SFC circular on foreign exchange margin trading on the Mainland and other activities not regulated by the SFC

On 17 June 2019, the Securities and Futures Commission (SFC) issued a circular reminding licensed corporations (LCs):

  • that under Mainland law, it is not legal for any unapproved institution to conduct foreign exchange margin trading on the Mainland or for any client on the Mainland to entrust an unapproved institution to do so; and
  • of the risks arising from LCs or their controlling entities and related corporations engaging in or being associated with illegal or fraudulent activities. 

Foreign exchange margin trading on the Mainland is similar to leveraged foreign exchange trading in nature and is regulated by SAFE.

Unauthorised activities on the Mainland

The SFC is aware that some LCs or their related parties offer leveraged foreign exchange trading or similar services to investors via websites presented in simplified Chinese and provide Mainland investors toll free telephone numbers for enquiry. LCs which provide or market foreign exchange margin trading or similar services to Mainland investors, or assist other persons to provide or market them to Mainland investors, should immediately review the legality of their activities under Mainland law and regulations. Any non-compliant activities should be discontinued immediately and notified to the SFC in accordance with paragraph 12.5 of the Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission (Code of Conduct). Paragraph 12.5 of the Code of Conduct requires notification to the SFC of any material non-compliance with applicable laws and regulations.

Alleged fraudulent or illegal activities of related parties

The SFC is concerned that some LCs’ related parties may be associated with other alleged illegal activities on the Mainland, such as unauthorised stock broking or fraudulent crowdfunding or peer-to-peer lending, or alleged fraudulent London gold activities in Hong Kong. The LCs may have allowed related parties to refer to them and their SFC regulated status on websites or marketing materials to promote these activities, or shared staff or premises with these related parties.

LCs should review the legality of the services offered by themselves and their related parties to ensure their activities comply with the law and regulations administered by the SFC as well as the applicable requirements of other jurisdictions. Unauthorised or illicit activities must be discontinued immediately. Any contravention of the law or regulations of other jurisdictions may amount to a breach of paragraph 12.1 of the Code of Conduct, which may call into question the fitness and properness of a corporation to be, or to remain, licensed in Hong Kong.