Financial Crime World

Securities Fraud Crackdown in Hong Kong: SFC Takes Tough Action Against Corporate Misconduct

The Hong Kong Securities and Futures Commission (SFC) has been relentless in its pursuit of securities fraud and corporate misfeasance, taking significant actions against listed companies, their executives, and intermediaries. Here are some notable developments from the past year.

  • Section 214 Order: In October 2022, the Court of First Instance granted an unprecedented order under Section 214 of the Securities and Futures Ordinance against the chairman and executive director of a listed investment holding company. He was forced to buy shares from other shareholders after being found guilty of orchestrating a scheme to inflate the company’s bank balances. Background
  • Combatting Misconduct by Listed Issuers: In July 2023, the SFC and the Accounting and Financial Reporting Council (AFRC) issued a joint statement, reaffirming their commitment to combat misconduct by listed issuers, particularly those channelling company funds to third parties under suspicious circumstances. Details
  • Online Ramp and Dump Schemes: The SFC has arrested 24 people, including two suspected masterminds, and filed 24 criminal charges related to online ramp and dump schemes involving listed securities. Impact
  • Individual Accountability: The SFC has taken stern disciplinary action against individuals, such as Philip Shaw, a former responsible officer and board member of a prominent investment bank. He was banned from re-entering the industry for ten years due to his role in the bank’s regulatory breaches. Consequences

Awareness and Compliance Obligations

As investment professionals and firms conduct business overseas, they must be aware of and comply with overseas regulatory requirements to maintain their local fitness and properness. Failures to do so can result in serious consequences.

  • Korean Regulatory Breaches: In September 2022, CEO Christopher Aarons of an asset management company was suspended for two years for Korean regulatory breaches. An asset management firm was also fined HK$1.75 million for non-compliance with European Union short selling reporting requirements. Penalties
  • AML Regulations: The Hong Kong Monetary Authority (HKMA) has been imposing fines on Hong Kong branches of foreign banks for control deficiencies and lapses in Anti-Money Laundering (AML) procedures. Implications

Ongoing Developments

  • Proposed Expansion of Remedial Relief: The SFC’s proposed expansion of remedial relief under Section 213 of the Securities and Futures Ordinance has been put on hold due to respondents’ submissions.
  • Collaboration Between Hong Kong Regulators and China: In February 2023, the SFC and the China Securities Regulatory Commission (CSRC) signed a memorandum of understanding for cross-boundary supervision of intermediaries, exchange of information, and enforcement. Impact

Summary

Hong Kong’s regulatory landscape is showing no signs of slowing down as the SFC continues its crackdown on securities fraud and corporate misconduct. With strong collaboration among regulators both in Hong Kong and mainland China, the fight against financial misconduct remains a top priority.

Background

The SFC has been actively issuing landmark decisions against listed companies, their executives, and intermediaries for securities fraud and corporate misconduct.

Details

Collaboration to combat misconduct by listed issuers as outlined in a July 2023 statement.

Impact

Results in arrests, criminal charges, and disciplinary actions.

Consequences

Individuals face 10-year bans and fines for their role in regulatory breaches.

Penalties

Companies and CEOs face regulatory breaches penalties, including suspension and fines.

Implications

Ongoing monitoring and adherence to AML regulations are crucial to prevent penalties and maintain good standing.