Test case: What the SFC–ICAC joint investigation on Convoy means
A positive outcome of the first joint investigation could lead to more joint operations among the different enforcement agencies
Hong Kong’s Securities and Futures Commission has for first time joined hands with the Independent Commission Against Corruption to raid offices and premises of two listed companies last Thursday, marking a new approach towards regulation and enforcement by authorities in the city.
Our regulatory friends told White Collar that the SFC took on the collaborative approach a year earlier, kicking it off internally by pushing different departments to work more with one another. This broke away from the previous approach in which the enforcement team oversees cases in market manipulation, insider dealing and misconduct by brokers, while the corporate finance team keeps tabs on breaches of the takeover code. Such a structure has led to an overlap of efforts when departments conducted separate investigations on the same group of companies but for different irregularities.
To get around the inefficiency, the SFC adopted a centralised approach for different departments to compare notes at the early stages of their investigations. Should officials find any common targets, a multi-department task force will be set up to handle the case.
With the approach proven to be effective, the SFC has extended the model to cooperation with other regulatory and enforcement agencies such as the Hong Kong Police the ICAC, and even across the border with its mainland counterpart, the China Securities Regulatory Commission.
It also beats the old approach as it allows the SFC to pass on any findings and evidence of corruption to the ICAC to investigate further.
In the recent months, the SFC and the ICAC have worked closely together to gather evidence in the lead up to Thursday’s raid of eight locations including homes and offices of senior executives of the two financial firms Convoy Global Holdings and Lerado Financial Group.
So far, a total of four executives were arrested including Convoy chairman Quincy Wong Lee-man, vice-chairman Rosetta Fong Sut-sam and executive director Christie Chan Lai-yee. A former Convoy chief executive and current chairman of Lerado Financial Group, Mark Mak Kwong-yiu was also arrested.
The SFC and the ICAC also intend to meet with another Convoy executive director Cho Kwai-chee, who is the founder and vice-chairman of clinic operator Town Health International Medical Group. The company’s shares were ordered by the SFC to be suspended on November 27.
The Convoy case is a test case of how two enforcement agencies can collaborate effectively to crack down on financial wrongdoings. A positive outcome could result in more joint operations among the different enforcement agencies.
In a separate but important development, a Hong Kong court last Friday rejected a legal challenge against the SFC to assist CSRC in their investigations in the city to prosecute the violation of mainland securities laws. This would pave the way for greater cooperation between the two regulators to investigate cross-border irregularities, which is a boost to maintaining the integrity of the Hong Kong market.