To print this text, all you want is to be registered or login on Mondaq.com.
Investigations (“SFC investigations“)
by the Securities and Futures (“SFC“)
Enforcement Division are formal enquiries into attainable wrongdoing.
Key goals when dealing with an SFC investigation are to steer
the SFC that there was no wrongdoing, to put out a imaginative and prescient of
occasions that militates towards the train of discretion to
prosecute within the public curiosity and to create a document of occasions
which, if prosecution does ensue, doesn’t comprise any pointless
admissions of legal responsibility or guilt. Attaining these goals
requires good authorized illustration, a radical understanding of the
info and, within the case of an organization, the cooperation of affected
staff. On this article, we offer context to SFC
investigations and focus on how an individual who’s topic to an SFC
investigation might obtain these goals.
The receipt of an SFC investigation discover requires a cautious
and thought of response, whether or not or not the discover specifies that
the individual is an individual beneath investigation. First, a response to an
SFC investigation discover might affect how the SFC proceeds and
accordingly, the response is a method of diverting the SFC’s
consideration away from the recipient of the investigation discover.
Secondly, a response to an SFC investigation discover types a
everlasting document. Within the occasion that the SFC decides to prosecute or
in any other case take motion towards the recipient of the investigation
discover, any try to deviate from that response in future
proceedings might lack credibility.
Understanding the Nature of an SFC Investigation
Although it is not uncommon to refer all method of notices from the SFC
requesting data within the context of a grievance or attainable
wrongdoing as SFC investigations, in reality, there are a selection of
various kinds of SFC enquiries:
- Formal SFC Investigations
- SFC Company Finance Enquiries
- SFC Surveillance Enquiries
- SFC Inspections and Subject Audits
- SFC Middleman Enquiries
Formal SFC Investigations
One kind of SFC enquiry is a proper investigation beneath the
Securities and Futures Ordinance
(“SFO“), s. 182. These formal
investigations are undertaken by the SFC Enforcement Division and
are correctly thought to be SFC investigations as a result of they invoke the
full range of investigative powers beneath the
SFO and are meant to help the SFC in figuring out whether or not
wrongdoing has taken place and in that case, by whom.
Formal SFC investigations beneath the SFO, s. 182 allow the SFC
to compel an individual to attend an interview for the aim of
answering questions and to compel an individual to provide data and
paperwork and to reply questions.
The SFC Enforcement Division might complement an SFC investigation
by means of the search and seizure of documents under a search
SFC Company Finance Enquiries
One other kind of SFC enquiry is a corporate finance enquiry targeted on corporations
listed on Hong Kong Exchanges and Clearing
(“HKEx“) beneath the SFO, s. 179. Although
they seem just like SFC investigations beneath the SFO, s. 182,
they’re undertaken by the SFC Company Finance Division reasonably
than by the SFC Enforcement Division. They’re meant to help
the SFC Company Finance Division within the regulation of the
SFC Company Finance enquiries beneath the SFO, s. 179 invoke
solely a subset of the investigative powers obtainable to the SFC
beneath the SFO, specializing in the facility to require the manufacturing of
data and paperwork regarding HKEx listed corporations for the
objective of figuring out whether or not there was company fraud and
misfeasance, fraudulent or illegal practices, or different misconduct
regarding the administration of HKEx listed corporations or the remedy
of their shareholders.
SFC Surveillance Enquiries
A 3rd kind of SFC enquiry is a proper enquiry beneath the SFO,
s. 181. Like SFC investigations beneath the SFO, s. 182, these are
formal enquiries initiated by the SFC Enforcement Division.
Nevertheless, in contrast to SFC investigations beneath the SFO, s. 182, these
enquiries are restricted to figuring out individuals who dealt in or held
positions in securities, futures contracts, leveraged international
alternate contracts, OTC spinoff contracts or collective
funding schemes at explicit occasions.
SFC Inspections and Subject Audits
A fourth kind of SFC enquiry is a proper enquiry beneath the SFO,
s. 180. Most of these enquiries are targeted solely on SFC
licensed companies and are meant to allow the SFC
Intermediaries Division of their perform of regulating SFC
licensed companies to make sure that such companies meet
SFC inspections and subject audits can result in referrals from the
SFC Intermediaries Division to the SFC Enforcement Division, with
the latter then having the choice to comply with up with an SFC
investigation discover beneath the SFO, s. 182 to start the enforcement
SFC Middleman Enquiries
A fifth kind of SFC enquiry is a voluntary enquiry, that means an
enquiry which has no statutory authority beneath the SFO. These varieties
of enquiries are sometimes performed by the SFC Intermediaries Division
in response to public complaints.
A response to such a enquiry is voluntary in that as a result of
there isn’t a statutory foundation for the enquiry, no offence is
dedicated by motive of failure to answer the enquiry. That is
in contrast to an SFC investigation discover beneath the SFO, s. 182, the place
there could also be severe prison penalties for failing to reply.
