Compliance Pioneer - Vol. 12

We provide a comprehensive overview of the latest regulatory developments and enforcement actions in the Hong Kong financial market, offering insights for compliance professionals and industry stakeholders.

Regulatory

Analytical Accounts of the Exchange Fund

The Hong Kong Monetary Authority ( HKMA) announced the key analytical accounts of the Exchange Fund as of December 2024, reporting a HK$28.1 billion decline in foreign assets to HK$3,478.3 billion. The Monetary Base, comprising currency in circulation, the banking system balance, and Exchange Fund instruments, totaled HK$1,957.6 billion, while claims on Hong Kong's private sector amounted to HK$305.7 billion and foreign liabilities stood at HK$24.3 billion. These figures are published under the IMF’s Special Data Dissemination Standard ( SDDS). The HKMA issues four monthly press releases related to the Exchange Fund, three in line with SDDS requirements and one to maintain transparency, with scheduled releases in January 2025 on the 7th, 14th, and 28th.

Tender results of 10-year HKD HKSAR Institutional Government Bonds

The Hong Kong Monetary Authority ( HKMA) on behalf of the HKSAR Government, conducted a tender on 15 January 2025 for 10-year HKD Institutional Government Bonds (Issue No. 10GB3501001) under the Infrastructure Bond Programme A total of HK$2.0 billion in bonds were issued, with applications reaching HK$7.250 billion, resulting in a bid to cover ratio of 3.63. The bonds were accepted at an average price of 98.66, yielding 4.044% annually, with a coupon rate of 3.84%. The lowest accepted price was 98.29 (4.091% yield), and the pro rata ratio was approximately 45%. Settlement is scheduled for 16 January 2025, and the bonds will mature on 16 January 2035.

From Conformance to Performance: Governance as a Driver for Long-term Listing Market Growth Keynote speech at The 2nd Hong Kong Capital Markets Forum 2025

Dr. Kelvin Wong, Chairman of the Securities and Futures Commission ( SFC)delivered a keynote speech at the 2nd Hong Kong Capital Markets Forum on 15 January 2025, highlighting Hong Kong’s capital market achievements in 2024 and outlining priorities for 2025. Key milestones included 71 IPOs raising HK$87 billion, ranking Hong Kong fourth globally, and the successful implementation of measures like the treasury shares regime and trading spread reductions to enhance market liquidity and efficiency Corporate governance ( CG) was emphasized as a critical driver of market resilience and growth, with enhancements to the CG Code aimed at improving board effectiveness and aligning with global standards Dr. Wong also underscored the importance of transparency, risk management, and strong governance in fostering investor confidence and preventing misconduct, calling on all stakeholders to collectively strengthen Hong Kong’s status as a leading international financial center.

SFC extends swift licensing process to new virtual asset trading platform applicants

The Securities and Futures Commission (SFC) has extended its swift licensing process to all new virtual asset trading platform (VATP) applicants, allowing them to implement their systems and controls before an external assessment This initiative aims to enhance direct engagement and communication with applicants, fostering a robust regulatory framework for virtual assets in Hong Kong A circular providing additional guidance and findings from recent inspections was also issued to clarify regulatory expectations.

Enhancing Sponsors’ Value Proposition to Drive GEM Advancement Keynote address at the Association of Hong Kong Capital Market Practitioners’ Seminar

Dr Kelvin Wong, Chairman of the SFC, emphasized the importance of GEM (Growth Enterprise Market) in supporting SMEs, which are vital to Hong Kong’s and Mainland China’s economies, during his keynote speech at the Association of Hong Kong Capital Market Practitioners' Seminar He highlighted the success of GEM reforms in 2024 with increased IPO activity and sponsor fees, and stressed the critical role of sponsors in enhancing corporate governance, conducting rigorous due diligence, and ensuring the long term sustainability of companies beyond IPOs Good governance, he noted, is essential for corporate success and Hong Kong’s reputation as a global capital market While the SFC remains committed to combating sponsor misconduct, Dr Wong encouraged stakeholders to adopt best practices to strengthen the resilience and quality of listed companies.

