SFC imposes lowest level of fines since 2016 due to pandemic and lack of big cases: study
- The Securities and Futures Commission imposed a total of HK$72.1 million (US$9.2 million) of fines last year, down 97 per cent from 2020, Freshfields Bruckhaus Deringer says
- Analysts attribute fall in SFC fines to effects of pandemic and fall in the number of big misconduct cases
Hong Kong’s securities watchdog last year imposed the lowest level of fines since 2016, with analysts attributing the decline to the impact of the pandemic and a lack of big cases over 2021.
According to data compiled by law firm Freshfields Bruckhaus Deringer, the Securities and Futures Commission imposed a total of HK$72.1 million (US$9.2 million) in fines last year, a 97 per cent drop from a record HK$2.8 billion in 2020 and the lowest level since HK$68 million recorded in 2016.
In 2020 the SFC imposed its ever highest fine in a single case of HK$2.71 billion on Goldman Sachs (Asia) for “serious lapses and deficiencies” that contributed to the misappropriation of funds at the Malaysian sovereign investment fund known as 1Malaysia Development Bhd.
The SFC has sharpened its enforcement focus on bigger cases and the lack of big cases has accordingly seen the overall level of fines drop, said Robert Lee Wai-wang, lawmaker for Hong Kong’s financial services industry and also the chief executive of Grand Capital Holdings.
“In addition, the pandemic has slowed overall business activities over the past two years and SFC investigations, resulting in the lower amount of fines imposed last year,” said Lee.
The SFC completed 91 investigation in the first nine months of last year, a decline of 43 per cent from 159 cases in the same period in 2020.
Freshfields, which began its annual review of SFC penalties in 2013, said the SFC has taken a forward-looking approach to regulation in recent years.
“Regulatory enforcement in Hong Kong has changed dramatically in recent years, moving from often hard-edged enforcement after the event to preventing problems and remedying emerging problems before they become bigger,” said Tim Mak, partner and head of Asia dispute resolution at Freshfields.
Mak said although it was hard to predict the future direction of SFC fines, the trend – before 2021 – was clearly for a rise in penalties.
“There are likely to be more large IPO sponsor enforcement outcomes in future, given the focus of regulators on improving corporate governance and the quality of companies that come to Hong Kong to list,” said Mak.
One factor the SFC is likely to scrutinise more on going forward is the book-building process undertaken by investment banks and how they allocate new shares, as new conduct rules come into force in August, said Mak. He added the work-from-home practices during the pandemic may also have affected misconduct risks.
“Working from home can potentially increase the risk of wrongdoing or other problems,” said Mak. “Instead of working from one core office or a few core offices, staff have been working from home in hundreds, if not thousands, of different locations. This can create additional cybersecurity and data security risks.”
