Financial regulation

Hong Kong court upholds SFC action, paving the way for cross-border securities investigations

The Court of First Instance reject mainland man Tang Hanbo’s application for a judicial review to revoke and invalidate a search conducted on his residence

PUBLISHED : Sunday, 10 December, 2017, 5:51pm
UPDATED : Sunday, 10 December, 2017, 11:26pm

A Hong Kong court has upheld the Securities and Futures Commission’s action in helping its Chinese counterpart gather evidence in the city to prosecute the violation of the mainland’s securities laws, in a landmark case that could pave the way for more cross-border investigations by regulators.

In a Friday decision released online, Justice Anthony Chan KIin-keung of the Court of First Instance rejected Tang Hanbo’s judicial review application to strike out a July 2016 search warrant used to gather evidence that led to his prosecution and penalty.

Tang, a Chinese passport holder living in Hong Kong, was fined 1.2 billion yuan (US$180 million) last year by the China Securities Regulatory Commission (CSRC) for breaching the mainland’s laws while trading Shanghai-listed stocks.

He filed a legal challenge to declare the search warrant used by Hong Kong’s Securities and Futures Commission (SFC) unlawful, because the SFC had initially stated that the search was for possible breaches of the city’s regulations, when in fact they were used to gather evidence for mainland law enforcement.

Read: Stock Connect trader investigated by regulators seeks judicial review

Tang’s application would be the first legal challenge against cross-border enforcement collaborations since the 2014 start of the Hong Kong-Shanghai Stock Connect, where investors in both cities were able to trade in each other’s stocks.

“I am unable to accept that there are real or substantial inconsistencies and contradictions in the evidence which justify this application,” Judge Chan wrote in his rejection of Tang’s challenge.

The SFC had agreed on August 30 with Tang to put on hold the use of the evidence seized in July 2016.

“Consequently, SFC’s investigation of Tang for breaches of Hong Kong laws and codes is hampered,” Judge Chan wrote. “The agreement was reached when the hearing of the judicial review was fixed. Any delay in the resolution of the judicial review would be detrimental to public interest.”

The judge ordered Tang to pay all legal costs, including those incurred by the SFC.

The ruling is a landmark decision in clarifying the respective roles of law enforcement authorities in cross-border investigations, said the Hong Kong Securities Association’s chairman Gary Cheung.

“More and more investors are conducting cross-border trading of stocks in Hong Kong and the mainland via the two stock connect schemes, so it is very important for the SFC and CSRC to exchange information and help each other conduct investigations to protect the interests of investors,” he said.

Tang is separately being investigated by the SFC for his transactions of two Hong Kong-listed stocks – Heng Xin China Holdings and Tian Ge Interactive Holdings – in August 2015 and June 2016.

“The SFC is empowered by law to, in appropriate circumstances, exchange information and intelligence with other securities regulators,” said the SFC’s executive director of enforcement. “Cross-boundary cooperation is of paramount importance for safeguarding the integrity of our markets and our hard-earned reputation as an international financial centre.”