Insurance Authority releases provisional business statistics for the first three quarters of 2024

On 17 January 2025 the Insurance Authority (IA) released provisional business statistics for the first three quarters of 2024 showing total gross premiums of $480.8 billion In the long-term business sector, new office premiums reached $169.6 billion (up 15.7%), with $162 billion from Non Linked individual business (up 18%) and $7.2 billion from Linked individual business (down 19.7%). Premiums from Mainland visitors dipped slightly by 0.4% to $46.6 billion Total revenue premiums of in-force business rose 8.3% to $405.8 billion, while claims and benefits paid increased by 12.7% to $270.2 billion For general business, gross premiums totaled $75 billion, with $38.4billion in claims and an overall operating profit of $6.7 billion, driven by General Liability and Property Damage business Reinsurance inward business recorded gross premiums of $35.5 billion but an underwriting loss of $0.3 billion Following the introduction of the Risk-Based Capital regime in July 2024 reporting definitions and methodologies have changed, making direct year on year comparisons inappropriate Full details are available on the IA website.

Companies (Amendment) Ordinance 2025

The Companies ( Amendment) Ordinance 2025 introduces significant changes to the Companies Ordinance (Cap 622) and its subsidiary legislation, focusing on treasury shares, website communications, and updates to model articles Key provisions include allowing listed companies to hold repurchased shares as treasury shares, regulating their cancellation, sale, or transfer, and suspending rights attached to such shares It also modernizes communication methods by enabling companies to send documents via websites, subject to member consent, and clarifies member rights to request electronic or hard copy formats Amendments to model articles remove limitations on communication methods, ensuring greater flexibility The Ordinance, enacted by the Legislative Council, will take effect on 17 April 2025, three months after publication in the Gazette.

Sharing of good industry practices for implementing operational resilience framework

The Hong Kong Monetary Authority (HKMA) has shared good industry practices to support Authorized Institutions (AIs) in implementing operational resilience frameworks under the Supervisory Policy Manual ( SPM) module OR-2, targeting full compliance by May 2026. Currently, most AIs are conducting mapping and scenario testing to identify vulnerabilities and dependencies in critical operations, with major retail banks enhancing disruption tolerance limits in response to supervisory feedback. These efforts aim to improve resilience and recovery capabilities. The HKMA acknowledges the challenges posed by complex banking operations and has summarized insights from a December 2024 industry sharing session, encouraging AIs to adopt appropriate practices. Institutions are advised to prioritize remaining tasks, track progress through self-assessments, and seek HKMA guidance as needed.

Celebrating the success of Asian Insurance Forum 2024

The Asian Insurance Forum ( AIF) 2024 held on 10 December, drew a record-breaking 2 ,400 participants, both in person and virtually, marking a significant success for the event. Featuring a distinguished lineup of international speakers, the forum reinforced Hong Kong’s role as a global financial hub under “One Country, Two Systems” and set the stage for hosting the 2026 International Association of Insurance Supervisors Annual Conference. Although technical issues limited discussions during the concluding dialogue, the active and insightful questions from participants highlighted strong engagement The Insurance Authority ( remains committed to improving communication with stakeholders while balancing corporate governance and business development, integrating with the Greater Bay Area, and fostering trust and collaboration to navigate future challenges.

Announcement In relation to the matter of Linocraft Holdings Limited (Incorporated in the Cayman Islands with limited liability) (Stock Code: 8383) Cancellation of listing

The Securities and Futures Commission (SFC) announced the cancellation of the listing of Linocraft Holdings Limited (Stock Code 8383) effective from January 23 2025. This decision follows the company's failure to meet resumption guidance and resume trading by the specified deadline Trading had been suspended since December 1 2023. Shareholders are advised to seek professional advice regarding the implications of this delisting.

