News

SFC proposes substantial changes to Professional Investor regime in Hong Kong

2013-05-21T04:27:17Z

The SFC in Hong Kong has announced a 3 month consultation on major changes to the professional investor regime in Hong Kong. The full announcement is below (our emphasis added). We expect quite a vocal response to the consultation from some sectors.

SFC proposes to enhance professional investor regime, client agreement requirements

15 May 2013

The Securities and Futures Commission (SFC) has today begun a three-month consultation on proposals concerning the professional investor regime and the client agreement requirements in the Code of Conduct (Note 1).

The key proposals are as follows:

requiring intermediaries to comply with all Code of Conduct requirements (including the Suitability Requirement (Note 2)) when dealing with all investors who are individuals, including their wholly owned investment vehicles and family trusts;
streamlining the criteria under the Code of Conduct in assessing the knowledge and experience of corporate professional investors by removing specific tests (eg, the 40 transactions per annum requirement); and
requiring (i) that the Suitability Requirement be incorporated in all client agreements as a contractual term, (ii) that client agreements should not contain provisions which are inconsistent with the Code of Conduct, and (iii) that client agreements should accurately set out in clear terms the actual services to be provided to the client.

We are not proposing any change to the laws concerning access to private placements of investments by those who fulfil existing wealth criteria.

"Our consultation aims to identify those investors who, we believe, require full protection under our Code of Conduct, and those who don't. The Suitability Requirement is a cornerstone of investor protection which is why we believe that no individuals, regardless of wealth, should be classified as Professional Investors under the Code, depriving them of this vital safeguard," said the SFC's Chief Executive Officer, Mr Ashley Alder.

"The proposals also seek to align the contents of client agreements used by intermediaries with the services actually agreed to be provided to customers. This is intended to keep intermediaries "honest", as is our proposal to embed the Suitability Requirement in the client agreement," he added.

The public is invited to submit their comments to the SFC on or before 14 August 2013. Written comments may be sent on line via the SFC website (www.sfc.hk), by email to pi_client_agreement@sfc.hk, by post or by fax to 2284 4660.

End

Notes:

The Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission
The Suitability Requirement refers to the requirement to ensure the suitability of a recommendation or solicitation for a client is reasonable in all circumstances.

Happy birthday to us

2013-05-16T10:52:26Z

Tonight in Singapore we are hosting our first of two anniversary parties. ComplianceAsia is now 10. Thanks to all of our clients, staff and partners who have supported us over the last decade.

10 years ago we set up the first regional compliance consultantcy in financial services. A decade later we act for over 200 great clients every year.

Thanks to everyone involved (and there have been lots of you).

Special thanks to James Shipton who along with Philippa Allen, were the original two partners and the brains behind the concept.

Enjoy drinks at SCC.

HK party invites going out soon!!

More from the ICAC

2013-05-16T10:49:47Z

Today the HK ICAC announced a jail sentence for two insurance agents convicted of falsifying commissions. The full ICAC is below:

Ex-insurance agents jailed for accepting $563,000 bribes and deceiving commissions

16 May 2013

Two former insurance agents of an insurance company, charged by the ICAC, were today (Thursday) sent to jail at the Eastern Magistracy for accepting over $563,000 in bribes and using bogus insurance policies to deceive commissions totalling over $124,000 from the company.

Wong Yin-ping, 46, a senior unit manager formerly employed by Dah Sing Insurance Services Limited (Dah Sing Insurance), received a jail term 16 months.

Co-defendant Tang Wing-kwong, 53, a former insurance agent of Dah Sing Insurance, was sentenced to four months' imprisonment, and ordered to pay Dah Sing Insurance over $32,800 as restitution.

In sentencing, Principal Magistrate Ms Bina Chainrai remarked that the defendants deserved immediate custodial sentences as the offences committed by them were serious in nature.

Wong earlier admitted 10 charges - three of agent conspiring to accept advantages, contrary to Section 9(1)(a) of the Prevention of Bribery Ordinance (POBO) and Section 159A of the Crimes Ordinance; and seven of agents conspiring to use documents with intent to deceive their principal, contrary to Section 9(3) of the POBO and Section 159A of the Crimes Ordinance.

Tang pleaded guilty to one count of agent using documents with intent to deceive his principal, contrary to Section 9(3) of the POBO.

