What powers do national financial services authorities have to examine and investigate compliance? What enforcement powers do they have for compliance breaches? How is compliance examined and enforced in practice?
Both the HKMA and the SFC have the power to conduct on-site inspections and examinations of the financial services firms they regulate, and to compel the production of certain documents. Both regulators also conduct off-site surveillance - the HKMA of the financial condition of the institutions it authorises, and the SFC of market conditions and trading activity.
In connection with these powers of inspection and surveillance, both regulators are also given the authority to conduct investigations, which can lead to disciplinary, civil or criminal enforcement actions, as detailed in question 10.Disciplinary powers
What are the powers of national financial services authorities to discipline or punish infractions? Which other bodies are responsible for criminal enforcement relating to compliance violations?
Both the HKMA and the SFC are authorised to take disciplinary or civil enforcement action (subject to the approval of the Department of Justice) in connection with regulatory breaches. A wide range of sanctions is available even in the disciplinary context, including licence revocation or suspension, fines and public reprimands, among others. In many cases, the HKMA and the SFC also require the entities or persons responsible for regulatory violations to strengthen and enhance internal controls and governance. In the civil context, the SFC can also petition the court for winding-up or bankruptcy orders, restoration orders, declarations that securities transactions are void, or for receivership. In addition, the courts and relevant tribunals can require disgorgement, impose financial penalties and enforce activity restrictions and prohibitions on future conduct.
The HKMA and SFC can also seek criminal prosecution in connection with certain regulatory breaches. The SFC can prosecute ‘summary offences’ on its own, but must refer any indictable offences to the Department of Justice. The HKMA must refer all potential offences to the Department of Justice for prosecution. The maximum penalties ordinarily available for financial services offences are fines of up to HK$10 million, and a term of imprisonment of up to 10 years.Tribunals
What tribunals adjudicate criminal and civil financial services infractions?
Hong Kong has a number of specialised tribunals responsible for the adjudication of disciplinary and civil financial services infractions. In most cases, the regulatory authorities are also able to pursue civil enforcement actions in the Hong Kong courts.
SFC disciplinary decisions, for instance, are appealable to the Securities and Futures Appeals Tribunal, where a full de novo review of the disciplinary proceedings is conducted by a three-member panel consisting of a chairman and two lay members. Final orders entered by the Securities and Futures Appeals Tribunal can be registered in or appealed to the Hong Kong courts.
Similarly, civil breaches of market misconduct provisions are heard by the Market Misconduct Tribunal, as part of a public inquiry heard by a three-member panel (one judge and two lay members) in which the SFC acts as the presenting officer. The Tribunal can issue injunctions, order disgorgement, or impose a prohibition on dealing in securities, taking management roles in listed companies or engaging in future misconduct. Subsequent violations of its orders are punishable by imprisonment and fines.
Otherwise, civil actions are dealt with by the Hong Kong courts.Penalties
What are typical sanctions imposed against firms and individuals for violations? Are settlements common?
In the disciplinary setting, the most common sanctions are fines (ordinarily three times the profit earned or loss avoided), public reprimands and partial licence suspensions. Penalties can range from incidental amounts to well over US$50 million, depending on the severity and scope of the relevant violations. The settlement of disciplinary actions is quite common, but the regulators nearly always require some form of public reprimand.
For civil enforcement actions, the full range of economic and equitable sanctions are common, especially disgorgement and prohibitions on future activity (eg, acting as the director of a listed company). Settlements of civil actions are also quite common, although statistics as to the rate of settlement are not publicly available.