Official launch of direct linkage between Central Moneymarkets Unit of Hong Kong and Central Securities Depository System of Macao

The Hong Kong Monetary Authority (HKMA) and the Monetary Authority of Macao announced the official launch of a direct linkage between Hong Kong's Central Money Markets Unit and Macao's Central Securities Depository System. This initiative aims to enhance cross-border investment opportunities and strengthen financial cooperation between the two regions, facilitating easier participation in each other's bond markets.

SFC expands listed structured fund offerings in Hong Kong

The Securities and Futures Commission ( SFC) has announced new regulatory requirements aimed at expanding the range of listed structured funds available in Hong Kong, including the introduction of Single Stock Leveraged and Inverse (L& Products and Defined Outcome Listed Structured Funds. These products, gaining popularity overseas, offer investors tools for trading or hedging individual stocks and provide customized investment exposures. To safeguard investors, the SFC will only accept L&I Products linked to highly liquid mega-cap stocks with a maximum leverage factor of 2 x to -2 x. The enhanced framework emphasizes both market development and investor protection, setting clear standards for product authorization and engagement with industry stakeholders.

SFC concludes consultation on proposals to pave way for fully digitalised public offerings

The Securities and Futures Commission (SFC) has concluded its consultation on proposals to eliminate mixed media offers (MMOs) in favor of a fully digitalized subscription process for public offerings in Hong Kong. All respondents supported the move, which will restrict subscriptions to online channels only, replacing printed application forms with electronic prospectuses. This initiative aims to enhance regulatory efficiency and support the transition to a paperless market, aligning with the uncertificated securities market regime. The SFC plans to formalize these amendments and present them to the Legislative Council for approval.

Enforcement

Family of four charged by ICAC for alleged voting offence at 2023 Rural Ordinary Election

The ICAC has charged a family of four for alleged voting offenses during the 2023 Rural Ordinary Election in Yuen Long. The defendants, aged 35 to 71, are accused of voting despite knowing they were ineligible and making false representations about their residency to electoral officials. Each faces charges under the Elections (Corrupt and Illegal Conduct) Ordinance. The investigation was prompted by a complaint about vote-rigging, revealing that the family had not met the three-year residency requirement necessary to vote. The ICAC emphasizes the importance of ensuring voter eligibility to avoid corrupt conduct.

Relevant Regulations

Section 16(1)(a) of the Elections (Corrupt and Illegal Conduct) Ordinance (ECICO) prohibits individuals from voting in an election if they know they are not entitled to do so. The offense is serious, with penalties that can include imprisonment for up to three years and a fine, aimed at preserving the integrity of the electoral process.Section 32(1)(c) of the Electoral Affairs Commission (Registration of Electors) (Rural Representative Election) Regulation addresses the issue of making false statements to electoral registration officers. This section criminalizes any misrepresentation regarding eligibility or residency during the voter registration process. Violating this regulation can also result in imprisonment and fines, reinforcing the commitment to ensuring that only eligible voters are registered and participate in elections.

Key Take Away

For Corporations

For corporations, it's essential to foster a culture of compliance and ethical behavior among employees by educating them about electoral integrity and the legal ramifications of voting misconduct. Establishing clear standards can help prevent involvement in corrupt practices.

For Individuals

For individuals, verifying voter eligibility before participating in elections is crucial to avoid legal consequences related to vote-rigging. Engaging in corrupt electoral practices not only undermines the democratic process but can also lead to serious legal repercussions. Both corporations and individuals play a vital role in maintaining the integrity of elections.

Then team leader of Three-Runway System Project’s subcontractor charged by ICAC for allegedly soliciting bribe from crane operator

On January 15, 2025, the ICAC charged Hui Wai-kwok, a team leader of New Ocean Machine Co., Limited, a subcontractor for the Three-Runway System Project at Hong Kong International Airport. He allegedly solicited a bribe of $100 to $200 per day from a crane operator to ensure the worker's continued employment. Hui faces one count of "agent soliciting an advantage," contrary to Section 9(1)(a) of the Prevention of Bribery Ordinance. At the time, New Ocean had strict policies against its employees soliciting or accepting advantages related to its business. Despite the solicitation, the worker, who joined the company in November 2022, did not pay the bribe and resigned soon after. New Ocean cooperated fully with the ICAC's investigation.