The court heard that at the material time, Wong was employed by Dah Sing Insurance as senior unit manager. She was the direct supervisor of Tang and three other insurance agents - Lau Kwok-kei, Monita Cheng Woon-ho and Cheng Chong (the trio).

As a senior unit manager, Wong was required to reach the required production targets and/or maintain certain number of productive down-line agents. If Wong failed to do so, she might have her allowances and bonuses withheld and might even be demoted or terminated.

The court heard that as the trio was unable to procure any insurance policy, Wong proposed she could source clients for them.

Wong asked the trio to sign, as the handling agent, on a number of insurance policy application forms. But the trio had never met with the policy applicants or proposed insured.

Between July 2008 and October 2009, Wong conspired with the trio to submit 41 bogus insurance policy application forms to Dah Sing Insurance. Upon Wong's request, the trio paid her a total of over $563,000 being the monthly allowances and commissions they received from the company.

In January 2009, Tang also submitted two other bogus insurance policy applications to Dah Sing Insurance for the same purpose.

Pursuant to the above bogus insurance policy applications, Dah Sing Insurance issued commissions of more than $92,000 and over $32,800 to Wong and Tang respectively, the court was told.

The trio was also charged by the ICAC for their respective roles in the case.

Lau Kwok-kei, 52, and Monita Cheng Woon-ho, 56, who earlier pleaded guilty to their respective charges, will be sentenced at the Kwun Tong Magistracy on May 20 and the Eastern Magistracy on August 2 respectively; while Cheng Chong, 25, was earlier convicted of his charges after trial, and will be sentenced at the Eastern Magistracy on August 6.

Dah Sing Insurance rendered full assistance to the ICAC during its investigation.

HK ICAC secures conviction of ex securities firm staff member

2013-05-13T02:06:34Z

Every now and then the HK Independent Commission Against Corruption secures a conviction against a licensed person for a breach which can be fashioned into a corruption case. The latest announcement from the ICAC sets out one such case:

Ex-staff of securities firm ordered to serve three years in jail for accepting $1.1m bribes

10 May 2013

A former investment representative of a securities firm, charged by the ICAC, was today (Friday) ordered by the Court of Appeal (CA) to serve three years in jail for accepting over $1.1 million in bribes from a businessman after the Department of Justice (DoJ) sought a review of his sentence.

Andy Pau Chin-hung, 37, formerly employed by KGI Hong Kong Limited (KGI Hong Kong), was earlier found guilty at the District Court of two counts of agent accepting an advantage, contrary to Section 9(1)(a) of the Prevention of Bribery Ordinance, and sentenced to perform 220 hours of community service and pay over $1.1 million as restitution to KGI Hong Kong.

The DoJ subsequently made an application for a review of Pau's sentence.

In allowing the DoJ's application, Mr Justice Peter Cheung Chak-yau of the CA remarked that meting out a non-custodial sentence to Pau convicted of bribery offences was wrong in principle.

Meanwhile, the CA also dismissed Pau's application for leave to appeal against his conviction.

The applications of the DoJ and Pau were today heard by Mr Justice Cheung of the CA, and Madam Justice Barnes and Mr Justice Derek Pang Wai-cheong, both judges of the Court of First Instance.

The court heard that at the material times, Pau was employed by KGI Hong Kong as an investment representative working for KGI Asia Limited (KGI Asia). He was responsible for opening securities accounts and conducting stock trading for clients of KGI Asia.

In early 2007, Pau came to know Derrick Luu Hung-viet, a businessman, through the introduction of Johnny Tang Ka-siu, with whom Pau had become acquainted when he worked in the insurance sector five or six years earlier.

Tang told Pau that Luu wanted to sell his shares of Warderly International Holdings Limited (Warderly) through the securities accounts of other persons in KGI Hong Kong.

Pau then helped his mother-in-law, a mainlander and a company associated with Luu open securities accounts with KGI Asia.

The court heard that between April 3 and 4, 2007, Pau sold 30 million shares of Warderly for Luu through the securities accounts of the mainlander and the company.

After receiving $13 million from the sale of the shares, Tang caused over $650,000 to be given to Pau.

In mid April 2007, Pau used the securities account of his mother-in-law to sell another 20 million shares of Warderly on behalf of Luu for over $9.3 million.