Nevertheless, it’s generally within the curiosity of the recipient of such
an SFC enquiry to reply on a voluntary foundation as it’s an
alternative to pre-empt a referral to the SFC Enforcement Division
who might elect to begin an SFC investigation beneath the SFO, s.
Managing an SFC Investigation
An SFC enquiry may end up in serious consequences whether or not or not the
enquiry is an SFC investigation beneath the SFO, s. 182 performed by
the SFC Enforcement Division. It is because any enquiry, if
improperly addressed, can result in a referral to the SFC Enforcement
Division who might provoke such an investigation. In consequence,
while the issues on this article are aimed particularly at
individuals receiving an SFC investigation discover beneath the SFO, s.
182, the identical issues apply to a fantastic extent within the context
of different SFC enquiries.
Steps After Receiving an SFC Investigation Discover
Each SFC investigation is exclusive and there’s no single
response template. Nevertheless, there are predictable patterns to the
manner such investigations unfold.
Response Staff to SFC Investigation
The place an organization receives an SFC investigation discover, senior
administration ought to set up a response staff. Sometimes, the
response staff will embody staff with first hand information of
the occasions, a senior government who could make selections in relation
to the response, an in-house lawyer or compliance officer as nicely
as an exterior regulation agency.
The selection of regulation agency to deal with a regulatory investigation or
enforcement motion is a vitally necessary resolution. The agency ought to
have enough expertise dealing with SFC investigations in order to
confidently assert authorized rights and to make sure that the
firm’s place could be greatest articulated. Equally, the agency
ought to have in-depth expertise in SFC regulatory necessities so
as to have the ability to establish the considerations underlying the SFC
investigation, to have the ability to establish related proof which can
exculpate or mitigate and to have the ability to make sure that there aren’t any
pointless admissions of guilt or legal responsibility.
Understanding the Details and Relevant Legislation Underlying SFC
It’s vital to know the info underlying the SFC
investigation within the context of the legal guidelines or rules governing
the conduct which is the topic to the SFC investigation. Such an
understanding is a pre-requisite to dealing intelligently with the
SFC, guaranteeing truthful disclosure of data attentive to the
SFC’s considerations whereas controlling the stream of data in order
to focus on to the SFC data materials to the pursuit of
explicit defences or pleas of mitigation.
With stunning frequency, the info that are materials to
defending an SFC investigation are sometimes not as initially thought.
Solely a correct investigation of the info and a cautious evaluation
of relevant legal guidelines and rules will reveal these key info. In
this regard, as famous above, it’s vital to work with legal professionals
who’re skilled in SFC investigations and nicely versed with
relevant Hong Kong securities legal guidelines and SFC rules in order to
decide which info have to be elicited and highlighted to
tackle any considerations which the SFC might have.
Getting ready a Story Conscious of the SFC Investigation
First impressions rely. The time to manage the disclosure of
info ought to start as quickly as attainable after the receipt of the SFC
investigation discover, not with the next receipt of a discover
of proposed disciplinary motion, the laying of prison costs or
the graduation of prosecution proceedings.
Each interplay with the SFC is a chance to current the
firm’s model of the info and themes of defence or
Droop Practices Focused by the SFC Investigation
The place the SFC investigation targets ongoing exercise, the
firm ought to contemplate suspending that exercise pending an
unbiased evaluation of the appropriateness of that exercise. The
firm ought to be cautious to not cease the exercise on the idea of
any admission of legal responsibility.
It can be crucial nonetheless, to remain targeted on the SFC
investigation and tackle the quick necessities of the
investigation. After addressing the quick calls for of the SFC
investigation, consideration could be given to a broader scale
Handle Relationships with Staff Affected by SFC
Corporations ought to resist the urge to self-discipline staff who might
have been concerned in actions that are the topic of the SFC
investigation even when, at first look, it seems that such
staff might have engaged in wrongdoing.
Self-discipline ought to comply with solely after the important thing info have been
assembled, in order to keep away from untimely judgment of staff
involved. Sturdy and untimely self-discipline might alienate staff
who possess necessary data and who would possibly in any other case be
useful within the SFC investigation.
Worker cooperation can be way more troublesome to acquire after
an worker has been judged harshly and maybe unfairly. This will likely
be so even when the worker whose cooperation is solicited will not be
the one who was disciplined.
Staff who’re disciplined and really feel that they’ve been
unfairly handled might level the finger at senior administration in
respect of the issues that are the topic of the SFC
Contemplate Arranging Authorized Illustration for Staff Affected
by SFC Investigation
Typically, corporations have an curiosity in what staff say in
an SFC interview however, on account of statutory secrecy provisions are unable to
prepare for the regulation agency representing the group to attend
interviews of staff of their capability as staff. Subsequently,
corporations might want to fund separate and unbiased authorized
illustration for workers who’re requested to attend an SFC
interview, in order to maximise the chance for cooperation with
the staff in query.
The content material of this text is meant to supply a basic
information to the subject material. Specialist recommendation ought to be sought
about your particular circumstances.