ComplianceOne Newsletter – August 2025

The topics discussed in this monthly newsletter are as follows:

REGULATORY UPDATES

1. IPO and securities trading growth powers Hong Kong ahead as global financial hub: SFC Quarterly Report

2. Latest updates on Stablecoin-related Development

   
   

MARKET NEWS

3. SFC and HKMA to co-organise Hong Kong Fixed Income and Currency Forum 2025

   
   

ENFORCEMENT NEWS

4. SFC Fines HSBC $4.2 Million for Disclosure Failures in Research Reports

5. SFC Fines Deutsche Bank $23.8 Million for Various Regulatory Breaches during 2020 to 2023

6. Regulatory Action Against Nerico Brothers Limited involving Misappropriation of Client Assets

7. SFC Revokes Amber Hill Capital’s License and Bans Senior Management for Life Due to Misappropriation of Client Funds and Dishonest Fund Management Practices

8. SFC Seeks Court Order to Freeze $62.5 Million in Assets for Investor Compensation in Eggriculture Ramp-and-Dump Case

9. SFC and HKEX Take First-Ever Joint Action Against Former TOMO Directors for Non-Cooperation

10. SFC Bans Zhu Hong for 12 Months and Fines Her $400,000 for Fund Management Failures

    
    

Regulatory Updates

1. IPO and securities trading growth powers Hong Kong ahead as global financial hub: SFC Quarterly Report

The SFC published its second Quarterly Report (April to June 2025) in August with promising figure. Below are key takeaways of the achievements:

1. Hong Kong solidified its global leadership in IPO, with 51 IPOs and total funds raised surging over 60% year-over-year (“yoy”) to HKD128 billion;

2. The securities market demonstrated with resilience against the extreme volatility in April to restore orderly and normal operations; the HSI rebounded and reached 3-year high with average daily turnover up 85% to HKD243.7 billion in the first seven months;

3. The number of license applications increased 16% yoy for the second quarter;

4. For the asset management sector, the HK-domiciled funds recorded with a growth of 39% in AUM, and the number of open-ended fund (OFC) was up 56%;

5. For virtual asset (“VA”), the number of SFC-authorized VA spot ETF increased from six to nine, with further steps forward for approval of three VA spot ETF to engage in staking service with investor safeguards; and the number of SFC-licensed VATP increased to 11 together with 57 licensed corporations approved to provide VA dealing service;

SIGNIFICANCE:

The SFC plays a proactive role as a regulatory institution to provide full-fledged obligations in monitoring and revitalizing the regulatory regime in Hong Kong, balancing the drive for innovation and the indispensable mission of investor protection.

2.  Latest updates on Stablecoin-related Development

Reminder from Regulatory Institutions in the joint statement

Regulatory bodies like SFC and the HKMA issues a joint statement on the recent market movements in relation to stablecoins. Investors are advised to pay attention to the following reminders in making an informed investment decision when encountered with a corporation/ entity which:

1. demonstrates its intention to explore the feasibility of stablecoin issuance;

2. indicates an interest to apply for stablecoin license;

3. claims to have any ongoing communication with the HKMA;

Investors should remain cautious that the above procedures are merely part of the licensing process, and the granting of license will be determined by the fulfilment of the licensing requirements of the entity where uncertainties of the final outcome remain. The SFC and HKMA further urge the public to exercise caution and refrain from making irrational investment decision based on the recent euphoria over movements in the market. 

Recent Updates

Since the Stablecoin Ordinance came into effect on 1st August 2025, all issuers of stablecoin are required to obtain licenses from the Hong Kong Monetary Authority (“HKMA”) in accordance with the “Explanatory Note on Licensing of Stablecoin Issuers”. This regulatory requirement poses a hurdle for the OTC (Over-the-Counter) crypto shops which would find it difficult to comply; yet transactions through the OTC play a significant role as well, particular in providing liquidity of stablecoins like USDT and USDC.

There is a common belief that OTC crypto shops are not allowed to “offer” stablecoins, either to retail or professional investors. And the meaning of offering stablecoin is also subject to ambiguities in interpretation.

According to the Ordinance, between two individuals, person A communicates with person B and presents sufficient information on all of the following matters enabling person B to acquire the stablecoins; namely:

1. the stablecoins to be offered;

2. the terms on which the stablecoin will be offered;

3. the channels through which the stablecoin will be offered;

then the action of person A will be constituted as “making an offer” (“要約提供”) to person B.

