Hong Kong: SFC Enforcement Trends 

June, 2007 -

The SFC recently appointed Mr. Mark Steward from the Australian Securities and Investment Commission (ASIC) as Executive Director of Enforcement. While enforcement initiatives of the SFC under his new leadership are still evolving, reference to the past record of ASIC’s enforcement may provide some hints. In 2005/2006 at ASIC, civil orders against people or companies increased from 121 to 230 (+90%); people removed from acting as directors of companies from 33 to 44 (+33%); and illegal schemes shut down or other action taken from 76 to 102 (+34%). The number of criminal convictions was steady; and people banned from participating in financial services slightly rose after a 40% fall in the year 2004/05.

In the year 2005/06, the SFC had an 5% increase in new enforcement cases from 501 to 524 after a sharp fall from 1,223 in 2003/04. There was a 11% increase in actions against licensees from 88 to 98 and a fall of 5% in entities successfully prosecuted from 76 to 72.

Speaking at the Hong Kong Securities Institute on 3 May 2007, Mr. Steward said there would be more focus on identifying the root causes of misconduct, noting that during the past six months, there had been a greater emphasis placed on detection and enquiry. A review of the enforcement actions during this period indicate enforcement actions taken by the SFC for breaches of the disclosure of interests obligations, unlicensed regulated activities, false/misleading information and short selling.

Mr. Stewart spoke of his particular interest in corporate governance and market misconduct, making clear that the SFC would take action against directors whose inappropriate conduct resulted in losses to shareholders.

As a new development, three areas of the Listing Rules will be given statutory backing, namely (i) periodic financial reporting; (ii) disclosure of price sensitive information; and (iii) certain notifiable transactions and connected transactions which require shareholders approval. A breach of the relevant provisions under the amended SFO will constitute market misconduct. This will present new challenges to SFC Enforcement.



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