were aware that Warderly was in a perilous financial position with banks withdrawing credit facilities when they sold the company’s shares in 2007 and avoided a total loss of HK$12,564,516. The SFC further alleges that Mr Lo and Mr Luu knew the financial crisis facing Warderly was material, highly price sensitive and not generally known to the market.
Warderly began to encounter cash flow problems in mid-2006 due to a surge in the price of raw materials and the settlement of a large tax claim with the Inland Revenue Department. From July 2006 onwards, Warderly experienced a number of material events concerning its financial position, including tightening of banking facilities and subsequent events such as overdue loans, rescheduled payments, demand letters and writs issued by banks. Furthermore, on 14 May 2007, the SFC directed the SEHK to suspend all dealings in Warderly shares under Rule 8 of the Securities and Futures (Stock Market Listing) Rules. Trading of Warderly shares resumed on 16 December 2013 after Warderly underwent a restructuring of its business operations and a change of its management team.
Comment
The definition of insider dealing is set out in sections 270 and 291 of the SFO. Under those sections, insider dealing includes the situation when a person dealing in the Hong Kong listed securities of a corporation is connected with the listed corporation and knowingly has inside information in relation to the listed corporation. Under the Ordinance, “inside information” refers to specific information in relation to a corporation, its shareholders or officers, or its listed securities or their derivatives, which is not generally known to the persons who are accustomed to dealing or would be likely to deal in those securities, but would likely affect the price of the listed securities materially if the information was disclosed.
For details, please refer to:
http://www.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/doc?refNo=15PR41
3. SFC reprimands and fines Kingston HK$500,000 for fitness and properness concerns
On 5 May 2015, the SFC reprimanded and fined Kingston Securities Limited (“Kingston”) HK$500,000 for fitness and properness concerns.
Background
The SFC found that on 19 January 2009, an employee of Kingston, while in Macao, opened accounts for 22 Macao residents and took orders and payment from those clients, who each bought one or three board lots of PCCW Limited (“PCCW”) shares. The transactions in question involved PCCW shares that were later voted in the shareholders’ meeting in early 2009 to consider the scheme of arrangement (scheme) proposing the delisting and privatization of PCCW, and the scheme was subsequently withdrawn.
Since neither Kingston nor its employee involved were authorized by the Monetary Authority of Macao (“AMCM”) to conduct regulated activities, including opening securities accounts and taking orders for securities trading in Macao, the conduct was in breach of the Financial System Act of Macao. In October 2014, the AMCM in its proceedings against Kingston, made a final ruling to sanction and fine the firm MOP750,000 for its breach of the Financial System Act.
Kingston’s conduct has subsequently raised the SFC’s concern over Kingston’s fitness and properness as an SFC-licensed corporation. The SFC considers that Kingston’s contravention of the laws of Macao casts doubt on the firm’s reputation, character and reliability because as an SFC-licensed corporation, the duty of Kingston to demonstrate these qualities is not only restricted to conduct in the Hong Kong market. It is also imperative for Kingston to respect and comply with rules of relevant regulatory authority and laws of relevant jurisdictions, particularly those where Kingston conducts its business activities. This is evident in the circular issued by the SFC to intermediaries in January 2014, reminding them about their obligations when conducting cross-border business, including the importance of ensuring compliance with all relevant laws and obligations.
Comment
According to paragraph 12.1 of the Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission (“Code of Conduct”), a licensed person should comply with, and implement and maintain measures appropriate to ensuring compliance with the law and relevant regulatory requirements. This general obligation to observe legal and regulatory requirements applies to activities conducted by the licensed person whether in or outside Hong Kong, with respect to all applicable requirements of any relevant regulatory authority. Furthermore, a licensed corporation having employees or agents conducting business activities on its behalf in other jurisdictions, irrespective of whether such persons are licensed under the SFO, is likely to be regarded by the SFC as responsible for their conduct. Therefore, if these persons are not licensed under the laws or regulations of such other jurisdictions when they should be, or they otherwise conduct themselves in an improper manner, this may constitute a breach of paragraph 12.1 of the Code of Conduct and may also call into question the fitness and properness of such a corporation and/or individual to be, or remain, licensed under the SFO. As such, licensed corporations should enquire as to how the law of other jurisdictions applies to the particular activity before conducting any cross-border business activities.
