Regulatory Focus and SFC Recap - September 2016

Regulatory Insights
  • SFC and the Exchange extend deadline for response to the joint consultation on listing regulation
  • SFC proposes to enhance position limit regime
  • SFC notifies the industry of anti-money laundering concerns
  • Updated Guide on Practices and Procedures for Application for Authorization of Unit Trusts and Mutual Funds
  • SFC reminder on expanded Short Position Reporting

 

Recent SFC Enforcement Actions
  • Market Misconduct Tribunal finds Andrew Left of Citron Research culpable of market misconduct
  • SFC bans Chau Hang Yu and Steve Chow Chun Yin for life
  • People fraudulently impersonating staff of Lippo Securities Limited
  • SFC commences MMT proceedings against former CEO of China AU and related parties for false trading
  • SFC reprimands and fines HSBC $2.5 million for regulatory breaches
  • SFC issues Restriction Notice to a broker to stop two clients from withdrawing shares and transferring money connected with suspected insider dealing
Other news / updates
Updates to Listings

SFC and the Exchange extend deadline for response to the joint consultation on listing regulation
The SFC and The Stock Exchange of Hong Kong Limited (the Exchange), a wholly-owned subsidiary of Hong Kong Exchanges and Clearing Limited (HKEX), announced a two-month extension of the deadline for responding to the joint consultation on the proposed enhancements to the Exchange’s decision-making and governance structure for listing regulation.

The consultation period will now end on 18 November 2016.

In light of the great deal of interest and a wide range of views expressed since the publication of the consultation paper and given that much of the consultation period coincided with the summer season, an extension will give all interested parties further time to file their submissions.

You can refer back to the joint press release by the SFC and HKEX dated 17 June 2016 here:
http://www.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/corporate-news/doc?refNo=16PR62
(09 September 2016)

SFC proposes to enhance position limit regime
The SFC launched a consultation proposing enhancements to the position limit regime to expand its scope and make it more responsive to financial market developments.

Under the proposals, the cap on the excess position limit that may be authorized by the SFC would increase from 50% to 300% of the statutory position limit.

It is also proposed that the statutory position limit for stock options contracts will triple to 150,000. This will facilitate the implementation of the proposals in Hong Kong Exchanges and Clearing Limited's market consultation concluded in June 2016.

In addition, new excess position limits are proposed for index arbitrage activities, asset managers and market makers of exchange-traded funds.

"The proposed enhancements address market participants’ business needs and encourage them to conduct more of their derivative activities on exchange markets," said Mr Ashley Alder, the SFC's Chief Executive Officer. "By improving market efficiency and enhancing liquidity, this will help to promote Hong Kong as a risk management centre."

The public is invited to submit their comments on the proposals and the corresponding rule amendments by 21 November 2016. Written comments may be submitted online via the SFC website (www.sfc.hk), by email to position-limit@sfc.hk, by post or by fax to 2521 7917.

The consultation paper can be accessed using the following link:
http://www.sfc.hk/edistributionWeb/gateway/EN/consultation/doc?refNo=16CP3
(20 September 2016)

SFC notifies the industry of anti-money laundering concerns
The SFC’s Enforcement Division is investigating a number of cases of SFC licensed brokerages with suspected inadequate anti-money laundering (AML) internal controls and it expects to bring a number of enforcement proceedings as a result.

The SFC wants to draw the attention of licensees that they are expected to enhance their AML internal controls immediately as they have had ample time to develop their internal controls since the Anti-Money Laundering and Counter-Terrorist Financing (Financial Institutions) Ordinance (AMLO) and the SFC Guideline on Anti-Money Laundering and Counter-Terrorist Financing (Guideline) came into force in 2012.

During its onsite inspections of licensees and AML investigations, the SFC identified the following areas of concern:

  • failure to scrutinise cash and third party deposits into customer accounts;
  • ineffective monitoring of transactions in customer accounts;
  • failure to take adequate measures to continuously monitor business relationships with customers which present a higher risk of money laundering;
  • inadequate enquiries made to assess potentially suspicious transactions to determine whether or not it is necessary to make a report to the Joint Financial Intelligence Unit, and lack of documentation of the assessment results;
  • failure to monitor and supervise the ongoing implementation of anti-money laundering and counter-terrorist financing policies and procedures

Since licensees are vulnerable to being used to launder the proceeds of crime and to finance terrorism, the SFC relies on them to implement effective AML measures to prevent and detect these criminal activities and expects them to take their AML responsibilities seriously.
(21 September 2016)

Updated Guide on Practices and Procedures for Application for Authorization of Unit Trusts and Mutual Funds
The Guide on Practices and Procedures for Application for Authorization of Unit Trusts and Mutual Funds has been updated.

