SFC pledges more aggressive enforcement action
More than a dozen companies are under investigation for infractions relating to their duties as listing sponsors, according to the SFC’s executive director of enforcement Tom Atkinson
The Securities and Futures Commission is investigating 15 financial firms for failing in their duties as listing sponsors, according to executive director of enforcement Tom Atkinson on Wednesday.
“There is a relationship between the failure of duty of listing sponsors and corporate fraud,” Atkinson said in a speech to a regulatory summit in Hong Kong.
Of the 136 corporate frauds being investigated by the commission currently, 28 cases have been prioritised as very serious, he said.
Most cases are related to inflated the revenue or transaction value of the companies at the time they applied to list.
“When these IPO sponsors failed in their duties to check on the accuracy of the information of the listing candidates, it led to corporate fraud,” Atkinson said.
“Cracking down on corporate fraud and failed IPO sponsors will continue to be the focus of the enforcement of the SFC to safeguard the reputation of the Hong Kong market.”
So far this year the SFC has suspended 10 listed companies for alleged malpractice.
Included among the list is last week’s suspension of New Ray Medicine International Holding, which was halted from trading after an SFC investigation found potentially misleading information in two of the company’s transactions.
Atkinson called for a front-loaded enforcement approach that would entail trading suspensions at an early stage of investigation.
In some examples, companies have continued to trade even as investigations have been ongoing for a prolonged period.
“While most of the 2,000-plus listed companies are doing very well, some high-profile corporate fraud cases could seriously damage the image of Hong Kong as an international financial centre,” he said.
He noted that many companies are based outside Hong Kong which can make it more complicated for investigators. For example, more than half of the local stock market capitalisation is made up of mainland companies, even though the SFC does not have investigative authority across the border.
In instances where fraud is suspected among mainland companies, the SFC must seek the cooperation of the China Securities Regulatory Commission.
In an example of expanded cooperation between the regulators, new rules due in mid 2018 will allow the exchange of real time information on investors taking part in the Stock Connect, in an effort to prevent cross border share manipulation, SFC chief executive Ashley Alder said on Tuesday.
Meanwhile, Atkinson said efforts would also be made to secure financial compensation for investors who have suffered as a result of malpractice.
He added that it was important to use the threat of sanctions as a way of sending a message to the market.
The SFC has the authority to impose fines or apply for a court order that would require companies or individuals to pay compensation to investors.
The commission this year has stepped up its enforcement action.
In June, it ordered Lerado Financial Group Company to suspend trading. The company had been the focus of an SFC investigation for providing misleading information in an announcement in 2015, Lerado said in a stock exchange filing.
In February, the SFC suspended trading in GME Group Holdings just a few hours after its listing on the Growth Enterprise Market after the company’s shares soared more than 542 per cent. The SFC later ordered some brokers to freeze certain investor accounts, alleging manipulation behind the trading.
Separately, Hong Kong Monetary Authority director of enforcement Meena Datwani said at the same summit that the regulator was investigating eight banks under anti-money laundering regulations. She did not give details on the names of the banks or the nature of the investigations.
In April, the HKMA imposed a HK$7 million (US$900,000) fine on Coutts & Co’s Hong Kong branch and reprimanded it for failing to follow anti-money laundering rules between 2012 to 2015.
An HKMA investigation found Coutts had breached five provisions of the Anti-Money Laundering and Counter-Terrorist Financing (Financial Institutions) Ordinance, including failure to establish and maintain effective procedures for determining whether customers were politically exposed persons who are individuals vulnerable to corruption.
Previously, in July 2015, the HKMA announced disciplinary action against the Hong Kong branch of the State Bank of India. The bank was fined HK$7.5 million.