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Authored by: Joseph Kwan
Following consultation, the Securities and Futures Commission (“SFC”) announced on 8 August 2023 that they will seek to amend the Securities and Futures Ordinance (Cap. 571) (“SFO”) to broaden the scope of our insider dealing provisions to cover:
1. Insider dealing perpetrated in Hong Kong of overseas-listed securities or their derivatives; and
2. Insider dealing perpetrated outside of Hong Kong of Hong Kong-listed securities or their derivatives.
Currently, the SFO only prohibits insider dealing regarding securities listed in Hong Kong. The SFC can only deal with suspected insider dealing in Hong Kong relating to overseas-listed securities by indirect means, for example, by providing assistance to regulators in the relevant jurisdiction, or by seeking to prosecute under s.300 of the SFO (being an offence involving fraud or deception in securities transactions). However, this might be difficult to prove and it is not an effective way to address the wrong. We have covered an example of a case under s.300 in 2017 (see here).
On the other hand, it is noted that as much as approximately 61% of insider dealing matters handled by the SFC between 2017 and 2021 involved dealing of Hong Kong-listed securities outside Hong Kong. Although the SFC can and has in the past investigated and prosecuted these cases, the amendments are intended to address the absence of express provisions that bring such activities within the Hong Kong court’s jurisdiction.
The proposed amendments will enhance protection to investors as well as the integrity and reputation of Hong Kong as a global financial market. They will also align our insider dealing regime in this area with other major common law jurisdictions.
Points to note about the proposed amendments
1. The alleged insider dealing of overseas-listed securities must also be unlawful in the overseas jurisdiction in question;
2. The new provisions will also apply to “over-the-counter” transactions in overseas-listed debt securities;
3. Any breach of the new provisions would be a reportable matter for licensed or registered persons under the Code of Conduct, and they have to report when they become aware of any suspected breach and to use their best endeavours to obtain the relevant data and submit it to the SFC; and
4. No transition period is intended for the proposed amendments. Accordingly, clients should take prompt action in updating their internal manuals and policies as well as conducting training to avoid any issue when the new provisions come into force.
Our team at Deacons regularly assists clients facing investigations by the SFC, including those who are accused of insider dealing and other contraventions of the SFO. Stay tuned on our news, as we will update our clients when the wording of the proposed amendments is published.
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