Please visit the following link:
http://www.sfc.hk/web/EN/faqs/product-authorization/guide-on-practices-and-procedures-for-application-for-authorization-of-unit-trusts-and-mutual-funds.html
(22 September 2016)

SFC reminder on expanded Short Position Reporting
The SFC reminds all relevant market participants that with effect on 15 March 2017, reporting will be required for reportable short positions in all Designated Securities eligible for short selling specified by The Stock Exchange of Hong Kong Limited.

Market participants are further reminded to ensure that they have systems and procedures in place to comply with the new requirements. For more details, market participants can refer to the latest Frequently Asked Questions (FAQs) published on the SFC website.

The SFC will provide a pilot testing environment in early 2017 to facilitate market participants’ preparation for the new requirements. Further details will be available by the end of 2016.
The FAQs can be found here:
http://www.sfc.hk/web/EN/files/SOM/SPR/FAQ/FAQs_on_SPR_EN_25%20May%202016.pdf
(30 September 2016)

Recent SFC Enforcement Actions

Market Misconduct Tribunal finds Andrew Left of Citron Research culpable of market misconduct
The MMT has found that Mr Andrew Left of Citron Research disclosed false or misleading information inducing transactions and so engaged in market misconduct under the SFO following proceedings brought by the SFC.

The SFC alleged that, on 21 June 2012, Left published a report on Citron Research’s website (www.citronresearch.com) that contained false or misleading information about Evergrande Real Estate Group Limited (Evergrande).

The MMT found that Left used sensationalist language in his report that Evergrande was insolvent and engaged in accounting fraud. The MMT will hear from both the SFC and Left as to orders to be imposed on Left on a date to be agreed.

The SFC would like to acknowledge and publicly thank the US Securities and Exchange Commission for its assistance in the investigation of this case.

For more details relating to the above case or on-going SFC enforcement issues please visit the SFC website:
http://www.sfc.hk/edistributionWeb/gateway/EN/circular/

The MMT’s report is available on its website: www.mmt.gov.hk
The SEC's involvement is also available on its website: www.sec.gov
(01 September 2016)

SFC bans Chau Hang Yu and Steve Chow Chun Yin for life

The SFC has banned Ms Chau Hang Yu and Mr Steve Chow Chun Yin, both former employees of The Hongkong and Shanghai Banking Corporation Limited (HSBC), from re-entering the industry for life following their criminal convictions.

The District Court found that Chau and Chow, both of whom were responsible for selling and promoting investment products at HSBC and knew one another at the material times, made false claims in 2012 and 2014 that certain HSBC customers had agreed to subscribe for unit trust funds (UTFs). They received sales commission after HSBC processed the subscription orders in the belief that they had sold the UTFs to the customers when in fact it was not the case.

The District Court also found that Chau referred her customers to Chow so that he could obtain more sales commission after she had reached the cap for receiving sales commission. Chau later asked Chow for customer referral fees. He gave her $100,000.

The SFC considers Chau and Chow are not fit and proper persons to be licensed or registered to carry on regulated activities as a result of their convictions.
(07 September 2016)

People fraudulently impersonating staff of Lippo Securities Limited
The SFC wishes to alert members of the public to a warning issued by Lippo Securities Limited (Lippo) on its website about suspected fraud by people impersonating Lippo staff who ask victims to transfer money into accounts falsely claimed to be related to Lippo for investments.

A hyperlink to the warning is available here:
http://www.lipposec.com/customer-service/fraud-warning

The SFC is looking into the matters.

Anyone who suspects that they have been deceived by people impersonating Lippo staff should report the matter to the Cyber Security and Technology Crime Bureau of the Hong Kong Police Force at 2860 5012; and the SFC by doing one of the followings:

completing an online complaint form;
sending an email to: complaint@sfc.hk;
writing to the SFC 35/F, Cheung Kong Center, 2 Queen’s Road Central, Hong Kong;
faxing a report to 2524 3718; or
calling SFC on 2231 1222 (press 5 after selecting your preferred language) to arrange an appointment to meet SFC staff. 
(08 September 2016)

SFC commences MMT proceedings against former CEO of China AU and related parties for false trading
The SFC has commenced proceedings in the MMT against Ms Samantha Keung Wai Fun, former CEO of China AU Group Holdings Limited (China AU), Ms Wu Hsiu Jung and Mr Chen Kuo-chen , for false trading in the shares of China AU.

