Hong Kong's SFC Seeks Ability To Fine Brokers

Mary Swire, Tax-news.com, Hong Kong

30 March 2001

In a bill now being scrutinised by the Legislative Council, the Hong Kong Securities and Futures Commission has proposed guidelines which would allow them to impose heavy fines on brokers found guilty of market fraud. At present, the Commission can only censure brokers for minor mistakes, and in more serious cases, can suspend or revoke their licenses. However, it cannot impose fines, and must pass more serious offences on to the courts.

The SFC said that the move would bring regulatory power in line with overseas counterparts such as the UK Financial Services Authority, or the US Commodity Futures Trading Commission. The Commission believes that the new legislation is necessary because, in certain cases of malpractice: ' A reprimand may be too light and suspension or revocation too severe, particularly against a corporation in the latter case when many innocent parties may be adversely affected.'

The new rules would cover all entities licensed by the SFC, including brokers, fund managers, foreign-exchange traders and investment advisors. Not surprisingly, there has been uproar in the territory's financial services sector, which believes that if the bill is passed, it will effectively make the SFC judge, jury and executioner in cases of fraud or malpractice.

Dannis Lee Jor-hung, council member of the Hong Kong Stockbrokers Association, has also criticised the Commission for failing to clearly outline exactly how and when fines would be imposed. Under the proposals, the SFC will be able to impose a higher fine (up to $10 million, or 3 times the profit made or loss avoided as a result of improper conduct, whichever is the higher) for serious cases of misconduct. These include (but are not limited to): Conduct that is intentional or reckless, conduct that damages the integrity of the market, conduct that causes loss to, or imposes costs on others, and conduct which provides a benefit to the firm or individual engaged in that conduct and their related parties. Technical breaches of regulatory requirements that cause little or no damage to the markets, or to clients, would be treated more leniently.

However, this explanation has failed to satisfy many, and HK brokers and finance professionals are calling for a definitive list of punishable offences, and a table of fines for each level of infraction. 'This will enable brokers to know clearly what they may need to pay' said Mr Lee.

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