For details, please refer to:
http://www.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/doc?refNo=15PR42
4. SFC bans Wong Wai Hong for six months for breaching the Code of Conduct
On 5 May 2015, the SFC banned Mr Wong Wai Hong (“Mr Wong”), former Chairman and CEO of Lycean Securities Limited (“Lycean Securities”) from re-entering the industry for six months from 4 May 2015 to 3 November 2015 for breach of the SFC’s Code of Conduct.
Background
The disciplinary action follows an SFC investigation which found that, between 14 September and 29 October 2012, Mr Wong effected numerous transactions in a client’s account on a discretionary basis without obtaining the client’s written authorization.
The SFC considers that the client’s interests were prejudiced as Mr Wong’s failure deprived the client from the firm’s protection on discretionary account. As the client’s securities account was not designated as a discretionary account by the firm, the operation of the client’s securities account was not properly monitored and supervised by the firm. Lycean Securities has subsequently compensated the affected client by reimbursing him 80 per cent of the loss incurred in his securities account.
Comment
Under the Code of Conduct, a discretionary account is defined as client account in respect of which the client has authorized the licensed or registered person or any person employed by it (who must in turn be a licensed or registered person) to effect transactions on behalf of the account without the client’s prior approval for each transaction. The discretion may be absolute or subject to conditions.
Readers should take note that the Code of Conduct imposes the following requirements on the establishment and operation of discretionary accounts:
- the client’s authority must be in writing;
- the authority should specify the person who is authorized to operate the account, stating that the person is an employee or agent of the licensed or registered person, if the authority is granted to such person;
- the terms of the authority should be explained by the licensed or registered person or a person employed by it to the client if the authority is given to such persons to operate the account;
- the authority should be confirmed annually by the licensed or registered person with the client – for this purpose, it is permissible for the licensed or registered person to notify the client before the expiry date that it will be automatically renewed unless the client specifically revokes it before the expiry date;
- the account should be designated as a discretionary account;
- senior management should approve the opening of the account; and
- internal control systems should be installed to ensure that the operation of the account is properly supervised.
For further details, please refer to:
http://www.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/doc?refNo=15PR43
5. SFC recovers HK$190 million for investors of collapsed hedge fund
On 6 May 2015, the SFC resolved proceedings involving the Descartes Athena Fund SPC (the “Athena Fund”), paving the way for about 340 overseas investors allegedly defrauded by the collapsed private hedge fund to recoup part of their investments from distribution of HK$191,360,215 of assets recovered by the SFC.
Background
The occurred after the SFC commenced urgent proceedings in April 2009 to freeze assets of the Athena Fund to protect the interests of its investors, alleging that the Athena Fund and its fund managers defrauded investors by issuing false documents purportedly from a major accounting firm and sending them false statements of account and subscription contracts, and that the assets of the Athena Fund had been dissipated.
The SFC’s Executive Director of Enforcement, Mr Mark Steward, said: “The SFC alleges the Athena Fund was an outright fraud. Our action to have the assets frozen prevented them from disappearing into the perpetrators’ pockets and will enable most investors to recover a substantial portion of their investments.” The other defendants in the SFC proceedings include the two operators of the Athena Fund and the related companies, namely Descartes Investment Management Limited (“DIM”), Descartes Global Asset Management Limited (“DGAM”) and Descartes Finance Limited (“DFL”) (collectively, the “Descartes Group”).
Winding up and freezing assets
The Athena Fund was subsequently wound up in its place of incorporation, the Cayman Islands, with Mr John Robert Lees and Mr Colum Bancroft (later Mr Mat Ng) appointed as joint and several interim administrators of the Athena Fund and the Descartes Group. Following the initial action, the SFC traced that assets, namely securities, from the Athena Fund had been transferred to NBS Limited (“NBS”). The SFC then made a further application to the Court to freeze assets held by NBS up to the value of these securities.
However, NBS claimed to be a nominee of Bestmega Limited (“Bestmega”), an investor in the Athena Fund. NBS and Bestmega contended they were entitled to retain these securities because Bestmega was an investor in the Athena Fund. The SFC disagreed, countering that these securities were illegally transferred by the Athena Fund to Bestmega and that both NBS and Bestmega were liable to restore the Athena Fund to the original position before the alleged illegal transfer.
Subject to court approval in both Hong Kong and in the Cayman Islands where the Athena Fund is incorporated, the SFC has reached an agreement with NBS and Bestmega without any finding of illegality or admission by NBS/Bestmega. Under the agreement, funds in the amount of HK$191,360,215 will be paid to the Athena Fund for distribution by the court-appointed liquidators to all investors in the Athena Fund and the Descartes Group, including NBS/Bestmega.
