If you are a financial institution or a listed company, providing information to your Hong Kong regulators is a regular and almost routine affair. In a situation where you are compelled to disclose information to a regulator, you are very unlikely to be able to refuse.(1) However, in some cases, the regulator does not make a demand, but merely makes a request for information : do you really feel that you can say "no"?
Voluntary disclosure to a "person in authority" was discussed in the case of Securities and Futures Commission v Chan Shui Sheung Ivy (2) . Ms. Chan (the defendant) was an executive director of PME Group Ltd (PME), a company listed on the Main Board of the Stock Exchange of Hong Kong Ltd (SEHK). In 2012, the Securities and Futures Commission (SFC) commenced criminal proceedings against Ms. Chan alleging that she provided false or misleading information to the SFC by way of three public announcements of PME, knowing that the announcements were false or being reckless as to whether they were true or not.
At trial, the SFC sought to rely on four letters sent by PME to the SEHK between 2008 to 2010 (Letters). The Letters were in response to SEHK's inquiries into possible breaches of the Rules governing the listing of securities on the SEHK (Listing Rules) in relation to those three announcements. The SFC's case was that the contents of the Letters showed that Ms. Chan had made a conscious decision not to disclose certain transactions.
Ms. Chan objected to the admissibility of the Letters at trial on the basis that it could not be established that the statements made in the Letters were made voluntarily because they had been made to the SEHK, as a "person in authority", under a threat of disciplinary proceedings and in violation of privilege against self-incrimination.
The Magistrate found that the Letters were inadmissible reasoning that:
- they were made involuntarily;
- the threat of disciplinary proceedings could amount to a real threat in the mind of Ms. Chan;
- the SEHK must have been a "person in authority" in the mind of Ms. Chan as they were the ones who could issue disciplinary proceedings against her;
- the SEHK had power to refer the matter to the SFC for consideration of criminal offences; and
- there had been no waiver by Ms Chan of the privilege against self-incrimination.
The SFC sought to argue that that the Magistrate had erred in finding the Letters to be inadmissible on the basis that:
- both PME and Ms. Chan had agreed, in being listed as a company and being a director of a listed company respectively, to provide information to the SEHK when requested:
- there was no legal obligation on either PME or Ms. Chan to respond to the SEHK inquiries as the Listing Rules were contractual in nature and did not have any statutory backing;
- neither PME nor Ms. Chan elected to remain silent at the time despite knowing that as a normal procedure, any answers they gave to the SEHK might be passed on to the SFC;
- the SEHK inquiries were not directed at Ms. Chan, and any director of PME could have signed the letters on behalf of PME, but Ms. Chan had voluntarily elected to do so; and
- failure to answer the SEHK queries would, at worst, have resulted in disciplinary proceedings leading to possible sanctions of a reputational nature, rather than any penal consequences.
Person in authority
The SFC further argued that the answers in the Letters were not made involuntarily as the SEHK was not a "person in authority" as it was not acting on behalf of the SFC nor did it have any control over proceedings commenced by the SFC. The court did not accept these arguments noting :
"…the SFC's arguments are somewhat inconsistent with each other. On the one hand, the SFC argued that PME and [Ms Chan] were required to provide information to the SHEK when requested and that they knew that as a matter of normal procedure, any answers they have to the SEHK might be passed on to the SFC, and on the other hand, that PME and [Ms Chan] were under no legal obligation to respond to the SEHK inquiries and that the SEHK was not acting on behalf of the SFC."
The voluntary element required that, in order to be admissible, the statements could not have been obtained by fear of prejudice or hope of advantage exercised or held out by a person in authority. In this particular appeal, the SFC had failed to discharge this burden and standard of proof.
This case is an example of the SEHK sharing information with the SFC. This is by no means unusual; there are other instances of regulators sharing information. The Hong Kong Monetary Authority shares information with the SFC when investigating banks in their carrying on regulated activities and has previously shared information about the privacy practices of banks with the Privacy Commissioner.
Although the regulators will generally keep the information they receive confidential, they are able to onward disclose or share in some circumstances. Disclosure in the public interest, for example, is permitted both under section 378 of the Securities and Futures Ordinance and section 120 of the Banking Ordinance.
PROVIDING INFORMATION TO REGULATORS? SOME POINTS TO NOTE.
The regulators often "circle" an investigation, using all means at their disposal to elicit information.
Regulators can, and do, share information about an investigation amongst themselves (and possibly, with others, where permitted by law).
What is permitted by law can be wide.
Information can, and will, be used in criminal proceedings as well as in disciplinary proceedings.
Consider whether you are compelled to provide the information.
Understand your rights, for example, the privilege against self-incrimination.
Examine if you can limit onward disclosure.