SFC sets investigative focus on corporate fraud crackdown

Misconduct at the company level has cost the Hong Kong stock market HK$200 billion, says new head of enforcement

PUBLISHED : Wednesday, 09 November, 2016, 6:00pm
UPDATED : Wednesday, 09 November, 2016, 10:49pm

The Securities and Futures Commission has shifted its investigative focus towards fraud and misconduct at the corporate level, according to executive director of enforcement Tom Atkinson, who said such malpractice had cost the Hong Kong stock market HK$200 billion.

Atkinson, who became head of the SFC’s investigations unit in May, revealed that he has restructured his team to focus more on cracking down on corporate crime in a speech to 900 regional regulators, fund mangers and brokers on Wednesday at the Thomson Reuters 7th Pan Asian Regulatory Summit in Hong Kong.

“At the top of our priorities are listed company-related issues. We are particularly concerned about risks posed by corporate fraud and misfeasance, market manipulation and intermediary misconduct,” he said.

These cases not only caused immense losses to investors, they also severely damaged the integrity and reputation of the Hong Kong markets
Tom Atkinson, SFC

“Key cases of this nature have wiped out more than HK$200 billion in market capitalisation from the Hong Kong stock market, and all of them involved some form of corporate fraud or misfeasance.

“These cases not only caused immense losses to investors, they also severely damaged the integrity and reputation of the Hong Kong markets.”

Atkinson said the regulator has set up four new permanent investigative teams including one looking into cases of corporate fraud, and a corporate misfeasance team probing the misuse of powers by senior management at listed companies. Such cases can lead to investors losing billions of dollars.

“They often relate to companies with business operations in mainland China and most of the evidence and witnesses are in the mainland,” he said.

Since the SFC does not have jurisdiction in the mainland, it will needs the help of Chinese regulators in such cases, he added.

“Despite the resource implications, we will continue to focus our enforcement efforts on these types of investigations as they pose one of the greatest threats to the interests of the investing public and the integrity of the Hong Kong markets,” he said.

“I also want to emphasise that our enforcement actions will focus on holding individual wrongdoers accountable for their misconduct.”

Atkinson, previously head of enforcement at Canada’s Ontario Securities Commission, succeeded Mark Steward who left the SFC in September 2015. Steward was known as a tough white-collar crime fighter during his 10 years with the regulator. He is now director of enforcement and market oversight for Britain’s Financial Conduct Authority.

The other SFC permanent investigations teams includes an insider dealing and market manipulation unit which will investigate cases of share traders who take profit based on inside information and those who try to influence the market.

The fourth team will investigate brokers, fund managers and professionals licensed directly by the SFC in cases such as short selling and the mishandling of clients’ assets.

In addition, Atkinson said the commission has established four temporary specialised teams to tackle serious emerging risks, including the misconduct of sponsors during initial publics offerings. UBS and Standard Chartered Bank separately announced last month that they were facing SFC actions over failure of duty as IPO sponsors.

Stock exchange data shows China Forestry, for whom UBS and Standard Charted acted as joint sponsors in 2009, is in liquidation and will be delisted in January.

China Metal Recycling, which UBS sponsored for its IPO in 2009, was liquidated and delisted in January.

Atkinson said other specific teams included a GEM team that will monitor irregularities in the Growth Enterprise Market, an anti-money laundering team and a product team to investigate the misselling of specific investment products.

“Temporary teams will be disbanded when they have addressed the underlying risks. New teams may be formed to deal with other areas of concern as they emerge,” he said.