Comment
Section 213 of the SFO enables the SFC to petition or apply to the Court of First Instance (“CFI”) for injunctions to prevent contravention by any person of the relevant provisions or any orders made or notices issued or any terms and conditions of any license or registration.
For further details, please refer to:
http://www.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/doc?refNo=15PR44
6. SFC bans Benjamin Zhu Zhiwei for 18 months for misconduct
On 7 May 2015, the SFC banned Mr Benjamin Zhu Zhiwei (“Mr Zhu”) from re-entering the industry for 18 months from 6 May 2015 to 5 November 2016.
Background
The disciplinary action follows an investigation by the SFC which found that, between 2009 and 2012, Mr Zhu concealed his securities account and his beneficial interest in his friend’s securities account from his employer and conducted personal trading in these accounts without seeking prior approval from his employer as required under its internal policy.
Moreover, the SFC found that Mr Zhu had exposed his employer to potential conflict of interest with its clients as he traded in contract for differences, the underlying securities of which were on the employer’s restricted list. While the trades were conducted after the listed companies publicly announced their corporate transactions, their securities remained on the restricted list of Mr Zhu’s employer as per its internal policy. The trades would have been rejected by his employer had Mr Zhu sought prior approval as required.
The SFC considers Mr Zhu’s conduct fell short of the standards required of him under SFC’s Code of Conduct. His dishonesty also made it impossible for his employer to monitor his trading activities and to detect any potential conflict of interest situations and/or other malpractices arising from such activities. In deciding the penalty, the SFC has taken into consideration the duration of Mr Zhu’s concealment of secret accounts, that he disregarded his employer’s internal control policy and had not conducted the personal trades while in possession of material non-public information.
Comment
The Code of Conduct is based on nine general principles, namely: honesty and fairness, diligence, capabilities, information about clients, information for clients, conflicts of interest, compliance, client assets and responsibility of senior management.
General Principles 1 (honesty and fairness) and 6 (conflicts of interest) is particularly applicable in this case. Breaches of the Code of Conduct could reflect adversely on the fitness and properness of a person to continue being licensed or registered.
For further details, please refer to:
http://www.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/doc?refNo=15PR45
7. Hong Kong Game Theory Association Limited and sole director convicted of unlicensed activities
On 11 May 2015, the Eastern Magistrates Court convicted Hong Kong Game Theory Association Limited (“Hong Kong Game Theory”) and Mr Sze Ching Lok (“Mr Sze”), its sole director and shareholder, of advising on futures contracts without a license following a 10 day trial.
Background
Mr Sze was sentenced to one month’s imprisonment suspended for two years, while Hong Kong Game Theory was fined HK$7,000. The SFC alleged that, between July and August 2010, Mr Sze ran courses via Hong Kong Game Theory on trading in Hang Seng Index futures contracts in which real time investment advice was provided to attendees as to when and at what price to trade the futures contracts. This constituted advising on futures contracts, a regulated activity under the SFO, but both Hong Kong Game Theory and Mr Sze were not licensed to do so.
Hong Kong Game Theory and Mr Sze were acquitted of another two counts of unlicensed dealing in securities as the Magistrate gave the defendants the benefit of the doubt that Sze and the investor involved might have worked as partners in trading the stock options concerned.
Comment
According to Part V of the SFO, a person who carries on or holds himself out as carrying on the business of a “regulated activity” commits an offence unless that person is appropriately licensed or registered with the SFC, or that person/activity fits within an applicable exemption. Therefore, persons must ensure that they have obtained the relevant license for the type of regulated activity listed under Schedule 5 of the SFO.
For further details, please refer to:
http://www.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/doc?refNo=15PR46
8. Intermediaries reminded full compliance with Know Your Client and account opening procedures
On 12 May 2015, the SFC issued a Circular reminding intermediaries on the importance of appropriate account opening procedures for investors in and outside Hong Kong in order to fully comply with the Know Your Client (“KYC”) and account opening procedures requirements under the Code of Conduct.
Background
The Circular was issued after the SFC had identified certain deficiencies and an unsatisfactory practice by licensed corporations during recent supervisory reviews of KYC and account opening procedures. As a result, the SFC urged intermediaries to take proper measures to effectively authenticate the client’s identity and the client’s execution of account opening documents. Intermediaries are reminded to ensure that the identity and other personal information about their clients are accurate and up-to-date to ensure their clients are contactable.
