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The SFC has recently rolled out new licensing forms and a new Licensing Handbook as part of its revamping of the licence application process, with the stated aim “to enhance the efficiency and transparency of its gatekeeping function”. As a result, as mentioned in our April newsletter (SFC licensing and compliance hints: seven takeaways from the new Licensing Handbook), with effect from 11 April 2019, all SFC notifications, whether individual or corporate, must be submitted electronically through the SFC Online Portal and the Form 5 can no longer be used. There is however a Form 5U, which can be used where necessary if the online system is out of service.
We all know that when an individual ceases to be accredited to a licensed corporation (LC), both the individual and the LC need to make a notification to the SFC setting out the reason for the “cessation”. Under the revamped licensing process however, the LC is now also obliged specifically to notify the SFC if the individual has been the subject of any internal investigation by the LC within the six month period preceding the cessation. The SFC has gone even further than this and by way of asterisked note, added that “*if, subsequent to the submission of this notification you commence any internal investigation on this individual, please notify the Commission as soon as practicable.”
Effectively this means that all LCs are now obliged to notify the SFC of any internal investigation conducted on any licensed individual who has ever been with the LC even though the SFC has not amended paragraph 12.5 the Code of Conduct or the Securities and Futures (Licensing and Registration) (Information) Rules. It remains to be seen whether they will do so in due course.
Another point to note is that the SFC still does not define “investigation” but it would be prudent not to use the term loosely, and depending on the situation, “internal audit”, “internal review” or even “internal check/examination/inquiry” may be preferable. On the other hand, if the enquiry amounts to an investigation, it will still be an investigation no matter how you categorise it. It could be argued that this asterisked requirement is simply a specific application of the existing obligation under para 12.5 to notify the SFC if there is a suspicion of a potential wrongdoing. If this new requirement discourages LCs from digging into historical matters, it may turn out to be counter-productive.
In any case, LCs would be well advised to keep detailed written records of the decision, if it ends up deciding not to make a notification.
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