Out of the sales proceeds, five per cent or over $460,000 was given to Pau, the court was told.

The prosecution was today represented by Deputy Director of Public Prosecutions William Tam and Senior Public Prosecutor Sheroy Tam, assisted by ICAC officer Ten Cheng.

Tiger Asia judgement link

2013-05-13T00:52:26Z

The Court of Final Appeal Reasons for Judgement can be found here.

SFC bans trader for faking phone calls

2013-05-03T01:16:49Z

The SFC has taken action against a trader in Hong Kong for faking calls. Full details from the SFC website are below:

SFC bans Ma Tin Luk for three years

The Securities and Futures Commission (SFC) has banned Mr Ma Tin Luk from re-entering the industry for three years from 24 April 2013 to 23 April 2016 for fabricating telephone order recordings and providing false and misleading information to the SFC to conceal the lack of records on a short selling order he executed for a client in November 2009 (Note 1).

An SFC investigation found that:

Ma had requested his wife to pretend to be his client and created two false telephone order recordings; and
Ma informed the SFC that the telephone order recordings recorded the telephone conversations between him and his client, even though he knew that the conversations were in fact between himself and his wife.

In deciding the sanction, the SFC took into account all relevant circumstances, including:

Ma’s misconduct was seriously dishonest;
providing false and misleading information to the SFC could jeopardise the efficiency of its investigation and a deterrent message needs to be sent to the market that such conduct is not acceptable; and
Ma has no previous disciplinary record.

End

Notes:

Ma was licensed as a representative under the Securities and Futures Ordinance to carry on Type 1 (dealing in securities), Type 2 (dealing in futures contracts) and Type 4 (advising on securities) regulated activities and was accredited to Phillip Securities (Hong Kong) Limited and Phillip Commodities (HK) Limited between 26 March 2007 and 1 January 2011. He is currently not a licensed person.
A copy of the Statement of Disciplinary Action in relation to the matter is available on the SFC website.

SFC suspends another broker who did not disclose a personal share dealing account

2013-04-09T04:02:10Z

The HK SFC has suspended a broker who had failed to disclose a personal share dealing account in the name of his wife and was involved in publishing stock tips that the SFC advises he traded in advance of those published remarks.

The link to the SFC notification is here.

This is the second recent suspension relating to this issue and a timely reminder to all licensed firms to ensure that their staff understand the rules regarding disclosure of accounts of connected persons.

SFC publishes new FAQ on disclosure of inside information by HK public companies

2013-04-08T04:20:57Z

The SFC has published a new FAQ on the disclosure of inside information by HK public companies. It also noted an increase in the number of disclosures made by those firms (up 43% on the same time period from last year) following roll out of the new rules regarding this topic on 1 January this year.

The full SFC notice is below:

New statutory regime for inside information drives increase in disclosures

The new statutory regime on disclosure of inside information, which aims to cultivate and encourage an enduring culture of disclosure by listed companies, has spurred a significant increase in corporate announcements on inside information, according to the Securities and Futures Commission (SFC). The total number of corporate announcements on inside information in the first three months of 2013 was up 43% compared to that of the corresponding period last year (Note 1).

The SFC has been working closely with Hong Kong Exchanges and Clearing Limited in monitoring the compliance of listed companies with the new statutory regime, including reviewing companies’ disclosures, raising pertinent issues with companies, and giving guidance where disclosure appears to be inadequate or anomalies are detected.

Most enquiries handled by the SFC’s consultation service have been general in nature and they are generally processed within the same day. The questions covered a broad range of issues such as the interpretation of inside information, the application of safe harbours and confidentiality requirements, the liability provisions and other general administrative matters (Note 2).

As part of the SFC’s continued effort to help listed companies better understand the provisions of the new statutory regime, Frequently-Asked-Question (FAQ) addressing particular issues will be published.

The FAQ issued today advises listed companies not to use the heading “Voluntary Announcement” to disclose information but to use a heading that accurately reflects the substance of the information concerned, and clarifies the statutory obligation of dually listed companies under the new regime in relation to “overseas regulatory announcements”.

"We believe the new statutory regime on disclosure of inside information has certainly raised awareness among listed companies of the importance of making disclosures to the investing public in a timely manner. We will nevertheless continue to maintain rigorous monitoring of listed companies’ compliance with the regime, with a view to promoting enhanced disclosure, fostering a positive change in corporate culture and facilitating more timely regulatory actions on cases involving non-compliance," the SFC’s Chief Executive Officer Mr Ashley Alder said.

