DPP finds right case in call to rein in SFC
Kudos to Kevin Zervos for raising concerns, but even his prosecutions team needs a guardian
The Securities and Futures Commission should be stripped of its power to prosecute because it lacks sufficient internal regulation and oversight, Hong Kong's top prosecutor has warned.
SCMP, August 17
The old Latin aphorism coined more than 2,000 years ago still says it best: Quis custodiet ipsos custodes? Who guards the guardians themselves?
It is why I congratulate our Director of Public Prosecutions, Kevin Zervos, for saying at long last what people in authority should long ago have said and what I have repeatedly argued in this column - the SFC needs to be reined in.
What we have here is a law enforcement agency that has not only written its own law, the Securities and Futures Ordinance, but acts as both policeman and prosecutor and sometimes as jury and judge, too.
Fortunately, the SFC is not allowed the roles of jury and judge in criminal cases. These it must bring to a proper court of law. But it has created an intermediate level of offence, which it can have tried in special creations called market misconduct tribunals. These do not have the power to send offenders to prison but also do not require proof beyond a reasonable doubt, only the balance of evidence.
It may seem like a fair trade-off but in the investment business it is not. An SFC investigation with its costly and lengthy legal processes can easily destroy the reputations and careers of investment professionals and render the rest of their lives an ongoing misery. A jail sentence is not much worse.
In my opinion, as a former investment analyst in this town for almost 20 years, the SFC uses its powers too casually.
There is, admittedly, a right of appeal to a Securities and Futures Appeal Tribunal (SFAT) presided over by a judge, but the difficulty here is that the tribunal likes to restrict itself to points of law and procedure, arguing that it does not have the expertise of securities regulators in investment matters.
This view might have some merit if regulators were recognised investment experts. In the SFC, like most regulators around the world, this tends not to be the case. The SFAT has thus made itself an example of the blind directing the blind.
What makes it worse is that new regulations drafted by the SFC rely increasingly on professional judgment. For instance, it is now a criminal offence for a listed company not to divulge price-sensitive information to the general public.
But just what constitutes price-sensitive information and when does it do so? These are not always easy questions to answer and regulators who attempt it easily do so out of context. Company directors are thus now in danger of imprisonment for making decisions differently from the way they might be made by someone not familiar with their businesses.
So, yes, I applaud Mr Zervos on this one. The powers of the SFC need to be checked.
Then again, however, in the same issue of this newspaper in which we reported on his stand we carried a report of two people sentenced to jail for five years for money laundering. What crime had they committed to make the money they had handled the proceeds of a crime and therefore laundered money?
We do not know. We were not told. It is entirely likely that a judge or jury would not really have known. But all either would have to have been is convinced that the offence looked like money laundering to a reasonable person. The definition of a reasonable person is left vague. In practice, it means people who have little or no familiarity with commerce.
It was unlikely to be drug money. We already have a separate law for seizure of proceeds of drug trafficking. Terrorism and tax evasion are also highly unlikely candidates.
More likely this was just the underground cross-border funds flow system in action, which helps the wheels of commerce move. Beijing continues to be reluctant to accept the terms of how a modern economy operates.
We should not allow our prosecutors to treat this as a crime. You need a guardian, too, Mr Zervos.