SFC flags inspection malpractices: Are you prepared?
In a circular issued on 29 January 2026, the Securities and Futures Commission (SFC) delivered a clear message: There is no tolerance for conduct that impedes SFC inspection powers under section 180 of the Securities and Futures Ordinance (SFO). Inspection is an important supervisory tool for the SFC to assess licensed firms’ compliance with statutory and regulatory requirements, including the SFO, its subsidiary legislation, and the SFC’s codes and guidelines, and to evaluate whether the licensed firms remain fit and proper to hold their licences.
Recent inspections, however, have revealed a pattern of unsatisfactory practices that have drawn the SFC’s scrutiny. Some licensees attempted to postpone or reject inspection notices or declined to make relevant staff available for interviews. Others challenged the SFC’s inspection scope, review areas, or sample selections without any valid legal basis, effectively challenging the regulator rather than cooperating. Delays were common, with firms providing responses that were evasive, misleading, intentionally incomplete, or partial.
The SFC has made clear that consequences will follow. These may range from supervisory interventions, such as the imposition of licence conditions or restrictions on business activities, to enforcement actions, including criminal proceedings, and licence suspension or revocation.
The message is clear: cooperation is not a choice. When the SFC comes knocking, the Responsible Officers and Managers-In-Charge (MIC) of licensed firms need to be front and centre. They are expected to take the lead and engage with the SFC during the inspection process. The SFC may specifically request to speak with Responsible Officers regarding the licensed firms’ regulated business activities, and expects them to be available to engage with the SFC in the inspection process. Being absent or unreachable is not an option. The MIC of the Overall Management Oversight function, supported by the Compliance MIC, is expected to exercise robust oversight and ensure a licensed firm is prepared for inspections at all times. Records must be properly kept and retrievable without delay.
We recommend a proactive, rather than reactive, approach to preparing for SFC inspections. Licensed firms should regularly review their existing compliance policies and procedures to ensure they reflect the latest regulatory requirements, conduct periodic internal reviews to detect and rectify issues early, and provide ongoing training on regulatory obligations.