To avoid the action of “making an offer”, some OTC shops do not explicitly display the quotes of the stablecoins, whereas the making of offer is initiated by the clients; it is still considered as a “breach” for reason that the Ordinance does not specify whether person A is the services provider or the client. Ambiguities in comprehending the ordinance pose more uncertainties to market participants.

Conditions where the requirement for a stablecoin license is triggered

Engaging in “regulated stablecoin activity” means:

1. issuing a specified stablecoin in HK in the course of business;

2. issuing a specified stablecoin in a place outside HK and the specified stablecoin derive its value with reference to HK dollars;

3. holding out itself as carrying a regulated stablecoin activity, including marketing to HK public, either in or outside HK.

Please be noted that only specified stablecoins issued by stablecoin licensees can be offered to retail investors. And a licensee can engage a “permitted offeror” to offer specified stablecoins, currently, a permitted offeror can be:

(i)         a licensee itself;

(ii)        an authorized institution;

(iii)       an SFC type 1 licensed corporation

(iv)       a licensed virtual asset trading platform (“VATP”);

(v)        a Stored Value Facilities licensee (“SVF”)

SIGNIFICANCE:

Alike the virtual asset regime, development and evolution of the stablecoin regime is no exception, more mutual communication and interaction at inception stage is indispensable while regulations and guidelines are being finetuned to navigate and rectify any deviations throughout the process.

Market News

3. SFC and HKMA to co-organise Hong Kong Fixed Income and Currency Forum 2025

The Hong Kong Fixed Income and Currency (“FIC”) Forum 2025, jointly organised by the Securities and Futures Commission (“SFC”) and the Hong Kong Monetary Authority (HKMA), will take place on 25 September 2025.

As a leading Asian international bond issuance hub and the 4th largest global foreign exchange market, Hong Kong is actively exploring ways to solidify and advance its position in the FIC markets.

Many FIC market participants, senior executives from financial institutions, senior government official and regulators are invited to join this dynamic and multilateral forum, with the intention to facilitate sharing of strategic insights and vision for development of the FIC markets in HK.

Details of the event programme and other relevant information can be accessed via our dedicated webpage and the Event Progromme webpage.

Enforcement News

4. SFC Fines HSBC $4.2 Million for Disclosure Failures in Research Reports

On 26 Aug 2025, the SFC in collaboration with the HKMA, has reprimanded and fined the Hongkong and Shanghai Banking Corporation Limited (“HSBC”) $4.2 million for failing to comply with disclosure requirements in research reports on Hong Kong-listed securities. The breaches, spanning from 2013 to 2021, highlight significant lapses in HSBC’s data systems and controls.

Key Details of the Case

• Nature of the Breach: Following a self-report by HSBC, an investigation by the SFC and HKMA revealed that HSBC failed to disclose, or made incorrect disclosures about, its investment banking relationships with companies featured in over 4,200 research reports. These reports, published between 2013 and 2021, covered Hong Kong-listed securities. The issues stemmed from deficiencies in HSBC’s data recording and mapping systems.

• Regulatory Violation: The breaches violated Paragraph 16.5(d) of the Code of Conduct for Persons Licensed by or Registered with the SFC, which mandates that firms disclose any investment banking relationships with issuers or new listing applicants in their research reports. The SFC found that HSBC did not exercise due skill and care or implement effective systems to ensure compliance and accuracy in these disclosures.

• Disciplinary Action: The SFC imposed a $4.2 million fine and a reprimand, reflecting HSBC’s failure to meet regulatory standards.

For more details of the case, please refer to the Statement of Disciplinary Action.

SIGNIFICANCE:

In determining the penalty, the SFC considered:

• No evidence of client losses resulting from the disclosure failures.

• HSBC’s proactive reviews to identify the root causes and scope of the breaches.

• Steps taken by HSBC to enhance its systems and controls to prevent future issues.

• HSBC’s cooperation with the SFC and HKMA during the investigation.

This case underscores the importance of robust systems and controls in ensuring accurate disclosures, which are critical for maintaining transparency and investor trust in financial markets. The SFC’s action serves as a reminder to financial institutions to prioritize compliance with regulatory standards to avoid similar penalties.