Relevant Regulations

Under Section 9(1)(a) of the Prevention of Bribery Ordinance, soliciting a bribe constitutes a serious offense, which can lead to substantial penalties, including imprisonment. The exact punishment can vary based on the case's specifics but generally reflects the severity of corruption-related offenses.

Key Take Away

For Corporations

This case underscores the critical importance of maintaining stringent anti-corruption policies and ensuring that all employees are aware of and comply with these regulations. Companies must foster a culture of integrity, where soliciting or accepting bribes is unequivocally prohibited, thereby protecting their reputation and legal standing. Cooperation with investigative bodies like the ICAC is essential in addressing and preventing corrupt practices within the organization.

For Individuals

For individuals, the case serves as a stark reminder of the personal risks associated with engaging in corrupt activities. Employees must understand that soliciting or accepting bribes not only jeopardizes their employment but also carries severe legal consequences that can lead to criminal charges and imprisonment. Upholding ethical standards in the workplace is vital for personal integrity and contributes to a fair and transparent working environment.

SFC and HKEX collaborate in enforcement action against FingerTango Inc. and former directors for misconduct resulting in over $660 million of losses

The Securities and Futures Commission (SFC) and The Stock Exchange of Hong Kong Limited (HKEX) are taking enforcement action against FingerTango Inc. and its eight former directors for misconduct that resulted in over $660 million in losses. The investigation revealed unauthorized investments and loans, prompting the SFC to seek disqualification and compensation orders from the Court of First Instance. Officials stressed the importance of diligent oversight by directors to protect corporate assets and ensure effective governance.

Relevant Rules and Regulations

Under Section 214 of the Securities and Futures Ordinance (SFO), the court may impose disqualification orders against directors for up to 15 years if they are found responsible for misconduct such as fraud or misfeasance. This section empowers the court to take appropriate actions to protect the integrity of corporate governance and the interests of shareholders.

Key Take Away

For Corporations

This case highlights the importance of robust internal controls and governance practices. Companies must ensure that directors are accountable for financial decision-making, particularly regarding loans and investments. The collaboration between the SFC and HKEX demonstrates the effectiveness of regulatory oversight in maintaining market integrity and investor confidence.

For Individuals

This serves as a reminder of their critical responsibilities. Directors must actively oversee management and ensure compliance with internal policies to prevent misconduct. Neglecting these duties can lead to severe legal consequences and damage the company's reputation, underscoring the need for ethical conduct within the organization.

Yuen Long small house ‘Ding Rights’ cases: One more applicant charged by ICAC admits conspiracy to defraud Lands Department

The ICAC has charged multiple individuals, including small house applicants and a village representative, in connection with a conspiracy to defraud the Lands Department regarding the granting of building licenses for small house developments in Yuen Long. On January 17, 2025, Leung Kam-yick, a 74-year-old applicant, pleaded guilty to one count of conspiracy to defraud. The investigation revealed that many properties were sold at high market prices, despite the "Ding Rights" being non-transferable under the New Territories Small House Policy. The scheme involved Leung and others conspiring to sell their “Ding Rights” unlawfully, leading to significant financial gains for developers.

Key Take Away

For Corporations

This case underscores the critical importance of adhering to legal and ethical standards. Engaging in fraudulent activities, such as transferring non-transferable rights, can result in significant legal consequences and damage to reputations. Companies should ensure robust compliance programs to prevent similar misconduct.

For Individuals

Individuals, especially those in positions of authority or influence, this case serves as a reminder of the responsibilities that come with such roles. Engaging in conspiracy or fraud not only risks severe legal penalties but also undermines public trust. Upholding integrity and transparency in all dealings is essential to maintain ethical standards in property transactions.