The Circular also identifies that the use of an affiliate which itself is not a regulated financial institution and is not subject to similar KYC requirements to perform the task of certifying the identity documents of new clients and client’s execution of account opening documents may result in inadequacies due to the lack of relevant knowledge and experience of the affiliate. As such, intermediaries are strongly discouraged from appointing any affiliate which is not a regulated financial institution to perform such task.
If intermediaries fail to maintain and implement proper policies and procedures for compliance with the KYC and account opening procedures, they may be subject to disciplinary actions by the SFC.
Comment
The KYC requirements are set out in paragraph 5.1 of the Code of Conduct, which states that prior to executing any transaction for a client, a licensed or registered person is required to satisfy itself on reasonable grounds of the identity, address and contact details of the ultimate originator and the ultimate beneficiary of a transaction and keep a record of the information used to establish the same. In the case of a collective investment scheme (“CIS”) or discretionary account, this will require the licensed or registered person to establish the identity of the CIS or account and its manager. The identities of the ultimate beneficiaries only need to be established where they are in fact giving the instructions.
The above requirements are supplemented by paragraph 5.4 of the Code of Conduct and the Client Identity Guidance Note in Schedule 2 of the Code of Conduct, which contains further clarifications and examples of the above requirements.
To view the Circular, please visit: http://www.sfc.hk/edistributionWeb/gateway/EN/circular/openFile?refNo=15EC28
For further details, please refer to:
http://www.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/doc?refNo=15PR47
9. Update on reporting and record keeping rules for OTC derivatives
On 15 May 2015, the HKMA and SFC released conclusions on the further consultation on mandatory reporting and related record keeping obligations under the new OTC derivatives regime. Proposals on certain aspects of the reporting regime were revised after taking into account market feedback.
Background
On 18 July 2014, the HKMA and SFC commenced a one-month public consultation on the Securities and Futures (OTC Derivatives Transactions – Reporting and Record Keeping Obligations) Rules. Thereafter, on 28 November 2014, the HKMA and SFC issued the Consultation Conclusions. The further consultation, which ended on 23 December 2014, sought further views on three ancillary matters relating to: (i) the reporting of valuation transaction information (including the details of this requirement and the proposed implementation timetable); (ii) the designation of a list of jurisdictions for the purpose of the masking relief; and (iii) the list of stock markets, futures markets and clearing houses to be prescribed for the purposes of defining the scope of the OTC derivatives regime.
Highlights of the consultation conclusion include requirements on:
- Daily valuation reporting
- Jurisdictions for masking relief
- Markets and clearing houses to be prescribed
- Definition of the term “affiliate”
- Record keeping obligations
The revised Securities and Futures (OTC Derivative Transactions – Reporting and Record Keeping Obligations) Rules attached to the conclusions paper was gazetted on the same today and was tabled before the Legislative Council on 20 May 2015 for negative vetting. A set of draft FAQs has also been uploaded on the HKMA and SFC websites to help market participants better understand how the rules operate.
Comment
Part VI of the SFO grants the SFC powers to make detailed rules relating to the keeping of account and records by licensed or registered intermediaries and associated entities of an intermediary whose client assets are received or held by them. As such, the SFC has made the Securities and Futures (Keeping of Records) Rules under s.151 of the SFO.
For further details, please refer to:
http://www.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/doc?refNo=15PR49
10. SFC enhances regime to regulate alternative liquidity pools
On 15 May 2015, the SFC released consultation conclusions on proposals to enhance and unify the regulatory regime for alternative liquidity pools (“ALPs”).
From 27 February to 25 April 2014, the SFC conducted a two-month consultation concerning the regulation of ALPs. The SFC received 59 written responses from industry associations, market participants (including ALP operators), professional and statutory bodies as well as individuals during the consultation. The respondents generally welcomed the proposals.
The enhanced regime included the following highlights:
- no individual investors (including individual professional investors and their wholly owned investment holding corporations) will be allowed to use ALPs;
- client facilitation orders will be treated as proprietary orders, which will have a lower execution priority in ALPs than agency orders; and
- there will be no mandatory “opt-in” requirement before client orders can be routed to ALPs, but ALP operators should permit their clients to opt out of having their orders transacted in ALPs.
Mr Ashley Alder, the SFC’s CEO, said, “The enhanced regulatory regime aims to provide a level playing field for all ALP operators in Hong Kong. We have developed the regime in light of practices in major international markets and the principles published by the International Organization of Securities Commissions.” He further stated that “the SFC will closely monitor market and regulatory developments, and may propose further policy refinements and rule changes in the future to maintain an appropriate balance between market innovation and investor protection”.
