Response to the Consultation Paper on Proposed Amendments to Enforcement-related Provisions of the Securities and Futures Ordinance
Release Date: 2022-08-08
Securities and Futures Commission
Online Submission
54/F, One Island East,
18 Westlands Road, Quarry Bay, Hong Kong
August 8, 2022
To: Securities and Futures Commission
Dear Sir/Madam,
Subject: Response to the Consultation Paper on Proposed Amendments to Enforcement-related Provisions of the Securities and Futures Ordinance
We submit the following opinions regarding the consultation paper on the proposed amendments to enforcement-related provisions in the Securities and Futures Ordinance.
Part 1 – The SFC proposes to amend Section 213 of the Securities and Futures Ordinance (Injunctions and Other Orders) to provide a cause of action, allowing the SFC to apply to the Court of First Instance for injunctions and other orders under Section 213 after exercising any power under Sections 194 or 196 of the Securities and Futures Ordinance against a regulated person.
Question 1: Do you agree with: (i) the proposal to amend section 213 of the SFO to expand the basis on which the SFC may apply to the CFI for remedial and other orders after having exercised any of its powers under section 194 or 196 of the SFO against a regulated person, and; (ii) the proposed consequential amendments to section 213(1), (2), (7) and (11)? Please explain your view.
We oppose the proposed amendments in (i) and (ii).
Given that existing licensed individuals are already subject to numerous rules and regulations, we hope the SFC will exercise relevant powers prudently to avoid unnecessary pressure on licensed individuals.
If the amendments are passed, relevant individuals might face not only penalties from the SFC but also potential "clawback" from investors under Section 213, which could involve significant amounts. Many licensed individuals involved in violations currently settle with the SFC before penalties under Sections 194 and 196 are imposed. If they face further actions under Section 213 in the future, they might prefer continuing legal action rather than settling with the SFC.
If the SFC can pursue claims under Section 213 against those deemed unfit for licensing, it could significantly impact small and medium-sized sponsors and their employees, especially if their insurance coverage does not cover the full amount of claims. Consequently, some brokers might prefer abandoning sponsorship work to reduce the risk of heavy penalties, severely affecting Hong Kong's status as a financial market and fundraising hub, and damaging its reputation as an international financial center.
Question 2: Do you have any comments on the proposed consequential amendments to section 213(3A) in respect of OFCs? Please explain your view.
We have no comments on this proposed amendment.
Part 2 – The SFC proposes to amend the exemption described in Section 103(3)(k) of the Securities and Futures Ordinance for offenses under Section 103(1) (regarding issuing advertisements, invitations, or documents relating to investments in certain circumstances), to ensure the scope of the exemption aligns with its original intent, with corresponding amendments suggested for Section 103(3)(j).
Question 3: Do you agree with the proposal to amend the exemption set out in section 103(3)(k) and the consequential amendments to section 103(3)(j)? Please explain your view.
To more effectively protect investors' interests, we have no comments on this proposed amendment.
Part 3 – The SFC proposes to broaden the scope of insider trading provisions under the Securities and Futures Ordinance to cover: (i) insider trading in Hong Kong regarding securities or derivatives listed on overseas securities markets; and (ii) insider trading conducted outside Hong Kong, provided it involves any securities or derivatives listed on the recognized securities market operated by the Stock Exchange of Hong Kong Limited.
Question 4: Do you agree with the proposal to expand the scope of insider dealing provisions of the SFO to cover insider dealing perpetrated in Hong Kong with respect to overseas-listed securities or their derivatives? Please explain your view.
Given that the definition of Material Non-Public Information (MNPI) for overseas-listed securities or their derivatives may differ from that in Hong Kong, we hope the SFC will clearly define insider trading behavior involving overseas-listed securities or their derivatives to help investors or licensed individuals avoid inadvertently engaging in insider trading.
Question 5: Do you agree with the proposal to expand the scope of insider dealing provisions of the SFO to cover insider dealing perpetrated outside of Hong Kong, if it involves any Hong Kong-listed securities or their derivatives? Please explain your view.
We have no comments on this proposed amendment.
If you have any questions, please feel free to contact our Chairman Mr. Mofiz Chan or our Mr. Ng Ka Fai Benson, Director of Industrial Relations Department .
