Hong Kong SFC Fines Fund Managers for Internal Control Failures and Other Breaches

April 29, 2024
Key Takeaways: The Hong Kong Securities and Futures Commission recently took disciplinary action against two fund managers for failures and breaches relating to fund management activities. Noncompliance by the fund managers included internal control and risk management inadequacies, which resulted in failure to identify, prevent, manage and/or monitor conflicts of interest and failure to comply with investment strategy, objectives and restrictions, among other things. Intermediaries’ misconduct and, in particular, internal control failures, very much remain an enforcement priority of the regulator. Licensed intermediaries, especially holders of type 9 (asset management) licenses, should therefore ensure that effective internal controls and risk management procedures are not just in place but also properly implemented, monitored and adhered to. Directors and senior management of asset managers should adopt a proactive and inquisitive approach in identifying and addressing actual or potential noncompliance. In the past three months, the SFC has pursued disciplinary proceedings against two fund managers for failures and breaches relating to fund management activities. Licensed intermediaries, and especially holders of type 9 (asset management) licenses and their senior management, should ensure that effective internal controls are in place to properly manage the risks arising from fund management activities. PICC Asset Management (Hong Kong) Company Limited. On 5 February 2024, the Securities and Futures Commission (“SFC”) reprimanded and fined PICC Asset Management (Hong Kong) Company Limited (“PICC”) HK$2.8 million over its failure to discharge its duties as the manager of a Cayman-incorporated fund. The SFC found that PICC failed to properly manage the fund in accordance with its investment strategy, objectives and investment restrictions. Contrary to the fund’s stated objective of capital preservation...

Hong Kong Financial Regulatory Review 2023

April 29, 2024
Key Takeaways: As Hong Kong gradually emerged from the effects of Covid-19 over the past year, the financial regulators, in particular the Securities and Futures Commission (the “SFC”), have also become increasingly active. In recent months, there has been an uptick in the number of investigations initiated by the SFC. Insider dealing, internal control failures and corporate misconduct remain high on the SFC’s list of enforcement priorities, whilst it continued to step up its efforts to crack down on ramp-and-dump syndicates. To this end, the SFC has worked closely with other regulators in Hong Kong, Mainland China and overseas to conduct joint operations, training and other activities, and is expected to continue doing so going forward. All in all, although enforcement by the SFC still has some way to go before it reaches pre-Covid levels, the trend is certainly an upward one. Significant regulatory developments were also seen in the emerging areas of ESG and virtual assets, and initiatives to reform or refine long standing regulations and practices relating to insider dealing and market soundings were introduced. Further, a recent Court of Appeal decision on letters of no consent also has significant implications from an enforcement perspective. In this review, we delve into some of these key financial regulatory developments in 2023 and highlight potential implications that are vital to managing risks and meeting regulatory expectations. As Hong Kong emerged from the Covid-19 slumber over the past year, the financial regulators, in particular the Securities and Futures Commission (the “SFC”), have also become increasingly active. In 2023, the SFC initiated and concluded more than 10 consultations; conducted several high-profile...