ComplianceOne Newsletter - February 2024
The topics discussed in this monthly newsletter are as follows:
1. SFC welcomes government budget measures
4. SFC bans Lam Ching Chiu and Wong Siu Fung for five years for bribery offences
5. SFC secures first criminal conviction of securities fraud via illegal short selling
MARKET NEWS
1.SFC welcomes government budget measures
On 28 Feb 2024, the SFC announced that its welcome note to the new government budget 2024-2025.
Mr. Tim Lui, Chairman of the SFC, said: “The proposed initiatives will boost Hong Kong’ s competitiveness as a global asset and wealth management hub and fund-raising centre.” And he further added that: “Building on a decade of success for our mutual market access schemes, we will continue to deepen connectivity with Mainland markets, especially the Greater Bay Area, as well as consolidate Hong Kong’ s position as a leading offshore renminbi hub and a premier risk management centre.”
On the operation side, Ms Julia Leung, Chief Executive Officer of the SFC also said: “We will work closely with HKEX to improve the market microstructure, reduce transaction costs and enhance market efficiency.”
It is worth noting that the SFC shares the view of the importance of reducing transaction costs, the minimum bid-ask spread in stock trading which are conducive to improving liquidity in the market. There are also other cost-saving measures and incentives like the extension of the Grant Scheme for Open-ended Fund Companies and Real Estate Investment Trust (REITS), stamp duty waiver for REITS etc.
SIGNIFICANCE:
It is not hard to notice that a regulatory body as SFC also publicly announces its support to the government even in economic measures intended to serve as catalyst to bolster the economy; the HKSAR government is harnessing strengths and supports from all side to consolidating financial resilience in Hong Kong.
2. SFC reminds transitional arrangement for public VATP application period has ended on 29 February 2024
The SFC announced a reminder note on 1 March 2024 of the deadline (29 February) for virtual asset trading platforms (VATPs) to submit licence applications; and those existing VATPs which do NOT submit applications would have to close down their business by 31 May 2024 pursuant to the transitional arrangement. Investors dealing with VATPs operating in Hong Kong which are not on the “List of licensed virtual asset trading platforms” or on the “List of virtual asset trading platform applicants” are urged to close their accounts with these VATPs or transfer to SFC-licensed VATPs for trading virtual assets.
The SFC further reminds the public that the applications submitted by applicants on the “List of virtual asset trading platform applicants” are still being processed and they may – or may not – be approved. Hence, trading on these platforms carries a risk.
From the SFC’s List of virtual asset trading platforms up to 1 March 2024, there are 24 applicants on the list, and it is odd that the popular platforms like Coinbase and Kraken are not on the list of 24 applicants. Besides, two applicants - Ammbr, BitHarbour – withdrew their applications and one application from Meex was returned by the SFC. It is also noted that Huobi HK re-submitted its application on 26 February 2024.
SIGNIFICANCE:
With the JPEX scam still fresh in mind, the SFC strongly urges investors to trade virtual assets only on SFC-licensed VATPs because they may expose themselves to unprotected risk on unlicensed platforms.
ENFORCEMENT NEWS
3. SFC reprimands and fines PICC Asset Management (Hong Kong) Company Limited $2.8 million for fund management failures
On 5 February 2024, the SFC made an announcement to reprimand and fined PICC Asset Management (Hong Kong) Company Limited (PICC) $2.8 million over its failures to discharge duties as the manager of a Cayman-incorporated fund between May 2018 and May 2020.
From investigation of the SFC, it was found that PICC had failed to:
(i) properly manage the fund to ensure its investments were in line with the stated investment objectives and restrictions;
(ii) implement adequate and effective internal controls to manage the fund from any over-concentration risks of non-compliance in just three stocks; and
(iii) supervise the designated investment manager (“IM”) in his investment activities of the fund.
SIGNIFICANCE:
It is ironical indeed that the fund’ s investment objective was to achieve capital preservation and steady capital appreciation through primarily investing in a diversified portfolio of equity securities; yet what the IM had been doing was to concentrate on a few stocks and not to comply with the stop loss procedures to preserve the capital! The IM was like acting unleashed from the mandate restrictions of the fund at all.
4. SFC bans Lam Ching Chiu and Wong Siu Fung for five years for bribery offences
The SFC made an announcement on 6 February 2024 that Mr Lam Ching Chiu and Mr Wong Siu Fung, both former licensed representatives of Nerico Brothers Limited, from re-entering the industry for five years starting from 6 February 2024 following their criminal convictions of bribery offences.
Lam and Wong were found guilty in August 2022 at the District Court of paying the then chief executive officer (CEO) of Hong Kong Financial Engineering Company Limited (HKFECL) bribes in relation to utilising a computerised algorithmic programme used for futures trading from late 2014 to early 2015.
It was found that the CEO asked Lam and Wong for commission for each profitable transactions through the use of the trading programme where both of them were not alerted if the practices were known or acceptable to HKFECL.
SIGNIFICANCE:
In deciding the sanctions, the SFC considered that Lam and Wong were not fit and proper persons to be licensed to carry on regulated activities due to their criminal convictions. They were both sentenced to imprisonment, with suspension for two years.
5. SFC secures first criminal conviction of securities fraud via illegal short selling
The Eastern Magistrates’ Court on 27 February 2024 convicted Ms Christine Yeung Tak Sum guilty of securities fraud involving illegal short selling in proceedings brought by the SFC.
The case was found that Yeung submitted a settlement instruction form to her broker Aristo Securities Limited pretending she had 15 million shares in Aurum Pacific (China) Group Limited (Aurum) in another brokerage firm, and then sold the share which she did not have. After illegal short-selling Aurum shares, she proceeded to buy back the same quantity of shares at a lower price to cover her short-sold positions within the same day, making an illicit profit of about HKD602,600.
SIGNIFICANCE:
Intermediaries should be aware of their obligation to implement and maintain appropriate measures to comply with the short selling requirements and to be mindful of red flags indicating illegal short selling by its clients, especially clients with no sound rationale for not executing the sell instructions directly through their original brokers.
For more details, please click on the title of the topic above.
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