Anti-fraud agents at Hong Kong’s Securities and Futures Commission (SFC) are preparing to intensify their approach to corporate wrongdoing, following a wide-ranging strategic review.
In a speech to delegates at the recent Pan Asian Regulatory Summit, SFC enforcement chief Thomas Atkinson – who took up his post in May – noted that the review had highlighted the need for a “quality over quantity” approach to tackling instances of fraud, misfeasance, market manipulation and intermediary misconduct.
In other words, actions must go deeper into causal factors and have a stronger, industry-wide impact, rather than being merely prolific enough to top global enforcement rankings.
“Key cases of this nature,” Atkinson said, “have wiped out more than $200bn in market capitalisation from the Hong Kong stock market.
“These cases not only caused immense losses to investors – they also severely damaged the integrity and reputation of the Hong Kong markets.”
He noted: “Corporate misfeasance and fraud-related investigations make up a very substantial proportion of our enforcement cases. These types of investigations are usually complex, time-consuming and often involve the loss of millions – and sometimes billions – of dollars by many investors.
“They often relate to companies with business operations in mainland China and most of the evidence and witnesses are in the mainland.”
Despite the inherent resource challenges, he said, the SFC would continue to focus its efforts on such cases “as they pose one of the greatest threats to the interests of the investing public and the integrity of the Hong Kong markets”.
Atkinson pointed out that, since 2012, the SFC has substantially increased the number of trading suspensions it has imposed upon listed companies – even though suspension is “a very interventionist power, and we exercise it very carefully”.
With that in mind, he warned, the SFC’s probes of listed companies will adopt a tighter scrutiny: “I want to emphasise,” he said, “that our enforcement actions will focus on holding individual wrongdoers accountable for their misconduct.”
Under Hong Kong’s Securities and Futures Ordinance, Atkinson explained, the SFC has “broad powers” to hold directors and other management figures responsible for any misconduct committed by their firms.
“We will vigorously exercise these powers where appropriate,” he stressed. “Over the past three years, we initiated proceedings against more than 50 directors and senior executives of listed companies for misconduct, breach of directors’ duties and reckless or negligent conduct that contributed to their company’s failings.”
He added: “We have received a steady stream of referral cases from our Corporate Finance Division averaging more than 50 cases each year. Many of these referrals raise serious issues – in particular those involving misconduct by IPO sponsors.
“To put it very lightly, the conduct and the level of professionalism demonstrated by some sponsors we looked at left a lot to be desired. You can expect to see more cases in the above areas where firms and their senior management will be held accountable for their failings.”