SFC seeks $10m fraud fines

PUBLISHED : Thursday, 29 March, 2001, 12:00am
UPDATED : Thursday, 29 March, 2001, 12:00am

Hong Kong's market regulator wants to be able to impose heavy fines on brokerage houses or their staff if they are found to have engaged in improper conduct.

The Securities and Futures Commission says it needs the power to help it crack down on cases of market fraud.

The move would bring it more into line with regulators in the United States and Britain, which have similar powers.

The proposal, however, has brought a strong reaction from brokers. Some said it effectively made the SFC the judge and jury in contentious cases. The new powers would add to the commission's role as the market policeman.

In proposed guidelines, the SFC says it wants to be able to fine any licensed person up to HK$10 million, or three times the profit made or loss avoided by the improper conduct, whichever is greater.

These rules would cover all SFC licensed people including brokers, fund managers, investment advisers and foreign-exchange traders.

At present, the SFC can only censure brokers for minor mistakes. In the more serious cases, it will suspend or revoke their registration banning them from conducting business.

It however cannot impose fines on brokers. It has to pass the more serious offences such as illegal short selling or market manipulation to the courts to impose punishment that can include fines or imprisonment.

The SFC said the consultation paper's proposed rules were in line with the power of overseas counterparts, including the US Commodity Futures Trading Commission and Britain's Financial Services Authority.

The commission also said the rules would be needed because reprimands were too lenient in discouraging malpractice, while suspension or revocation of a licence was too severe.

'Fines have been primarily proposed as an intermediate sanction between a reprimand and the suspension or revocation of a person's licence,' the SFC said.

'However, the SFC may fine in any circumstances it considers appropriate.'

Brokers said the new rules meant the SFC became judges.

'The new fine power has made the SFC able to decide how much brokers should pay for their mistakes,' a broker said.

'I think it should only be the court which has the power to impose a fine, not the SFC.

'The policemen are only supposed to catch the ones who have breached the law. It is always for the court to order fines or imprisonment.'

Dannis Lee Jor-hung, council member of the Hong Kong Stockbrokers Association, said that although the proposal outlined how the SFC would impose fines, it was still not clear enough.

Under the proposals, the SFC will generally impose a higher fine on serious cases such as misconduct which is intentional or reckless, or when the misconduct damages the integrity of the market, or if the conduct causes losses for others.

For technical breaches of regulatory requirements that cause little or no damage to the markets and their clients, the SFC usually would impose a lower fine, the SFC paper said.

However, Mr Lee urged the SFC clearly to list the types of misconduct for which a person might face fines, and to set out a table of fines for each level.

'This will enable brokers to know clearly what they may need to pay,' Mr Lee said.

However, the SFC paper dismissed this because decisions on the severity of misconduct varied.

Brokers could appeal the SFC fine and its level to the Securities and Futures Appeal Tribunal.