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Tackling deception: the key enforcement challenge of the digital age

  • Freshfields’ annual analysis of regulatory enforcement trends in Hong Kong shows that tackling deception, including fraudulent websites, unauthorised apps, investment scams and market manipulation, is a key priority for Hong Kong’s financial services regulators
  • The changing nature of market misconduct and prevalence of fraud in the digital age has increasingly required Hong Kong’s regulators to team up with other enforcement agencies, such as the Hong Kong Police or ICAC

For bad actors, financial crime increasingly appears to pay in Hong Kong and is easier than ever to perpetrate. In 2022, the number of deception cases increased by about 45.1%, over 70% of which were Internet-related, made easier in part due to the ease and speed with which technology enables victims to be deceived. The financial services space is not immune to this trend: investment fraud victims lost over HK$1.8bn last year, driving Hong Kong’s financial market regulators to focus greater efforts than ever before on tackling deception.

The prevalence of deception can be seen in the number of Hong Kong Monetary Authority (HKMA) press releases warning about unauthorised / fraudulent websites and Apps which purport to be official bank sites, and about phishing instant messages purporting to be from banks. Hong Kong’s Securities and Futures Commission (SFC) has been focusing on tackling investment fraud and scams on online platforms, market manipulation, misappropriation of listed companies’ assets and unlicensed activities.

“As financial crime grows in prevalence and complexity, and increasingly takes place online and across borders, regulators and law enforcers must work harder to keep up,” said Tim Mak, partner and head of Asia dispute resolution, Freshfields Bruckhaus Deringer. “Now more than ever, it is critical for governments to ensure that law enforcers, regulators and prosecutors are properly resourced, and that anti-money laundering efforts remain robust.”

Enforcement hotspots in 2022

Corporate misgovernance, fraud and market misconduct

Fraud by both corporates (which can also be categorised as corporate misgovernance) and individuals remains high on the SFC’s agenda. In the case of corporates, this can include IPO-related fraud and post-IPO fraud.

“Ramp and dump”, often involving market manipulation through the dissemination of false or misleading information inducing transactions (in the digital age, this often occurs through social media / online chatrooms), remains a key focus for the SFC. Over the past few years, the SFC has worked with the Hong Kong Police and Independent Commission Against Corruption (ICAC) to investigate such cases. Freshfields has also seen indications that the opposite of “ramp and dump” (sometimes termed “poop and scoop”) may also exist in Hong Kong.  Other types of market manipulation and insider dealing also remain in focus.

Internal controls

Internal controls remain front of mind for regulators, because of their importance in managing risks and in preventing, deterring and detecting misconduct. This applies to HKMA- and SFC-regulated entities as well as to Hong Kong listed companies.

Individual responsibility

The SFC has continued to focus on pursuing individuals for misconduct. These cases tend to fall into one of two categories: those where individuals are directly responsible for misconduct, and those where the individual has not fulfilled his/her oversight obligations as a senior representative of the organisation. The Hong Kong Stock Exchange (HKSE) and SFC continue to pursue cases where they suspect directors, including non-executive and independent non-executive directors, have not complied with their obligations.

Anti-money laundering

Regulators regard compliance with anti-money laundering rules as a core part of a regulated entity’s overall compliance framework and in recent years, the SFC and the HKMA have focused enforcement efforts in this area. Overall, Hong Kong’s efforts to improve anti-money laundering compliance have received recognition from the Financial Action Taskforce.

IPO-related misconduct

Sponsor-related matters remain on the SFC’s radar, although many of the recent sponsor-related enforcement matters pertain to smaller IPO sponsors.

Looking ahead

The following summary sets out the key areas in which we believe there is likely to be enforcement attention.

Digital assets

As digital assets establish a greater foothold in the market (driven by the Hong Kong government’s goal of establishing Hong Kong as a regional and global centre for digital assets), and as those asset service providers fall within the SFC’s direct regulatory remit, we are likely to see more enforcement focus in this area in the years ahead. Historically, regulatory attention has focused on whether the digital asset(s) in question constitute a “security”. In future, this will be expanded to include whether digital assets services providers comply with their regulatory obligations. It is interesting to note that in the SFC’s 2023/24 budget, the SFC did not ask the Legislative Council for additional enforcement headcount but did request four more posts in Intermediaries to help supervise digital assets services providers and their activities. It may be that the SFC is expecting a time-lag before it needs to resort to material enforcement steps to address misconduct in this space.

IPO-related misconduct

The SFC is likely to continue to focus on IPO-related misconduct, involving listed issuers and regulated intermediaries. In the coming years, the SFC may focus on examining how market due diligence practices have evolved over the Covid-19 pandemic, and as we emerge from it.  In light of the new listing regimes introduced by the HKSE to allow biotech and specialist technology companies to list, another area of focus for the SFC might be on false or misleading claims made by IPO applicants regarding their technical capabilities and the commercial viability of their technologies and the sponsors’ due diligence conducted on these novel and innovative technologies.

The selling of investment products

Since the global financial crisis, the HKMA and the SFC have continued to emphasise the selling of investment products, from how investment products are marketed, through to the product due diligence and how the selling process is conducted.


Climate change, social responsibility and governance have been high on the agendas of the HKMA, SFC and regulators around the world, but in Hong Kong, we have yet to see enforcement focus shift to this area. Regulators in Europe and the US have taken action on suspected “greenwashing”, so we may see Hong Kong regulators follow suit.

Anti-money laundering

Anti-money laundering compliance will remain an area of focus for both the HKMA and the SFC.

Download Freshfields’ analysis of regulatory enforcement trends in Hong Kong, Hong Kong regulatory enforcement trends in the digital age, here.


Notes for editors

About Freshfields Bruckhaus Deringer

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