Hong Kong’s regulator outlines rules for settling violations, in a move to enhance its efficiency
Hong Kong’s securities regulator has signalled to the market its willingness to settle regulatory breaches that fall into the “not-so-serious” category, emulating similar policies by the UK’s Financial Conduct Authority to find a speedier and more efficient way to optimise its enforcements of financial rules.
The SFC would fine or penalise companies and individuals that breach the city’s securities regulations, but won’t pursue criminal prosecutions in cases that can be settled without resorting to legal recourse, according to guidance notes published in December about the reasons and purpose of opting for settlement.
“For cooperation to be recognised, parties must go above and beyond their statutory and regulatory obligations,” the SFC’s executive director for enforcement Thomas Atkinson said last month. “Those who take proactive steps to resolve our regulatory concerns in a timely manner will benefit the most from cooperation, which could result in significant savings of time and resources.”
The new guidelines widened the scope of potential settlement to include failure to disclose relevant information, short-selling, and other “mild” forms of market misdemeanours. The new guidance also stipulate that any settlement with the regulator that involved a monetary fine would have to be disclosed publicly.
The option for settlement comes as the regulator seeks to improve its efficiency, while market transactions augmented by technology and broadened by multiple jurisdictions throw up fresh regulatory challenges. The SFC and the Hong Kong stock exchange last month pushed through the biggest overhaul of the city’s listing regulations in three decades to attract new-economy and technology companies to raise capital.
The SFC last year began working with the city’s Independent Commission Against Corruption (ICAC) on joint enforcement to crack down on fraud and financial misdemeanours involving some of the city’s listed companies. The regulator is also stepping up its cross-border enforcements with the China Securities Regulatory Commission (CSRC).
The guidance note, an update to rules issued more than a decade ago in 2006, provides a faster mechanism that can lighten the regulator’s workload and improve the speed and efficiency to resolve the city’s regulatory breaches, said Alan Linning, a former SFC executive director.
“The new guidance is the right thing to do,” said Linning, now a partner in private practice at Mayer Brown JSM in Hong Kong, during an interview with the South China Morning Post. “ That sends a good signal to the market clarifying the benefits of cooperation with the SFC. It shows that the SFC will consider settlement in appropriate cases.”
Linning was responsible for enforcements at the SFC before his retirement in March 2006 to go into private practice, just before the regulator issued its first guidance notes on settlement.
“The SFC is showing that it’s prepared to be more communicative in considering settlements on some mild cases,” Linning said. “There shall be no compromise, however, on any case that involves clear-cut criminal prosecutions.”
As a lawyer, Linning said he would advise his clients to settle with the SFC when appropriate.
“It would depend on the nature of the case and how strong the position of the client is,” Linning said.