Hong Kong Sees Increased Number of Enforcement Actions Against Companies

New analysis from international law firm Freshfields Bruckhaus Deringer shows a significant jump in enforcement actions from Hong Kong financial regulator, the Securities and Futures Commission.


In the 2013 calendar year, there were at least 85 actions or settlements, an increase of nearly 50 per cent on the previous year’s total of 58.


While the average size of fines imposed by the SFC, and by the courts through actions initiated by the SFC, across both corporate entities and individuals decreased in 2013, this was in large part due to a small number of very large fines that were handed down in 2012.


Across the 2013 enforcement actions, the average fine for corporate entities was around HK$4.4m (down nearly 48 per cent on the previous year’s average) and around HK$126,000 for individuals (down approximately 42 per cent on the 2012 average).


Georgia Dawson, disputes partner in the firm’s Hong Kong office, said that companies need to be mindful of increasingly active regulators in Hong Kong and throughout Asia.


"The increase in regulatory actions confirms a sense in the market for some time, that the regulator is stepping up its enforcement activities,’ says Dawson.


Dawson notes that in the period since the global financial crisis, regulators throughout the region have been given more resources and scope to ensure that listed entities and financial institutions are conforming to relevant standards in each jurisdiction.


There is also far more co-operation across agencies, meaning that detection capabilities of regulators within Hong Kong and throughout the region are rapidly improving.


Securities and Futures Ordinance (SFO) used in new ways
Dawson also said that regulators were more willing to take decisive measures to ensure compliance with market regulations, such as in the China Metal Recycling winding-up process.


In the case of China Metal Recycling – where the SFC used section 212 of the Securities and Futures Ordinance for the first time to wind up a listed company – the SFC was willing to move quickly and definitively to maintain the integrity of the market.


"Going forward, Hong Kong’s market participants should expect a regulator that is prepared to use the full gamut of powers available to it under the SFO," says Dawson.


Increased enforcement activity a global trend
Dawson said that the heightened SFC enforcement activity broadly fell in line with the activities of regulators throughout other major financial centres.’


In the United Kingdom and the United States, the study saw record amounts of fines being issued in 2013.


"In both cases, the total number of fines was less than the preceding year, but big ticket enforcements were prevalent, leading to the record figures," says Dawson. "For regulators, it can be a balancing act between big ticket enforcement and proactive enforcement of smaller breaches."


The overall trend is increased activity around the world – be it in the form of larger fines or more rigorous scrutiny of smaller violations.


"We anticipate this trend will continue throughout 2014 and beyond," says Dawson.


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