MMT sanctions chauffeur and wife for insider dealing in Dan Form shares and orders disgorgement of illicit profit

The Market Misconduct Tribunal (MMT) has sanctioned Choi Ban Yee and her husband, Sit Yuk Yin, for insider dealing in shares of Asiasec Properties Limited (formerly Dan Form Holdings Company Limited). Choi was ordered to disgorge $106,968 in illicit profits made from trading the shares based on inside information about a takeover involving Dan Form and Tian An China Investments Company Limited. The MMT found that Sit had inside information regarding the takeover, which he shared with Choi, leading her to acquire shares just before the announcement. In addition to disgorgement, the MMT imposed cold shoulder orders, cease and desist orders, and required both to pay the government's costs related to the case.

Relevant Regulations

Section 257 of the Securities and Futures Ordinance (SFO) in Hong Kong empowers the Market Misconduct Tribunal to impose various penalties for market misconduct, particularly insider trading. It allows for the disgorgement of profits gained from such activities, imposes cold shoulder orders that prohibit individuals from dealing in securities for a specified duration, and issues cease and desist orders to prevent further misconduct. Additionally, it mandates the payment of costs incurred by the government and the Securities and Futures Commission during investigations. These provisions collectively aim to maintain market integrity and deter illegal trading practices.

Key Take Away

For Corporations

This case underscores the importance of maintaining strict compliance with insider trading regulations. Companies must ensure that employees and associates are educated about the legal implications of sharing confidential information. Effective internal controls and monitoring systems should be established to prevent insider trading and protect the integrity of the market.

For Individuals

Individuals, particularly those in positions with access to sensitive information, this case serves as a critical reminder of the severe consequences of insider trading. Engaging in such practices not only leads to legal penalties, including financial restitution and trading bans, but also compromises personal and professional reputations. Upholding ethical standards and refraining from exploiting confidential information is essential for fostering trust and integrity in financial markets.

Intermediary among five charged by ICAC over $6m SLG loan fraud by conspiracy to submit false payroll records of SME

On January 22, 2025, the Independent Commission Against Corruption (ICAC) charged five individuals, including Li Kei-wing and siblings Michelle and Choi Wai-hang, with conspiracy to defraud and money laundering in a $6 million loan fraud under Hong Kong's Special 100% Loan Guarantee (SLG) scheme. The charges followed an investigation revealing that the defendants submitted false payroll records to HSBC to secure loans, falsely claiming funds would be used for wages and operational costs. The fraudulent activities occurred between March and May 2021, and it was found that Superl Jade & Jewels, registered under Michelle, had no employees and was operated by her brother. All five were released on bail and are set to appear in court on January 24 for further proceedings.

Relevant Regulations

Section 25(1) addresses the offense of dealing with property that is known or believed to represent the proceeds of criminal activity, commonly referred to as money laundering. This law aims to prevent individuals from benefiting from or facilitating the concealment of funds derived from illegal activities. Under this provision, individuals can be charged if they handle, transfer, or manage such proceeds, even if they were not directly involved in the initial crime. Section 159A pertains to conspiracy to commit an offense. This provision makes it illegal for two or more individuals to agree to engage in unlawful activities, including fraud or other crimes. It establishes that the mere agreement to commit an offense, along with any overt acts taken in furtherance of that agreement, can lead to criminal charges. This law serves to hold individuals accountable not only for their direct actions but also for their involvement in planning and conspiring to commit crimes.

Key Take Away

For Corporations

This case underscores the necessity of regulatory compliance and transparency in financial practices, particularly for lending institutions like HSBC and HKMC Insurance Limited. It highlights the importance of rigorous verification processes to prevent fraud, as failures can lead to significant financial and reputational damage. The cooperation of these institutions with the ICAC reinforces the critical role of collaboration between financial entities and regulators in maintaining ethical standards.