The new regime involves amendments to the Code of Conduct, which include a new paragraph 19 and a new Schedule 8 which are set out in Appendices B and C to the Consultation Conclusions. This regime will come into effect on 1 December 2015.
For further details, please refer to:
http://www.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/doc?refNo=15PR15
11. SFC launches new register of cold shoulder orders
On 21 May 2015, the SFC launched a new public register of cold shoulder orders to facilitate compliance by intermediaries when dealing with clients who are subject to these sanctions.
Background
The new register, which can be accessed under the Alert List the homepage of the SFC’s website, contains the names of those who are the subjects of current cold shoulder orders made by the courts, the MMT or the Takeovers Panel. The Alert List also includes a table of disqualification orders made against directors of companies and a link to “Have you seen these people?” which contains information of individuals being sought by the SFC in relation to its investigations or enforcement inquiries. Names on these lists will be deleted once the period of prohibition or disqualification is completed. The SFC therefore encourages intermediaries to refer to the list from time to time to ensure compliance with the orders.
“Successful enforcement relies upon the cooperation of market participants and we hope the new register will make those who are prohibited from trading in Hong Kong or disqualified from acting as company directors more readily identifiable,” said the SFC’s Executive Director of Enforcement, Mr Mark Steward.
Comment
A cold shoulder order is a prohibition on investing or trading in Hong Kong markets for up to 5 years. On the other hand, a disqualification order is a prohibition on someone from being a director of a corporation, and carries a maximum term of 15 years.
Pursuant to sections 12.2(c) and 12.3 of the Introduction to the Codes on Takeovers and Mergers and Share Buy-Backs (the “Codes”), the Takeovers Panel and the Takeovers Executive may impose sanctions requiring licensed corporations, licensed representatives, registered institutions, or relevant individuals, for a stated period, not to act or continue to act in any or a stated capacity for any person who has failed to comply, or has indicated that he does not intend to comply, with either the Codes or a ruling. Moreover, Under sections 257(1)(b) and 307N(1)(b) of the SFO, the MMT can make a cold shoulder order against a person requiring 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 a period not exceeding 5 years. Furthermore, a cold shoulder may be made by the Court of First Instance under the following two sections. Pursuant to section 213(2)(g) of the SFO, the Court of First Instance may make any ancillary order which the Court of First Instance considers necessary in consequence of the making of any of the orders referred to in paragraphs (a) to (f). Additionally, section 214(2)(a) of the SFO provides that the Court of First Instance may make an order restraining the carrying out, or requiring the carrying out, of any act or acts.
12. Joint Announcement of China Securities Regulatory Commission and SFC on Mutual Recognition of Funds
The China Securities Regulatory Commission (“CSRC”) and SFC have recently decided to embark on the Mainland-Hong Kong Mutual Recognition of Funds (“MRF”) initiative to deepen Mainland-Hong Kong financial cooperation and promote the joint development of the Mainland and Hong Kong capital markets. On 22 May 2015, the SFC made a joint announcement setting out the details of the MRF initiative.
The CSRC and SFC have agreed on the implementation principles, and the mode and operation of the MRF. On 22 May 2015, the CSRC and SFC signed a memorandum of regulatory cooperation in respect of the MRF. Through the MRF, the CSRC and SFC will allow Mainland and Hong Kong funds that meet the eligibility requirements to follow streamlined procedures to obtain authorization or approval for offering to retail investors in each other’s market.
Further, the announcement states that the MRF is an important element in the opening up of the Mainland capital market and an important milestone in the mutual opening of the Mainland and Hong Kong markets. The MRF will enhance the mutual capital market access between the Mainland and Hong Kong and is significant in (i) deepening the exchange and cooperation of Mainland and Hong Kong asset management industries, broadening cross-border investment channels, and enhancing the competitiveness of the Mainland and Hong Kong fund markets; (ii) laying a foundation for the CSRC and SFC to jointly develop a fund regulatory standard, promoting the integration and development of the Asian asset management industry and encouraging the transformation of Asian savings into cross-border investments; and (iii) providing more diverse fund investment products to Mainland and Hong Kong investors, expanding business opportunities and enhancing the international competitiveness of Mainland and Hong Kong fund management firms.
