SFC routine inspection update – SEC registrants

SFC licensees who are also SEC registrants, including those who are exempt reporting advisors, are subject to examination (normally by correspondence) by SEC staff; and they must maintain certain records with respect to all of their clients, including non-U.S. clients. For non-U.S. advisors, the SEC normally only focuses on activities which relate to U.S. clients. However the SEC will look at other parts of the business processes if it considers they may harm U.S. investors.

When the SEC contacts a non-U.S. registrant for a correspondence examination, it would usually let the registrant know whether the exam is risk-based or on particular processes. If the examination goes well, the SEC will often reduce the risk level of the registrant in its internal database.

The last joint examination conducted by the SEC and the SFC in Hong Kong was in 2008. The former head of the SEC's Office of Compliance Inspections and Examinations said earlier this year that the SEC and the SFC are now ready to resume joint examinations, although a joint examination would only usually be conducted if the SEC had “cause”, so the process appears to be a hybrid between an SFC routine inspection and an investigation. We will share some tips in our next newsletter on preparing for a possible correspondence examination by the SEC.