The Securities and Futures Commission (SFC) again warns fund managers of the serious consequences of mismanagement of funds and discretionary accounts in its March 2026 Enforcement Reporter (Reporter): This message aligns with the SFC’s October 2024 Circular, emphasizing senior management’s obligations to maintain robust internal controls and act with integrity. The multiple enforcement actions noted in the Reporter show the SFC’s warning to “step up its disciplinary actions and impose harsher penalties against similar or persistent misconduct”. Actions taken by the SFC include imposing significant financial penalties, revoking licences, issuing industry bans, or restricting operations to ensure compliance with regulatory requirements, deter systemic threats, and preserve confidence in Hong Kong’s financial markets.
Key areas of misconduct identified from the Reporter’s cases include:
- Governance and Controls: inadequate conflict of interest management, weak risk management, and failure to safeguard client assets;
- Operational: failures in ensuring investments align with mandates, and lapses in reconciliations, valuations and audits of fund assets;
- Representation and Disclosure: misrepresentation to the SFC, auditors and investors; provision of false or misleading information to the SFC and insufficient disclosure to investors;
- Conduct: failure to act in the best interest of fund, misuse of client assets and misappropriation of client funds;
- KYC and AML: inadequate/ineffective controls, lack of adequate know-your-client and suitability assessment controls and deficient AML records keeping.
What this means for fund managers
The Reporter is not merely a recap of past failings – it serves as both a stark reminder of the consequences of non-compliance and a clear indicator of the regulator’s current enforcement focus. In an environment of heightened regulatory expectations, fund managers are recommended to:
- conduct a fresh gap analysis of their policies and procedures, particularly on conflict of interest, risk management and valuation of fund assets against the requirements under the Fund Manager Code of Conduct and the October 2024 Circular;
- strengthen fund governance, including senior management oversight and ensure ROs receive adequate training;
- implement (or refresh) independent risk and compliance monitoring functions, particularly investment mandate and AML/KYC compliance;
- maintain comprehensive, contemporaneous records that can withstand SFC scrutiny; and
- consider periodic health checks on regulatory compliance.