5. SFC Fines Deutsche Bank $23.8 Million for Various Regulatory Breaches during 2020 to 2023

On 28 Aug 2025, the SFC reprimanded and fined Deutsche Bank Aktiengesellschaft (“DB”) $23.8 million for multiple regulatory violations spanning several years. The breaches include overcharging clients on fees, incorrect valuations of debt instruments and funds, failure to disclose investment banking relationships in research reports  and incorrect assignment of product risk ratings. These issues, identified through DB’s self-reports between December 2020 and December 2023, highlight significant lapses in compliance and internal controls.

Key Details of the Case

Between November 2015 and November 2023, DB’s operational shortcomings led to significant overcharges totalling approximately $39 million:

1. Overcharging management fees in Discretionary Portfolio Management accounts:

   In 39 Discretionary Portfolios managed by DB, the clients were overcharged with management fees due to DB’s failure to apply agreed discounted rates, caused by flawed processes and implementation.

2. Incorrect valuations of floating rate debt instruments:

   392 floating rate debt instruments were incorrectly valued using “fixed” interest rates, inflating portfolio valuations and leading to overcharged custodian and management fees for 92 clients.

3. Incorrect valuation of funds:

   Valuations of 16 private equity funds and three real estate funds were misstated in monthly statements to 233 clients due to an external vendor’s oversight and DB’s lack of controls, resulting in overcharged custodian fees for 32 clients.

4. Failure to disclose investment banking relationships in research reports:

   Failed to disclose investment banking relationships in 261 single stock company reports and 1,590 industry reports on Hong Kong-listed companies. This was due to deficiencies in DB’s research disclosure system, which did not account for certain investment banking mandates.

5. Incorrect assignment of Product Risk Ratings:

   From August 2012 to December 2020, DB assigned incorrect lower risk ratings to 40 exchange-traded funds (“ETFs”), affecting 93 clients and 265 transactions. After correcting the ratings, 10 transactions were found to have risk levels exceeding clients’ risk tolerance.

For more details of the case, please refer to the Statement of Disciplinary Action.

SIGNIFICANCE:

The SFC concluded that DB failed to:

• Act with due skill, care, and diligence in the best interests of clients and market integrity.

• Ensure accurate and non-misleading representations to clients.

• Comply with disclosure requirements for research reports.

• Adhere to regulatory requirements to promote clients’ best interests.

The SFC imposed a $23.8 million fine and a reprimand, taking into account:

• DB’s reviews to identify the root causes and extent of the breaches.

• Remediation efforts, including strengthened internal controls and systems.

• Full refunds of overcharged fees to affected clients.

• The inadvertent nature of the breaches, with no evidence of deliberate misconduct.

• DB’s cooperation with the SFC and acceptance of the findings and disciplinary action.

This case emphasizes the SFC’s commitment to enforcing compliance with regulatory standards, particularly in ensuring accurate client information and transparent disclosures. Financial institutions must prioritize robust systems to prevent similar lapses, which can undermine investor trust and market integrity.

6. Regulatory Action Against Nerico Brothers Limited involving Misappropriation of Client Assets

On 28 August 2025, the SFC revoked the licence of Nerico Brothers Limited (“NBL”) due to severe misconduct involving the misappropriation of client assets and the provision of false or misleading information. Additionally, the SFC imposed a lifetime ban on NBL’s director, Jerff Lee Cheuk Fung (“Jerff Lee”), prohibiting him from engaging in any regulated activities.

Key Details of the Case:

Senior Management Accountability

The SFC attributes NBL's misconduct directly to Jerff Lee, who was the key figure orchestrating these actions and had close ties to Neo Ng. Lee also personally violated the SFO by providing false or misleading information in SFC interviews.

The firm was wound up by the Hong Kong High Court on 3 May 2022. Although Jerff Lee was not personally licensed during the period, he qualifies as a "regulated person" due to his management role.

For more details of the case, please refer to the Statement of Disciplinary Action.

SIGNIFICANCE:

Neo Ng became a substantial shareholder in the client's holding company in December 2020 and briefly served as a director from July 2021 to January 2022. NBL claimed clients needed "liquidity provider units" from a fund to trade currencies, but this was part of the deceptive scheme.

This case highlights the SFC's zero-tolerance approach to asset misuse and fraud in the financial sector. It also connects to related actions against Amber Hill Capital Limited and its former executives, Neo Ng and Simon Ng She Chun (see SFC press release dated 28 August 2025, for details).”