Between August 2009 and March 2010, China AU launched two fundraising exercises to finance the proposed acquisition of a property to set up a training institute for beauticians in the Mainland and for general working capital purposes.

In between the two fund raising exercises conducted by China AU, Wu and Chen traded substantial amounts of China AU shares, using 14 securities accounts in the names of themselves and others. Keung provided a majority of funding for Wu and Chen’s China AU trades.

The SFC alleges that Keung assisted or connived with Wu and/or Chen to create a false or misleading appearance of active trading or with respect to the market for, or the price for dealings in China AU shares which supported and/or benefited China AU’s fundraising.
(09 September 2016)

SFC reprimands and fines HSBC $2.5 million for regulatory breaches
The SFC has reprimanded and fined The Hongkong and Shanghai Banking Corporation Limited (HSBC) $2.5 million for regulatory breaches and internal control failings related to position limit failures.

The disciplinary action follows an SFC investigation into the holding by HSBC of open positions in Hang Seng China Enterprises Index futures and options contracts in breach of the prescribed limit on 18 occasions from 26 May to 1 August 2014.

The SFC also found HSBC in breach of the SFC’s Code of Conduct for failing to implement adequate internal controls to monitor its positions in Hong Kong Futures Exchange’s (HKFE) futures and options contracts to ensure compliance with the prescribed position limit.

Specifically, the SFC found that:

  • HSBC failed to identify its position limit breaches promptly;
  • there was a lack of adequate knowledge within HSBC regarding HSBC’s position limits and its state of compliance with the relevant regulatory requirements; and
  • HSBC lacked policies or procedures in place for position limit monitoring of HKFE’s futures and options contracts and failed to implement any position monitoring control over these contracts.

In deciding the penalty, the SFC has taken into account that HSBC has since taken steps to improve its internal controls on monitoring of position limit and co-operated with the SFC in resolving the SFC’s concerns.
(14 September 2016)

SFC issues Restriction Notice to a broker to stop two clients from withdrawing shares and transferring money connected with suspected insider dealing
The SFC has issued a Restriction Notice to BOCI Securities Limited (BOCI) prohibiting it from processing shares and/or money held in two client accounts that hold the proceeds of suspected insider dealing.
BOCI is not subject to the SFC’s investigation into suspected insider dealing and the Restriction Notice does not affect BOCI’s operations or its other clients. BOCI has rendered full assistance to the SFC during the investigation.
The SFC considers that the issue of the Restriction Notice, which prevents dissipation of the suspected proceeds of insider dealing held in the two accounts, is desirable in the interest of the investing public or in the public interest.
The SFC’s investigation is continuing.

The Restriction Notice is issued under sections 204 and 205 of the SFO. It prohibits BOCI, without prior written consent from the SFC, from processing any instructions from the two clients or anyone authorized to operate the accounts with respect to the shares of a Hong Kong-listed company, including: (i) withdrawing the shares and/or transferring monies arising from the disposal or the cancellation of the shares; and/or (ii) disposing or dealing with the shares. BOCI is also required to notify the SFC upon receipt of any of these instructions.
(20 September 2016)

