An Update on the Enforcement Function of the Securities and Futures Commission
It is some time since I wrote in a previous newsletter about the appointment of Tom Atkinson, former Director of the Ontario Securities Commission, as Director of Enforcement at Hong Kong’s Securities and Futures Commission. Now, after almost two years at the helm, Mr Atkinson can boast an astonishing increase in the value of fines levied by the regulator against recalcitrant companies and individuals. Analysis by Freshfields Bruckhaus Deringer indicates that fines in 2017 totalled $63.7m: more than a 600% increase on the total value of fines levied during the previous year, when Mr Atkinson began his tenure at the SFC.
The increase marks a step-change in the methodology of the SFC. Whilst the total value of fines dramatically increased, the total number of new investigations initiated fell by around 20% compared to 2016, reflecting Mr Atkinson’s pledge to focus resources on the most significant and valuable cases.
A significant proportion of the fines continue, naturally, to be levied against corporate entities. UBS, Deutsche Bank, and Credit Suisse are only a few of the more prominent names to have found themselves on the receiving end of substantial financial penalties in the first few months of 2018 alone. In November 2017 HSBC were fined a record $400m after the Securities and Futures Appeals Tribunal upheld the SFC’s penalising of the Switzerland-based private banking arm of the group for systematic failures in its sale of investment products ahead of banking crisis in 2008.
However, it is also clear that the targeting of individuals is an increasing priority for the SFC. In November 2017 the SFC fined former account executive at Fulbright Securities Limited – Danny Fung Kwong Shing – over $540,000, for an array of fraudulent activities that cost investors losses of around $2.6m. By the end of 2016 alone, cases brought against individuals had increased by almost 55% on the previous year. That trend towards enforcement actions against individuals look set to continue. In April 2017 the SFC announced the rolling out of its ‘Manager-in-Charge’ regime, which requires firms to identify those individuals with oversight over core functions and responsibilities. Whilst not primarily designed to serve an enforcement function, the SFC has made it clear in its latest Enforcement Reporter – published in February of this year – that it intends to use the regime to identify responsible individuals and hold them to account in cases of wrongdoing, whether that be by taking civil or criminal action against such individuals.
The stated priority for enforcement remains corporate fraud and misfeasance. In a statement at the end of 2017 Mr Atkinson revealed that there were 136 investigations into such behaviour, 28 of which were particularly serious. But it is not only the punitive aspect of enforcement that is proving effective. In December 2017 the SFC published a new Guidance Note on Cooperation with the SFC, aimed at encouraging firms to assist the regulator in its investigations. Offering the prospect of costs savings and, in some cases, sanction reductions, the Guidance Note sets out what will amount to cooperation with the SFC, such as promptly reporting breaches, providing information relating to such breaches, acceptance of liability, and taking rectification measures, and also what will not amount to cooperation, such as merely complying with the statutory and regulatory regime.