Hong Kong finance regulators step up anti-fraud fight

HKMA boosts anti-fraud capabilities with new Taskforce, while SFC urges company directors to pay greater attention to risk factors

Two of Hong Kong’s biggest financial regulators have taken steps to boost their practical efforts and messaging against the spectres of fraud and money laundering.

On 26 May, the Hong Kong Monetary Authority (HKMA) announced the launch of a dedicated Fraud and Money Laundering Intelligence Taskforce (FMLIT).

The special unit has been created as a public-private partnership between the HKMA, the Hong Kong Association of Banks, 10 major banking brands and the police force, which will lead its activities.

In a statement, HKMA described the initiative as “a bid to enhance the detection, prevention and disruption of serious financial crime and money-laundering threats”.

It explained: “Financial crime undermines the integrity of our economy and the financial institutions central to it. Fraud causes significant harm to companies and individuals, while money laundering enables those who would abuse our financial services to hide their proceeds of crime.

“The Hong Kong government has developed an anti-money laundering and terrorist financing regime over many years, which reflects its determination to protect the integrity of our financial system and citizens from this harm, and ensure that Hong Kong remains a safe and stable business environment.”

HKMA noted that the new Taskforce will extend that regime “with the aim of more effectively targeting and tackling current and future financial crime threats”.

It added: “A Strategic Group comprising senior representatives from law enforcement, the regulator and the banking industry will oversee FMLIT’s strategic direction and guide its work.

“At the core of FMLIT will be the Operations Group, where government and industry intelligence professionals will work side by side in tackling serious financial crime and money-laundering threats impacting Hong Kong.”

Meanwhile, the Hong Kong Securities and Futures Commission (SFC) has issued a formal reminder to directors and senior executives at its crop of listed companies, urging them to exercise greater vigilance over fraud and money-laundering risks.

The regulator said that it issued the reminder because it is currently conducting “a large number of investigations” of fraud cases.

It noted: “Many involve serious allegations and dereliction of duty on the part of directors and senior executives. If all these allegations are proven, we are looking at potentially very significant investor losses.”

Themes that have emerged from the SFC’s busy caseload include:

• outright fraud by powerful directors or senior executives who are usually company controllers;
• company controllers putting their own interests before those of the company and its minority shareholders, without understanding that the company is an independent entity with its own interests;
• other directors or senior executives deferring to a dominant company controller by relinquishing their responsibilities – or by accepting compromised roles that prevent them from properly discharging their own duties;
• non-executive directors (NEDs) failing to a) act as checks and balances on executive directors; b) exercise scepticism and due diligence in discharging their duties; and c) thoroughly question whether executives’ proposals are commercially sound and in the interests of all shareholders; and
• boards and senior executives not having proper controls to ensure that board members are aware of inside information and the need to disclose it appropriately, as soon as reasonably practicable.

The SFC has reminded company directors and officers that they must:

1. act in good faith and in the best interests of the company and its shareholders as a whole;
2. exercise due and reasonable care, skill and diligence;
3. exercise independent judgement;
4. exercise their powers for proper purposes;
5. avoid actual or potential conflicts of interest; and
6. refrain from making undisclosed profit.

It adds: “We also expect directors and senior executives to use their powers to implement proper internal controls and foster a culture of good corporate governance to reduce the incidence of fraud and misconduct in our markets.

“If left unchecked, fraud and misconduct may erode global investors’ confidence in our markets, inflicting lasting damage on our reputation as an international financial centre.”