For Individuals

This case illustrates the severe personal risks tied to financial misconduct, including potential charges of conspiracy to defraud and money laundering. It emphasizes the importance of understanding legal obligations and maintaining ethical conduct in business dealings, as involvement in fraud can lead to significant legal repercussions and damage to one's career and reputation.

Then Police Sergeant charged by ICAC admits concealing debts in continued service application and credit union loan fraud

A former Police Sergeant, Lam Kong-lung, has pleaded guilty to charges of fraud and deception after admitting to concealing his debts in order to apply for continued service in the Hong Kong Police Force beyond the retirement age. In his application, he falsely claimed he had no outstanding debts, despite owing approximately $240,000 to financial institutions and concealing an Individual Voluntary Arrangement. Additionally, he misled the Hong Kong Police Credit Union into approving a loan of over $60,000 by hiding about $710,000 in debts. The case has been adjourned until February 13 for sentencing, with the ICAC emphasizing the importance of integrity and financial prudence among civil servants.

Relevant Regulations

Section 9(3) of the Prevention of Bribery Ordinance addresses the offense of soliciting or accepting an advantage without the consent of the relevant government authority. This section specifically targets public servants and outlines that it is an offense for them to solicit or accept any advantage as a reward for performing or refraining from performing their official duties. The provision aims to prevent corruption by ensuring that public officials act impartially and do not exploit their positions for personal gain. Violating this section can lead to severe penalties, including imprisonment.

Key Take Away

For Corporations

This case highlights the importance of collaboration between the ICAC, HKPF, and HKPCU in addressing corruption and ensuring accountability in public service. Their joint efforts underscore the need for transparency and thorough investigations to uphold ethical standards and prevent fraudulent activities.

For Individuals

For individuals, this case serves as a stark reminder of the consequences of financial misconduct. Lam Kong-lung's deception to secure continued service and a loan illustrates the risks of dishonesty, leading to criminal charges and reputational damage. It emphasizes the necessity of integrity and transparency in professional dealings.

Ex-bank employee charged by ICAC admits bribery and fraud over client referrals to broker for mortgage loan applications with another bank

Amy Chow Bik-sum, a former assistant customer service manager at OCBC Bank, has pleaded guilty to bribery and fraud charges after admitting to accepting a bribe for client referrals to a lending agency for mortgage loan applications. Between August 2019 and August 2021, she referred clients to another bank without permission, falsely claiming one referral was made through a legitimate intermediary to deceive the bank into paying referral fees. Chow accepted over $16,000 in bribes for these referrals, violating OCBC's policies against such practices. The case has been adjourned until February 10 for sentencing, while her co-defendants have pleaded not guilty, with a pre-trial review scheduled for March 7.

Relevant Regulations

Section 9(1)(a) of the Prevention of Bribery Ordinance criminalizes the act of a public servant accepting an advantage without the consent of their employer, thereby addressing corruption and ensuring accountability in public office. On the other hand, Section 159A of the Crimes Ordinance pertains to conspiracy to commit an offense, making it illegal for two or more individuals to agree to engage in unlawful activities, including fraud or bribery. Together, these provisions aim to deter corrupt practices and promote integrity within both public and private sectors.

Key Take Away

For Corporations

This case underscores the importance of collaboration among financial institutions and regulatory bodies in combating corruption. The ICAC's investigation, supported by OCBC and ICBC (Asia), highlights how cooperative efforts can enhance transparency and accountability. By working together, these organizations can better enforce compliance with ethical standards and prevent fraudulent activities, ensuring the integrity of the banking sector.

For Individuals

For individuals, this case serves as a cautionary tale about the risks of engaging in bribery and fraud. Amy Chow's actions, which led to her admitting guilt for accepting bribes and misleading her employers, illustrate the severe consequences of unethical behavior. It emphasizes the need for integrity and adherence to professional guidelines, as violations can result in legal repercussions and lasting damage to one's career.

