The Securities and Futures Commission long ago shed its reputation as a toothless tiger to become a financial market regulator to be reckoned with. Victories in a crackdown on insider dealing and market manipulation are testament to that. Those investigations resulted in successful prosecutions by the Department of Justice, with courts imposing heavy penalties and compensation for investors, and enhanced Hong Kong's reputation for having a level playing field.
However, given that the SFC has filled something of a void in effective enforcement, since changes to the law in 2003 that made insider dealing a criminal offence, it would be surprising if it had not ruffled some feathers in the market. It has had to contend with criticism for pursuing smaller, local cases of wrongdoing as well as a perception that insider dealing is a victimless crime and not a big issue. Now tensions have surfaced in its relations with the department.
The retiring director of public prosecutions, Kevin Zervos, has called for the SFC to be stripped of its power to prosecute in certain market-related cases before magistrates because it lacks sufficient internal regulation and oversight. Zervos says law enforcement agencies should not carry the responsibility for prosecuting because this may conflict with their roles as investigators and regulators.
There is an issue of principle here, which may relate to disagreement over how some cases should be handled. Zervos has received some support in the market. But an SFC spokesman has said, dismissively, that the regulator "looked forward to working actively with the new DPP to safeguard the integrity of Hong Kong's financial market". If the SFC is stripped of its power to prosecute, that would bring it into line with the Independent Commission Against Corruption, also an investigative agency with coercive powers. The ICAC has no powers to prosecute, but must go through the department.
Zervos is not suggesting that the SFC should not go after inside dealers and market manipulators. But the Basic Law does say the department shall control prosecutions. The SFC has to perform its role and exercise its powers properly with appropriate checks and balances. That said, however, territorial tension between the SFC and the department should not be allowed to distract attention from market wrongdoing. For the sake of investor protection and Hong Kong's status as a global financial centre, the two should reconcile their differences.