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Hong Kong’s SFC flexes its muscles with record fines, interventions in public offerings

  • Enforcement fines totalled nearly HK$1.3bn in 2019 – more than previous four years combined
  • Regulator also used statutory powers to intervene in record number of IPO- and post-IPO cases

Hong Kong’s Securities and Futures Commission (SFC) levied a record HK$1.29bn in fines last year, and maintained its focus on IPO applicants and the listing process, according to new analysis by international law firm Freshfields Bruckhaus Deringer (Freshfields). In a year rocked by political unrest and market disruption followed by the emergence of the coronavirus threat, the regulator broadly maintained its focus on a smaller number of higher-impact cases, becoming increasingly creative, proactive and flexible in its enforcement approach.

Last year was one of the best years on record for the SFC with respect to enforcement fines, which saw a significant increase of approximately 55 percent in the value of fines levied compared to the total for the previous four years combined. Those fines were largely driven by initial public offering (IPO) sponsor-related enforcement actions in the first half of 2019 and a private banking case in the second half of the year. Each of these cases was complex and took many years to investigate and conclude, illustrating the regulator’s focus on “higher impact” cases.

The SFC has also increasingly used its statutory powers to intervene early in IPOs and the listing process. Between June 2018 and June 2019, it directly intervened in a record 46 IPO and post-IPO cases combined, compared to 32 the year before, and three in 2016-17. During the same period, it directly sought information or expressed concerns in 17 listing applications where it became aware of potentially serious disclosure or public interest issues.

“Last year was certainly not a typical year for Hong Kong, with significant market disruption in the second half, and it is important to view SFC enforcement activity in that context,” said Georgia Dawson, Freshfields’ Asia managing partner. “Total stock market turnover fell approximately 19 per cent compared to the previous year, and we saw a corresponding reduction in certain types of regulatory activity, such as SFC trading enquiries into market transactions. At the same time, some things did not change: the regulator continued to focus on fewer but higher-impact cases, and on proactively addressing concerns before problems materialise. We do not expect this to change in the near-term.”

Freshfields’ analysis goes on to make a number of predictions for the year ahead.

  • IPO sponsors will remain a focus. Sponsors with a history of returned or rejected listing applications or non-compliance should expect closer scrutiny.
  • Corporate misconduct and fraud will remain high on the regulator’s agenda. Expect enforcement activity against listed companies and their management to continue.
  • While market conditions remain uncertain and prone to volatility and the effects of the coronavirus are being felt acutely across Hong Kong, operational resilience and risk management will come under the spotlight. Enforcement will focus particularly on market activities that span multiple business lines/offices, such as remote booking and transfer pricing.
  • Over two years have passed since the ‘Manager-in-Charge’ (MIC) regime came into force, and MIC-related SFC inquiries and investigations are expected to start translating into public enforcement action.
  • The SFC will continue to pursue its aim of facilitating Hong Kong’s development as a full-service asset and wealth management centre and a preferred place of fund domicile.
  • With the Hong Kong Insurance Authority (IA) now fully functional, expect to see more public enforcement in the insurance space.

Download Freshfields’ briefing, Hong Kong Regulatory Enforcement Trends, here.


Notes for editors

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