SFC commences false trading prosecution against brothers-in-law

The Securities and Futures Commission (SFC) has initiated criminal proceedings against Mr. Lin Tai Fung and his brother-in-law, Mr. Or Chun Nin, for allegedly conspiring to engage in false trading of shares in Pa Shun International Holdings Limited between April 2017 and March 2018. Lin is also charged with failing to disclose changes in his shareholdings on eight occasions during that period. The court did not take a plea and adjourned the case to March 20, 2025, allowing the defendants time to seek legal advice. They were granted bail under specific conditions, including cash bail of $20,000 and a surety of $50,000.

Relevant Regulations

Section 295 of the Securities and Futures Ordinance (SFO) addresses the prohibition of misleading or deceptive conduct in relation to securities and futures markets, aiming to maintain market integrity and protect investors from fraud. Sections 159A and 159C of the Crimes Ordinance pertain to conspiracy to commit an offense and the specific act of conspiracy to defraud, respectively; these sections criminalize agreements between two or more individuals to engage in unlawful activities, reinforcing the legal framework against collusion and fraudulent schemes.

Key Take Away

For Corporations

This case underscores the necessity of regulatory compliance and transparency in financial practices, particularly for lending institutions like HSBC and HKMC Insurance Limited. It highlights the importance of rigorous verification processes to prevent fraud, as failures can lead to significant financial and reputational damage. The cooperation of these institutions with the ICAC reinforces the critical role of collaboration between financial entities and regulators in maintaining ethical standards.

For Individuals

This case illustrates the severe personal risks tied to financial misconduct, including potential charges of conspiracy to defraud and money laundering. It emphasizes the importance of understanding legal obligations and maintaining ethical conduct in business dealings, as involvement in fraud can lead to significant legal repercussions and damage to one's career and reputation.

SFC reprimands and fines Hang Seng Bank Limited $66.4 million for misconduct in selling practices of investment products

The Securities and Futures Commission (SFC) has reprimanded and fined Hang Seng Bank Limited (HSB) $66.4 million for serious regulatory failures in the sale of collective investment schemes (CIS) and derivative products over a nine-year period. The SFC's investigation, prompted by the Hong Kong Monetary Authority (HKMA), revealed that HSB engaged in excessive and misleading sales practices, leading clients to incur significant transaction costs and overcharge them without proper disclosure of monetary benefits. HSB's internal controls were found inadequate, failing to supervise transactions appropriately. Despite these failures, HSB has compensated affected clients and improved its internal controls, demonstrating cooperation with regulatory authorities. The SFC emphasized its commitment to maintaining market integrity and deterring similar misconduct in the industry.

Relevant Regulations

Section 295 of the Securities and Futures Ordinance (SFO) prohibits misleading or deceptive conduct in the sale and marketing of securities and futures products, ensuring that financial institutions operate with transparency and integrity to protect investors. Complementarily, Section 159A of the Crimes Ordinance addresses conspiracy to commit an offense, penalizing agreements between individuals to engage in unlawful activities, thereby deterring collaborative illegal actions. Meanwhile, Section 159C of the Crimes Ordinance specifically targets conspiracy to defraud, criminalizing deceptive agreements for financial gain. Together, these provisions create a robust legal framework that promotes accountability and ethical conduct in financial markets, safeguarding the interests of consumers and investors.

Key Take Away

For Corporations

The case against Hang Seng Bank Limited (HSB) demonstrates effective collaboration between the Securities and Futures Commission (SFC) and the Hong Kong Monetary Authority (HKMA) in enforcing regulatory standards. Their joint investigation revealed HSB’s systemic misconduct, leading to a significant fine and underscoring the necessity for strong compliance systems in the financial industry. This partnership not only held HSB accountable but also sent a clear message about the importance of regulatory adherence.

For Individuals

For individual clients, HSB's actions resulted in financial harm due to overcharging and misleading sales practices. Clients were pressured into excessive trading, incurring significant costs that conflicted with their investment goals. The failure to disclose true fees left many unaware of their financial burdens. While HSB has since compensated affected clients and enhanced its controls, this case highlights the critical need for transparency and ethical conduct in financial transactions.