Hong Kong regulators enhance collaborative efforts in enforcement

Strategic collaborations streamline investigations and enforcement efforts.

Hong Kong's securities regulators, including the Securities and Futures Commission (SFC) and the Hong Kong Stock Exchange (HKEX), have significantly amped up their collaborative efforts in the past few years to tighten enforcement and oversight. 

This increased collaboration, especially notable between the SFC and the HKEX, aims to streamline investigations and deploy regulatory resources more effectively, making the regulatory process not only more stringent but also more efficient.

Sidley Hong Kong Partner Stephanie Chan said that the motivation behind these intensified joint efforts is clear. "They have common regulatory objectives and enforcement priorities, which warrant coordinated investigations," Chan explained. 

One of the pivotal advantages of this collaboration is the enhanced capability to conduct thorough investigations. "The SFC has much wider statutory investigative powers, such as powers to compel subjects of investigation or other relevant parties to produce documents, execute search warrants to search premises and seize documents, and they can also require a person to attend an interview to give evidence," Chan stated. 

She said a recent example of this effective partnership in action was when questionable transactions involving a listed company were initially spotted by the HKEX during routine monitoring. The case was subsequently escalated to the SFC, which utilised its broader investigatory powers to probe deeper, gather more conclusive evidence, and share findings with the HKEX to further their investigation and take disciplinary action. 

"IPO related misconduct typically involves the misuse of IPO proceeds," Chan remarked, highlighting a potential scenario where funds raised from initial public offerings are misappropriated. The regulators are also keenly watching for dubious financial arrangements and sophisticated ramp and dump scams where share prices are manipulated to defraud investors. 

For directors and senior management of listed companies, the evolving regulatory landscape means a heightened need for better corporate governance and compliance. "It is important for directors and senior management to maintain good corporate governance," Chan advised. She underscores the necessity for implementing effective internal control measures to ensure proactive management and supervision of the use of IPO proceeds and financial transactions to ensure they align with regulatory expectations and legal requirements.

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