Wishing you health and wellness,
Mofiz Chan
Chairman
Hong Kong Securities and Futures Professionals Association
Online Submission
54/F, One Island East,
18 Westlands Road, Quarry Bay, Hong Kong
August 8, 2022
To: Securities and Futures Commission
Dear Sir/Madam,
Subject: Response to the Consultation Paper on Proposed Amendments to Enforcement-related Provisions of the Securities and Futures Ordinance
We submit the following opinions regarding the consultation paper on the proposed amendments to enforcement-related provisions in the Securities and Futures Ordinance.
Part 1 – The SFC proposes to amend Section 213 of the Securities and Futures Ordinance (Injunctions and Other Orders) to provide a cause of action, allowing the SFC to apply to the Court of First Instance for injunctions and other orders under Section 213 after exercising any power under Sections 194 or 196 of the Securities and Futures Ordinance against a regulated person.
Question 1: Do you agree with: (i) the proposal to amend section 213 of the SFO to expand the basis on which the SFC may apply to the CFI for remedial and other orders after having exercised any of its powers under section 194 or 196 of the SFO against a regulated person, and; (ii) the proposed consequential amendments to section 213(1), (2), (7) and (11)? Please explain your view.
We oppose the proposed amendments in (i) and (ii).
Given that existing licensed individuals are already subject to numerous rules and regulations, we hope the SFC will exercise relevant powers prudently to avoid unnecessary pressure on licensed individuals.
If the amendments are passed, relevant individuals might face not only penalties from the SFC but also potential "clawback" from investors under Section 213, which could involve significant amounts. Many licensed individuals involved in violations currently settle with the SFC before penalties under Sections 194 and 196 are imposed. If they face further actions under Section 213 in the future, they might prefer continuing legal action rather than settling with the SFC.
If the SFC can pursue claims under Section 213 against those deemed unfit for licensing, it could significantly impact small and medium-sized sponsors and their employees, especially if their insurance coverage does not cover the full amount of claims. Consequently, some brokers might prefer abandoning sponsorship work to reduce the risk of heavy penalties, severely affecting Hong Kong's status as a financial market and fundraising hub, and damaging its reputation as an international financial center.
Question 2: Do you have any comments on the proposed consequential amendments to section 213(3A) in respect of OFCs? Please explain your view.
We have no comments on this proposed amendment.
Part 2 – The SFC proposes to amend the exemption described in Section 103(3)(k) of the Securities and Futures Ordinance for offenses under Section 103(1) (regarding issuing advertisements, invitations, or documents relating to investments in certain circumstances), to ensure the scope of the exemption aligns with its original intent, with corresponding amendments suggested for Section 103(3)(j).
Question 3: Do you agree with the proposal to amend the exemption set out in section 103(3)(k) and the consequential amendments to section 103(3)(j)? Please explain your view.
To more effectively protect investors' interests, we have no comments on this proposed amendment.
Part 3 – The SFC proposes to broaden the scope of insider trading provisions under the Securities and Futures Ordinance to cover: (i) insider trading in Hong Kong regarding securities or derivatives listed on overseas securities markets; and (ii) insider trading conducted outside Hong Kong, provided it involves any securities or derivatives listed on the recognized securities market operated by the Stock Exchange of Hong Kong Limited.
Question 4: Do you agree with the proposal to expand the scope of insider dealing provisions of the SFO to cover insider dealing perpetrated in Hong Kong with respect to overseas-listed securities or their derivatives? Please explain your view.
Given that the definition of Material Non-Public Information (MNPI) for overseas-listed securities or their derivatives may differ from that in Hong Kong, we hope the SFC will clearly define insider trading behavior involving overseas-listed securities or their derivatives to help investors or licensed individuals avoid inadvertently engaging in insider trading.
Question 5: Do you agree with the proposal to expand the scope of insider dealing provisions of the SFO to cover insider dealing perpetrated outside of Hong Kong, if it involves any Hong Kong-listed securities or their derivatives? Please explain your view.
We have no comments on this proposed amendment.
If you have any questions, please feel free to contact our Chairman Mr. Mofiz Chan or our Mr. Ng Ka Fai Benson, Director of Industrial Relations Department .
Wishing you health and wellness,
Mofiz Chan
Chairman
Hong Kong Securities and Futures Professionals Association