Thursday, June 2, 2016

Hong Kong SFC Consults on Greater Info Gathering Powers on Licensed Firms to Help Abroad Regulators

Hong Kong's Securities and Future Fee (SFC) has begun a month-long consultation1 on proposed amendments to the Securities and Futures Ordinance (SFO) to permit the supply of higher supervisory assistance to overseas regulators, upon request. Written responses to the consultation are required to be submitted by 16 January 2015.

The SFC's acknowledged aim in making the proposed amendments is to align Hong Kong's provisions on the supervision of regulated multi-nationwide entities with international standards. This in flip should lead to the entering into of more supervisory cooperation preparations between the SFC and overseas regulators and entry for Hong Kong regulated entities to those abroad markets which prohibit entry to jurisdictions with mutual cooperation arrangements in place.

The extension of the SFC's powers beneath the proposed amendments is fairly restricted: Sections one hundred eighty and 186 of the SFO could be amended to boost the SFC's data gathering powers. The amendments would give the SFC the discretion (however not an obligation) to exercise its supervisory powers under Section 180 to acquire records or paperwork from an SFC-licensed corporation or its related corporation in relation to a regulated exercise carried on by the SFC licensed corporation, with a view to help abroad regulators in non-enforcement associated matters.


While the SFO provisions which allow the SFC to assist overseas regulators on enforcement matters meet international standards, its provisions permitting SFC assistance on supervisory issues fall wanting worldwide norms in a single narrow respect: they don't permit the SFC to train its supervisory powers to acquire information in order to assist an overseas regulator in relation to non-enforcement issues. The proposed SFO amendments are supposed to rectify this shortcoming.

The SFC considers it vital that the SFC ought to be capable of present help on supervisory issues to abroad regulators since it will make it easier for Hong Kong to enter into supervisory memoranda of understanding (MOUs) with overseas regulators. So far, Hong Kong has entered only a handful of sector-particular supervisory MOUs and the SFC fears that the current limitation on its powers might adversely have an effect on its ability to enter into additional MOUs. This, in turn, could negatively impact the SFC's capability to obtain assistance from abroad regulators.

The difference between supervisory cooperation and cooperation in the enforcement context is important. In relation to enforcement, cooperation between regulators involves the investigation of suspected misconduct with the purpose of obtaining evidence to be used in authorized proceedings. Supervisory cooperation, on the other hand, is primarily preventive in nature and involves the trade of data which isn't meant to be used in authorized proceedings. Its goal is to enhance supervision of regulated entities with entry to info from abroad regulators.

The SFC expects that the proposed amendments will afford Hong Kong regulated entities better access to overseas markets because it should open up markets to which entry is restricted to jurisdictions with worldwide supervisory cooperation preparations.

Current Framework

The SFC enjoys supervisory and investigatory powers under Section a hundred and eighty and Sections 182 and 183 of the SFO, respectively.

Section one hundred eighty SFO

Part a hundred and eighty entitles the SFC to examine and make enquiries of licensed companies with out having affordable trigger to consider that misconduct has taken place. Nonetheless, the SFC can solely train its powers under this section to determine whether a licensed corporation or its related entity is in compliance with the Hong Kong regulatory provisions laid out in Section 180(2) SFO, which embrace any SFO provision, any provision of the SFO's subsidiary laws and any terms or conditions to which an SFC licence is topic. Although info

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