End

Notes:

Under the new regime, which came into operation on 1 January 2013, listed corporations are required to disclose inside information to the public in a timely manner.

The SFC started providing consultation service to listed corporations from 1 December 2012 on application of provisions of the statutory disclosure regime.

Japan takes steps to reform insider dealing rules

2013-03-26T02:07:09Z

Japan has had a number of insider trading issues to consider over the last two years including some serious cases involving the leakage of information from securities companies to their clients. Recently it was reported in the Nikkei Shimbum daily that further reforms are to be implemented in this area. Kakuko Takagi of our firm reports:

On 22 March 2013, it was reported that the FSA presented details of proposed amendments of insider trading rules to a Financial Affairs Meeting of the Liberal Democratic Party, the ruling party in Japan. The FSA plans to submit the proposal to the ordinary parliament session in the middle of April 2013. While currently only a person actually making an insider trade is penalized in Japan, a party who leaks insider information is going to be subject to the insider regulations under the proposed amendments. Major amendments presented are:

Where insider information was leaked by a securities company and it triggers a transaction:

- A fine to a securities company is calculated based on an amount of commission fees for 3 months from clients;

- Where a securities company also underwrites capital increases of a company whose information is leaked, 50% of the underwriting fee from that company is forfeited.

Where insider information was leaked by a party other than a securities company:

- 50% of the unjustified profit of a person who received the information and made a transaction is forfeited;

It was stated that criminal penalties are imposed only for especially egregious cases such as a significant amount of transactions or repeated leakages of information and those penalties will be:

- No longer than 5 years’ imprisonment or not greater than JP 5 million yen’s fine is imposed to an individual who leaked insider information;

- Where a corporation has a supervisory responsibility to an individual who is found guilty of criminal conduct, not greater than JP 0.5 billion’s fine is imposed on the corporation.

ComplianceAsia actively tracks Japanese regulatory developments on behalf of our clients.

Anti Money Laundering rules finally getting the public scrutiny they deserved

2013-03-25T01:00:44Z

Two articles in the SCMP over the weekend (one here) have finally highlighted to the Hong Kong public some of the downsides of this incredible raft of global legislation and regulatory burden.

Don't get me wrong, we hate drug traffickers, terrorists, kidnappers, people smugglers, despot rulers and arms traffickers. These are problems that have massive social costs and some unusual laws seem like a good way of addressing them.

However laundering has always been subsidiary to these predicate crimes. What we are now seeing in Hong Kong is public concern over how laundering itself has become a crime without reference to the underlying wrong it was designed to counter.

The case itself, for those not reading the local newspapers, involves an old woman who was smurfing and received a 10 year jail term. What is missing from the case against her, at least so far, is any evidence that she was part of some criminal scheme. The public prosecutor, Kevin Zervos, is also coincidentally a long time member of the anti money laundering establishment (if I can call it that) and is probably as well placed as anyone to be taking an educated position on this case. His view is that the prosecution was warranted. With respect, I differ.

Some years ago a very eloquent US prosecutor, John Moscow, put the case to an assembled group of bankers and compliance officers that it was their duty to assist the global fight against crime by participating in anti money laundering issues. With respect to the crimes mentioned above, John was right. Whatever our role in generating profits for our company, surely our social conscience overrides this when dealing with something as grievous as potential terrorism. AML rules in fact gave bankers and compliance a way to legally assist law enforcement with these horrible social wrongs.

The problem is that now that these rules are in place, for example where failure to report a suspicion of crime is a crime in itself, and the rules have been drafted in such a way as to include a very wide range of crimes, prosecutors are resorting to a charge of money laundering as a quick way to win rather than using AML as a way of getting at the king pins or providing intelligence to knock out the terror cell.

AML globally needs a complete rethink. Law enforcement needs intelligence and more resources. The public do not need draconian legislation that can be turned on them in the most unjust of ways. Bankers are not cops or spooks and there must be other ways to focus on the major crimes of our time and not see our civil liberties flushed down the toilet.

Well done Jake Vander Kamp and Philip Bowring for getting this issue into the spotlight, at least for a little while.