7. SFC Revokes Amber Hill Capital’s License and Bans Senior Management for Life Due to Misappropriation of Client Funds and Dishonest Fund Management Practices

On 28 Aug 2025, the SFC took a decisive action against Amber Hill Capital Limited (“AHCL”), revoking its license and imposing lifetime bans on its former senior management, Neo Ng Yu and Simon Ng She Chun, for facilitating the misappropriation of funds and engaging in dishonest practices. These measures address serious misconduct that undermined market integrity and caused significant investor losses.

Key Details of the Case

• License Revocation and Bans:

  The SFC revoked AHCL’s license for its role in facilitating the misappropriation of approximately US$154 million from a client of Nerico Brothers Limited (“NBL”) through a Cayman-incorporated fund’s segregated portfolio (Sub-fund), managed by AHCL from October 2017 to September 2021. Neo Ng and Simon Ng, key figures in AHCL’s management, have been permanently banned from all regulated activities due to their direct involvement.

• Misappropriation Scheme:

  The SFC investigation revealed that Neo Ng orchestrated a scheme to misappropriate funds through the Sub-fund. Between January and August 2021, NBL transferred client funds to the Sub-fund for the purported purchase of “liquidity provider units,” which did not exist. AHCL accepted these funds and directed the Sub-fund to transfer a significant portion to a corporate vehicle owned by Neo Ng, with most of the remaining proceeds used for the Sub-fund’s own purposes.

• False Information and Fabricated Documents:

  AHCL misrepresented to the Sub-fund’s auditors and administrators that NBL was a broker for the Sub-fund and that most of its cash assets were held in an NBL account. Additionally, AHCL claimed Neo Ng subscribed US$297 million for Sub-fund shares via his corporate vehicle, with proceeds held in the non-existent NBL account. These claims inflated the Sub-fund’s cash position by up to US$451 million between November 2019 and May 2021. AHCL also provided fabricated auditors’ reports and documents to mislead investors and prospective investors during this period.

For more details of the case, please refer to the Statement of Disciplinary Action.

SIGNIFICANCE:

Neo Ng, a director and sole shareholder of AHCL, masterminded the scheme and personally benefited from the misappropriated funds and inflated Sub-fund valuations. Simon Ng, his brother and a senior manager, facilitated the scheme by processing the funds, authorizing their transfer to Neo Ng’s vehicle, and providing false information. Their actions were deemed profoundly dishonest, falling far below the standards expected of licensed corporation management.

The SFC’s sanctions reflect:

• The egregious nature of the misconduct, damaging investor and public confidence in market integrity.

• Significant losses to NBL’s client.

• The clean prior disciplinary records of AHCL, Neo Ng, and Simon Ng.

This case is linked to the SFC’s actions against NBL and its director, Jerff Lee Cheuk Fung, announced on the same date (see SFC press release, 28 Aug 2025).

The SFC’s actions underscore its commitment to rooting out dishonest practices in the financial sector. The lifetime bans and license revocation send a strong message about accountability, particularly for senior management, in safeguarding investor interests and market integrity.

8. SFC Seeks Court Order to Freeze $62.5 Million in Assets for Investor Compensation in Eggriculture Ramp-and-Dump Case

On 29 Aug 2025, the SFC took decisive action to protect investors by applying for a court order to freeze assets up to $62.5 million. This move aims to secure funds for compensating investors affected by a sophisticated ramp-and-dump scheme involving Eggriculture Foods Limited (8609.HK) (“Eggriculture”).

Key Details of the Case:

1. Asset Freeze Application:

   On 29 August 2025, the SFC filed an application with the Court of First Instance to restrain the disposal of assets belonging to one of the suspected ringleaders. The assets, valued up to $62,566,773, represent the estimated losses suffered by investors due to alleged market manipulation of Eggriculture shares between August and November 2018.

2. Market Manipulation Allegations:

   The SFC's legal action targets six individuals, including suspected ringleaders, accused of manipulating Eggriculture Foods Limited’s shares. Eggriculture was listed on the Growth Enterprise Market (“GEM”) of the Stock Exchange of Hong Kong Limited on 7 September 2018. The manipulation allegedly occurred shortly after the listing, exploiting the market to the detriment of investors.