The announcement also mentions the “Provisional Rules for Recognized Hong Kong Funds” and “Circular on Mutual Recognition of Funds between the Mainland and Hong Kong”, which are documents prepared by the CSRC and SFC. The said documents set out the eligibility requirements, applications procedures, operational requirements and regulatory arrangements of the MRF, and will form the basis of regulation and enforcement, and market participants’ business operations. The CSRC and SFC have also established a cooperation mechanism for cross-border regulation and enforcement, to ensure that Mainland and Hong Kong investors receive equal protection.
Moreover, the CSRC and SFC will establish equivalent eligibility requirements for recognizing Hong Kong and Mainland funds promote the mutually beneficial development of recognized funds and broadly balanced cross-border in and out fund flows, and will hold briefings to explain to the market the application procedures and requirements for the MRF. Readers should note that the MRF will be implemented on 1 July 2015.
For further details, please refer to:
http://www.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/doc?refNo=15PR52
13. SFC and CSRC sign agreement on Mainland-Hong Kong Mutual Recognition of Funds
On 22 May 2015, the SFC and CSRC have signed a Memorandum of Regulatory Cooperation on Mainland-Hong Kong MRF, which will allow eligible Mainland and Hong Kong funds to be distributed in each other’s market through a streamlined vetting process. The scheme will be implemented on 1 July 2015. .
The Memorandum also established a framework for exchange of information, regular dialogue as well as regulatory cooperation in relation to the cross-border offering of funds.
“The MRFs initiative is a major breakthrough in the opening up of the Mainland’s funds market to offshore funds. It will also open up a new frontier for the Mainland and Hong Kong asset management industries and make available a wider selection of fund products to investors in both markets,” the SFC’s Chairman, Mr Carlson Tong (“Mr. Tong”) said.
“More importantly, this initiative will lay the foundation for the CSRC and SFC to jointly develop a fund regulatory standard, promoting the integration and development of the Asian asset management industry,” Mr Tong added.
Further details of the scheme are set out in the joint announcement issued by the SFC and the CSRC and in the SFC Circular issued on 22 May 2015.
To view the Joint announcement, please visit:
http://www.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/doc?refNo=15PR52
To view the SFC Circular, please visit:
http://www.sfc.hk/edistributionWeb/gateway/EN/circular/doc?refNo=15EC29
For further details, please refer to:
http://www.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/doc?refNo=15PR51
14. SFAT affirms SFC decision to ban Sun Xiao for 13 months
On 26 May 2015, the SFC had banned Ms Sun Xiao (“Ms Sun”) from re-entering the industry for 13 months from 22 May 2015 to 21 June 2016 after the Securities and Futures Appeals Tribunal (SFAT) affirmed the SFC’s decision and ordered her to pay the SFC’s costs.
An SFC investigation found that Ms Sun:
- maintained a personal securities account and conducted personal trades in the account without disclosing it to her former employer; and
- failed to avoid potential conflicts of interest in that she (i) recommended target companies to her former employer as potential investment opportunities, without disclosing that she held shares in these companies and/or (ii) traded in shares of the target companies after she had recommended them to her former employer as potential investment opportunities, while two of these companies were on the firm’s restricted trading list.
The SFC concluded that Ms Sun’s failures were in breach of the Code of Conduct. Her non-disclosure of trading activities in the secret account was deliberate and dishonest, and called into question her fitness and properness as a licensed person.
For further details, please refer to:
http://www.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/doc?refNo=15PR54
15. Former licensee convicted of false trading
On 27 May 2015, The Eastern Magistrates’ Court convicted Mr Wong Chun (“Mr Wong”) of false trading in respect of the shares of Sino-Tech International Holdings Limited (“Sino-Tech”).
Mr. Wong was remanded in custody pending sentencing. The case was adjourned to 19 June 2015.
The SFC alleged that, between December 2010 and January 2011, Mr Wong created a false or misleading appearance of active trading in shares of Sino-Tech, using matched trades and some wash trades between his own account and the accounts of two other investors he was able to control to grossly inflate trading volume by more than 400%.
As a result, the securities accounts controlled by Mr Wong were able to off-load more than 200 million shares making a gross profit of more than HK$2 million that he would otherwise not be able to do so.
The SFC’s Executive Director of Enforcement, Mr Mark Steward, said, “Falsifying the market for or the price of securities misleads the investing public and is dishonest. The SFC will continue to prosecute deliberate and dishonest manipulation and offenders can expect to receive terms of imprisonment.”
For further details, please refer to:
http://www.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/doc?refNo=15PR55
The article is for general information purpose only and is not intended to constitute legal or other professional advice.
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