Intermediaries have self-reporting obligations to the Securities and Futures Ordinance (SFC), under paragraph 12.5 of the 'Code of Conduct for Persons Licensed by or Registered with the SFC'. This requires intermediaries to report to the SFC immediately upon the happening of a range of matters, including material breach of law or regulations, the passing of resolutions or initiation of proceedings which may result in the appointment of a receiver or a liquidator, the bankruptcy of any director, etc.

In its Circular on 14 September 2018, SFC reminds intermediaries to comply with these self-reporting obligations. In particular, it refers to the report on "any material breach, infringement of or non-compliance with any law, rules, regulations and codes administered by the SFC or any such suspected breach, infringement or non-compliance". The circular states that "it has recently come to the SFC's attention that some intermediaries have not promptly reported breaches of or non-compliance with various legal or regulatory requirements to the SFC."

In particular, the circular reminds intermediaries on the following:

  • this reporting obligation applies to both licensed corporations and registered institutions. While the Hong Kong Monetary Authority (HKMA) is the frontline regulator of registered institutions, registered institutions are required to fulfil this reporting obligation by making the report directly to the SFC in addition to reporting to the HKMA;

  • all material breaches and non-compliance (actual or suspected, irrespective of whether these were identified by the intermediary itself, stemmed from customer complaints or were identified through other sources) should be reported to the SFC (as well as the HKMA in the case of registered institutions) as soon as practicable upon identification, i.e. not after the intermediary has already completed its investigation, obtained legal advice or taken remedial actions; and

  • failure to comply with the reporting obligation may result in disciplinary action being taken against the intermediaries and their management.

The circular also reminds intermediaries of the SFC's previous circulars on 11 May 2015 (regarding the wider reporting obligations) and 1 June 2018 (regarding report on significant changes in the nature of business and types of services provided).

Comment

Individuals or corporations who are licensed or registered with the SFC should be alert to their self-reporting obligations. The consequences of non-compliance include disciplinary action. This may result in disciplinary measures including fines, private or public reprimand and other sanctions.

Timely reporting is essential for compliance with these obligations. But it is also important for individuals and corporations to properly understand their legal rights and duties. It is therefore advisable to contact legal advisors at an early stage, in order to ensure that legal obligations are complied with and all lawful rights and interests are protected. This is in line with recent Hong Kong and English case law, including the recent English Court of Appeal decision in SFO v ENRC [2018] EWCA Civ 2006. Legal professional privilege, which enables parties to consult their legal advisors on a confidential basis, has a fundamental role in our legal system to protect individuals and corporations.