3. Court Proceedings:

   The Court of First Instance held its first hearing on the SFC’s application, issuing directions and adjourning the substantive hearing to a later date to be determined. This ensures a thorough review of the application to freeze assets for investor compensation.

4. Parallel Criminal Trial:

   In a related development, a criminal trial is scheduled to begin on 13 July 2026, at the District Court. Five of the six individuals involved in the SFC’s civil proceedings face charges of conspiracy to defraud and conspiracy to employ a scheme with intent to defraud or deceive in securities transactions.

SIGNIFICANCE:

As the legal proceedings are active, the SFC has stated it will refrain from further comments to maintain the integrity of the judicial process.

This case underscores the SFC’s commitment to combating market misconduct and ensuring investor protection. By seeking to freeze assets, the SFC aims to secure potential compensation for affected investors, reinforcing trust in Hong Kong’s financial markets. The parallel civil and criminal proceedings highlight the multifaceted approach to addressing sophisticated financial crimes.

9. SFC and HKEX Take First-Ever Joint Action Against Former TOMO Directors for Non-Cooperation

In a landmark enforcement action, the SFC and HKEX have collaborated to discipline two former directors of TOMO Holdings Limited (6928.HK) (“TOMO”) for failing to cooperate with regulatory investigations. This marks the first time the Exchange has taken disciplinary action against directors for non-cooperation, highlighting the strength of the SFC-HKEX partnership in upholding market integrity.

Key Details of the Case

The SFC’s investigation into TOMO-related matters continues, with further details pending.

For more details of the case, please refer to the Disciplinary Action.

SIGNIFICANCE:

Christopher Wilson, SFC Executive Director of Enforcement, emphasized that non-cooperation undermines regulatory oversight and investor protection, highlighting the SFC’s commitment to robust enforcement through its partnership with the Exchange to ensure accountability.

Catherine Yien, HKEX Head of Listing Regulation and Enforcement emphasized that collaboration plays a critical role in maintaining a fair and informed securities market, and underscored the HKEX's zero-tolerance stance on such misconduct and its commitment to market quality.

This unprecedented joint action demonstrates the SFC and HKEX’s coordinated approach to tackling regulatory non-compliance. By leveraging the Exchange’s disciplinary powers under the Listing Rules, the regulators are sending a clear message: directors who fail to cooperate face severe consequences, including reputational and operational sanctions.

10. SFC Bans Zhu Hong for 12 Months and Fines Her $400,000 for Fund Management Failures

On 18 Aug 2025, the SFC imposed a 12-month ban and a $400,000 fine on Ms. Zhu Hong, a substantial shareholder, director, and former manager-in-charge (“MIC”) of Kylin International (HK) Co., Limited (“Kylin”). The disciplinary action, effective from 16 August 2025, to 15 August 2026, addresses Zhu’s failures in managing private funds and ensuring compliance with anti-money laundering and counter-terrorist financing (“AML/CTF”) obligations.

Key Details of the Case

The SFC banned Zhu from engaging in any regulated activities and fined her $400,000 for lapses in her duties as a director and MIC at Kylin. Between August 2018 and July 2021, Kylin served as the investment manager and/or consultant for sub-funds of a Cayman-incorporated fund. Zhu was responsible for approving borrowing agreements and implementing AML/CTF internal controls but failed to discharge her duties as a director of Kylin and MIC for the AML/CTF in managing the funds.

Kylin was licensed under SFO for Type 9 (asset management) activities from 4 April 2014, until its license was revoked on 22 January 2025, following its cessation of regulated activities on 31 December 2023.

From 30 April 2019 to 22 January 2025: Zhu, while not a licensed person, qualifies as a “regulated person” under section 194(7) of the SFO due to her management roles:

i.        MIC of AML/CTF;

ii.       MIC of Risk Management; and

iii.      MIC of Finance and Accounting

SIGNIFICANCE:

The SFC considered Zhu’s acceptance of liability, her expressed remorse, and her clean disciplinary record in determining the sanctions. The disciplinary action against Zhu is linked to an ongoing SFC investigation into another related entity concerning the same funds, with further details to be released upon its conclusion.

This case highlights the SFC’s commitment to holding individuals accountable for failures in fund management and compliance, particularly in critical areas like AML/CTF. It serves as a reminder to financial professionals of the importance of robust oversight and adherence to regulatory standards to protect investors and maintain market integrity.

[End of ComplianceOne Newsletter – August2025]

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