2017年2月28日
資訊洞見
On 21 November 2019 the Hong Kong Securities and Futures Commission (SFC) issued an important circular (the Circular) to provide guidance to assist asset managers regarding red flags for dubious arrangements or transactions and their expected standards of conduct. The SFC has identified a number of potentially manipulative, deceptive, illicit or improper practices in the past which have been referred to in previous circulars, including:
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Our articles on the SFC’s previous circulars on disguised margin financing arrangements and the SFC’s renewed focus on the misuse of private funds and discretionary accounts can be found here and here.
On the same day, the SFC reminded listed issuers that they should not employ private fund structures, discretionary accounts or similar arrangements with a view to avoid or to contravene laws, rules or regulations.
The SFC is particularly concerned about arrangements where asset managers have largely ignored other red flags and simply followed investors’ instructions when structuring private funds or discretionary accounts and effecting transactions (without due regard as to whether they are legitimate or proper).
Such arrangements may facilitate the following types of misconduct by asset managers’ clients or other entities:
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avoiding or contravening market misconduct provisions or disclosure obligations or other laws, rules and regulations, such as the Codes on Takeovers and Mergers and Share Buy-backs and the Listing Rules; |
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conducting unlicensed regulated activities; or |
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fraud or other serious misconduct or illicit activities. |
An asset manager which disregards dubious arrangements or transactions may be in breach of its obligation to act honestly, fairly or with due skill, care or diligence, in the best interests of its clients or the integrity of the market in accordance with General Principles 1 and 2 under the Code of Conduct. Failure to report suspicious client transactions may also amount to a breach of paragraph 12.5(f) of the Code of Conduct.
An asset manager may also be in breach of the AML Guideline if for example it fails to conduct appropriate customer due diligence measures.
Such failures or breaches will call into question whether the asset manager remains fit and proper to be licensed.
Senior management should ensure that they have effective measures in place to identify if any proposed arrangement or transaction appears to deviate from generally accepted market practices, or arrangements where the asset manager is not expected to exercise investment discretion. Appendix 1 of the Circular sets out steps an asset manager should take before proceeding with an arrangement or transaction, including questions they should ask themselves; enhanced due diligence which should be conducted if an arrangement or transaction raises red flags; senior management review and decision; and documentation of the process of screening, enhanced due diligence, senior management review, the decision making process and senior management’s reasoning behind the decision to proceed. Appendix 2 to the Circular contains a non-exhaustive list of features or activities which should alert asset managers to the possibility that an arrangement or transaction may be dubious.
The SFC emphasizes that asset managers should have regard to substance over form when assessing the legitimacy of an arrangement or transaction.
Senior management, including the Manager in Charge (MIC) of Overall Management Oversight, the MIC of the asset manager’s key business line and the MIC of AML will be held accountable if an asset manager facilitates misconduct by its clients or other entities due to a failure to screen out dubious investment arrangements or transactions.