SFC compliance and licensing hints – Nov 2016

Take prompt action to notify breaches

On 20 October 2016, the SFC reprimanded and fined two registered institutions HK$3 million and HK$2.6 million respectively for regulatory breaches (SFC’s news release available here). One of the breaches was failure to report the breaches to the SFC immediately as required under paragraph 12.5 of the SFC’s Code of Conduct.

Paragraph 12.5 requires licensed companies to notify the SFC immediately upon the happening of any actual or suspected material breach, infringement or non-compliance by it or its staff of any laws, regulations or codes administered by the SFC or other regulatory authorities.

The cases involved self-identified breaches which took the registered institutions more than two months to notify the SFC after they became aware of the breaches. The SFC considered the two registered institutions were in breach of paragraph 12.5 as they did not make the notification immediately.

Keep your word

In an article back in 2013 called “Watch your words; they become actions”, we advised clients to be careful about what is said or submitted to the SFC and to keep clear records of the same, whether in the context of a licence application or an on-going notification filing. This also extends to offshore licensed individuals telling the SFC how many times they will come to Hong Kong per year and for how long they stay in each visit.

We have seen recent approval letters issued by the SFC in which the SFC states that it grants the licences based on information received and representations made by the applicant and / or the licensed company. The letter also reminds the licensee that making false or misleading representations to the SFC would have an adverse impact on the fitness and properness of the individual applicant and the company, and the SFC could revoke the relevant licences. It is also a criminal offence to provide materially false or misleading information to the SFC in support of a licence application.

In the case of offshore licensed individuals, the licensed companies should keep track of visits by the offshore licensed individuals so that they can provide records of their visits to evidence the accuracy of information previously supplied to the SFC if required.