SFC chalks up a record number of investigations

The Securities and Futures Commission launched a record number of investigations in the past financial year and the watchdog's chairman has vowed to conduct even more this year.

The 391 investigations begun last year was a 25 per cent increase on the previous year, according to the commission's annual report released by chairman Andrew Sheng yesterday.

The number of successful prosecutions, however, dropped 26 per cent to 37.

Six of the new cases dealt with listed companies, and two concerned insider dealing. The rest were investigations of brokerage malpractices, market manipulation and illegal short selling.

Four more investigations into listed companies have been launched in the past six weeks, while one begun last year has been dropped.

'The increase in investigations was not due to a deterioration of market quality but was due to the SFC putting more resources into investigation work,' Mr Sheng said, adding that the number was likely to rise again this year.

'It is reasonable to believe the number will continue to go up because we have set it as a priority this year to crack down on corporate misconduct,' he said. 'The new securities law has expanded the investigative power of the commission on market malpractices.'

The new securities law has made insider dealing a criminal charge, and allows the commission to access an auditor's working papers of listed companies.

Two of the listed company investigations were serious enough for the SFC to refer them to the police, bringing to 19 the number being investigated by the Commercial Crime Bureau, Mr Sheng said. Two insider dealing cases have been referred to the financial secretary for a tribunal hearing.

Mr Sheng said a consultation paper would be released at the end of this month to tighten regulation on sponsors and accountants which helped companies to list, while the government would discuss whether Hong Kong Exchanges and Clearing should pass its front-line regulator role on listed companies to the SFC.

According to the annual report, routine SFC inspections of brokers and fund managers fell 35 per cent last year to 138. Mr Sheng said the drop was due to an increased focus on company misconduct and targeting of brokerage houses with higher risk profiles.

The commission had a deficit of HK$58.4 million last year due to a 7 per cent drop in revenue to HK$337.2 million on the back of lower market turnover. Staff costs were down 4 per cent at HK$302.4 million after a salary freeze.

The number of licence applications by brokers and fund managers rose 38 per cent last year to 4,555, after a 74 per cent drop in the previous year.