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16 March, 2018
We are often asked about the SFC’s enforcement priorities. We might find the answer in respect of 2018 in the latest issue of the SFC’s Enforcement Reporter published on 26 February 2018, where five areas of priorities were highlighted by the SFC:
- Corporate fraud;
- Insider dealing and market manipulation;
- Intermediary misconduct;
- Sponsor misconduct; and
- Money laundering.
Corporate fraud remains on the top of the list. The SFC is targeting groups which collude to defraud investors. It also monitors the publication of false or misleading financial statements, fraud during IPO as well as the situation where senior management of listed companies have failed to manage conflicts of interest.
Under item 2, the SFC will focus on sophisticated market misconduct perpetrated by syndicates.
In relation to intermediary misconduct, the SFC will continue to tackle issues that pose systemic risks.
The SFC has undertaken a number of cases against the sponsor’s failures and misconduct in the listing process, which include the failure to verify key information in prospectuses.
As for money laundering, the SFC has been targeting firms with internal control failures in their KYC or AML requirements.
With regards to the Manager-In-Charge regime, which was rolled out last year, the SFC states “While this regime was not primarily conceived as a tool for enforcement, it helps us to identify responsible individuals and hold them accountable in cases of wrongdoing…the SFC will take civil or criminal actions against culpable individuals.”
In our article of 17 November 2016, we mentioned that the SFC had set up eight specialised teams to target specific areas. Apart from the five areas highlighted above, there is a permanent team looking into corporate misfeasance (which the SFC probably includes as a priority under corporate fraud mentioned above). The mis-selling of financial products, for which a temporary “specific products” team was established in 2016, was stated in the Enforcement Reporter to be on SFC’s watch list rather than on the priority list. In the latest Enforcement Reporter, there is no mention of the investigation into the irregularities of the Growth Enterprise Market which was one of the areas mentioned in 2016. On 23 February 2018, the SFC published its Quarterly Report for October to December 2017. The report provides some figures on enforcement activities. Comparing the nine months ended 31 December 2017 with the corresponding period in 2016, it is noted that:
- The number of investigations started has decreased by 32.2%;
- The number of investigations completed has decreased by 61.9%; and
- The numbers for “Notices of Proposed Disciplinary Action issued” and “Notices of decision issued” have decreased by 47.6% and 51.3% respectively.
An inference that might be drawn from the above statistics is that with the shift from a “try to do everything” approach (as the SFC’s Thomas Atkinson put it) to a focused approach, and in seeking to tackle more complex cases, the SFC requires a longer period to complete their investigations. This accords with our experience.
For further information, please contact:
Joseph Kwan, Partner, Deacons
joseph.kwan@deacons.com.hk