Date Type of publication Topic Summary
2-Sep-16 Press release - Circular Circular to Licensed Corporations and Associated Entities - Anti-Money Laundering / Counter-Terrorist Financing Circular to Licensed Corporations and Associated Entities - Anti-Money Laundering / Counter-Terrorist Financing
United Nations (Anti-Terrorism Measures) Ordinance
http://www.sfc.hk/edistributionWeb/gateway/EN/circular/intermediaries/supervision/doc?refNo=16EC38
9-Sep-16 Press release - Circular Circular to Licensed Corporations and Associated Entities - Anti-Money Laundering / Counter-Terrorist Financing Circular to Licensed Corporations and Associated Entities - Anti-Money Laundering / Counter-Terrorist Financing
United Nations Sanctions (Central African Republic) Regulation 2016
http://www.sfc.hk/edistributionWeb/gateway/EN/circular/intermediaries/supervision/doc?refNo=16EC39
13-Sep-16 Press release – High Concentration Shareholding Announcement High Concentration of Shareholding in World-Link Logistics (Asia) Holding Limited (Stock Code: 8012) High Concentration Shareholding Announcement
http://www.sfc.hk/web/EN/news-and-announcements/high-shareholding-concentration-announcements.html
14-Sep-16 Press release – High Concentration Shareholding Announcement High Concentration of Shareholding in Great Water Holdings Limited (Stock Code: 08196) High Concentration Shareholding Announcement
http://www.sfc.hk/web/EN/news-and-announcements/high-shareholding-concentration-announcements.html
15-Sep-16 Press release - Circular Circular to Licensed Corporations and Associated Entities - Anti-Money Laundering / Counter-Terrorist Financing Circular to Licensed Corporations and Associated Entities - Anti-Money Laundering / Counter-Terrorist Financing
United Nations (Anti-Terrorism Measures) Ordinance
http://www.sfc.hk/edistributionWeb/gateway/EN/circular/intermediaries/supervision/doc?refNo=16EC40
15-Sep-16 Press release – Takeovers Bulletin Takeovers Bulletin - Issue No.38 (September 2016) Takeovers Bulletin - Issue No.38 (September 2016)
http://www.sfc.hk/web/EN/files/CF/pdf/Takeovers%20Bulletin/Takeovers%20Bulletin_20160915.pdf
23-Sep-16 Press release - Circular to Intermediaries Circular to Intermediaries - Frequently Asked Questions on Client Agreement Requirements Circular to Intermediaries - Frequently Asked Questions on Client Agreement Requirements
http://www.sfc.hk/edistributionWeb/gateway/EN/circular/intermediaries/supervision/doc?refNo=16EC41
26-Sep-16 Press release - Circular Circular to Licensed Corporations and Associated Entities- Anti-Money Laundering / Counter-Terrorist Financing Circular to Licensed Corporations and Associated Entities - Anti-Money Laundering / Counter-Terrorist Financing
Anti-Money Laundering and Counter-Terrorist Financing Seminars
http://www.sfc.hk/edistributionWeb/gateway/EN/circular/intermediaries/supervision/doc?refNo=16EC42
29-Sep-16 Press release New appointment to SFC committees The SFC is pleased to announce the appointment of Mr Thomas Atkinson, Executive Director of Enforcement, as a member of both the Securities Compensation Fund Committee and the Investor Compensation Fund Committee, effective 28 September 2016.
Full committee membership lists are available on the SFC website:
http://www.sfc.hk/web/EN/about-the-sfc/organisational-chart/external-committees/
Notes:
The primary role of the Securities Compensation Fund Committee is to administer the Unified Exchange Compensation Fund, which applies in respect of claims arising before 1 April 2003.
The primary role of the Investor Compensation Fund Committee is to administer the Investor Compensation Fund, which applies in respect of claims arising on or after 1 April 2003.
30-Sep-16 Press release – Circular to Licensed Corporations Circular to Licensed Corporations - Engaged in Introducing Broker Business and Their Connected Execution Brokers Circular to Licensed Corporations
Engaged in Introducing Broker Business and Their Connected Execution Brokers
http://www.sfc.hk/edistributionWeb/gateway/EN/circular/intermediaries/supervision/doc?refNo=16EC43
Updates to Listings
Offer period tables commenced Fulum Group Holdings Limited (05 September 2016)
SMI Culture & Travel Group Holdings Limited (08 September 2016)
Epicurean and Company, Limited (stock code: 8213) (14 September 2016)
China High Speed Transmission Equipment Group Co., Ltd (stock code: 658) (19 September 2016)
Dan Form Holdings Company Limited (stock code: 271) (22 September 2016)
Xingfa Aluminium Holdings Limited (stock code: 98) (22 September 2016)
Takson Holdings Limited (stock code: 918) (23 September 2016)
Chinalco Mining Corporation International (stock code: 3668) (23 September 2016)
Offer period tables closed China Automation Group Limited (09 September 2016)
City e-Solutions Limited (09 September 2016)
Dalian Wanda Commercial Properties Co., Ltd (stock code: 3699) (27 September 2016)
AUPU Group Holding Company Limited (stock code: 477) (28 September 2016)
Offer period tables updated The name of an offeror has been added to U Banquet Group Holdings Limited (stock code: 1483) (29 September 2016)
Regulatory Focus and SFC Recap - September 2016 2016-10-05T00:00:00.0000000 /insights/publications/compliance-and-regulatory-consulting/regulatory-focus-and-sfc-recap-september-2016 publication {DA6CC51B-740E-439A-B283-2BBFB5326BAA}

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