Thursday, April 6, 2017

Hong Kong SFC Consults on Greater Info Gathering Powers on Licensed Corporations to Help Overseas Regulators

Hong Kong's Securities and Future Commission (SFC) has begun a month-long consultation1 on proposed amendments to the Securities and Futures Ordinance (SFO) to allow the supply of greater supervisory help to abroad regulators, upon request. Written responses to the consultation are required to be submitted by sixteen January 2015.

The SFC's stated intention in making the proposed amendments is to align Hong Kong's provisions on the supervision of regulated multi-nationwide entities with worldwide standards. This in turn ought to result in the entering into of extra supervisory cooperation arrangements between the SFC and overseas regulators and entry for Hong Kong regulated entities to those abroad markets which restrict entry to jurisdictions with mutual cooperation preparations in place.

The extension of the SFC's powers beneath the proposed amendments is fairly limited: Sections one hundred eighty and 186 of the SFO can be amended to enhance the SFC's info gathering powers. The amendments would give the SFC the discretion (but not an obligation) to exercise its supervisory powers below Part 180 to acquire records or documents from an SFC-licensed corporation or its associated company in relation to a regulated exercise carried on by the SFC licensed corporation, in an effort to assist abroad regulators in non-enforcement associated matters.

Background

Whereas the SFO provisions which permit the SFC to assist overseas regulators on enforcement matters meet international requirements, its provisions permitting SFC assistance on supervisory issues fall in need of worldwide norms in a single slender respect: they don't permit the SFC to train its supervisory powers to acquire data to be able to help an abroad regulator in relation to non-enforcement issues. The proposed SFO amendments are intended to rectify this shortcoming.

The SFC considers it vital that the SFC should have the ability to present help on supervisory issues to overseas regulators since this can make it easier for Hong Kong to enter into supervisory memoranda of understanding (MOUs) with overseas regulators. So far, Hong Kong has entered only a handful of sector-particular supervisory MOUs and the SFC fears that the current limitation on its powers may adversely affect its capacity to enter into further MOUs. This, in turn, may negatively impact the SFC's skill to obtain help from overseas regulators.

The difference between supervisory cooperation and cooperation in the enforcement context is important. In relation to enforcement, cooperation between regulators involves the investigation of suspected misconduct with the purpose of acquiring proof to be used in authorized proceedings. Supervisory cooperation, alternatively, is primarily preventive in nature and entails the trade of knowledge which isn't meant for use in authorized proceedings. Its goal is to improve supervision of regulated entities with access to data from overseas regulators.

The SFC expects that the proposed amendments will afford Hong Kong regulated entities greater entry to foreign markets since it should open up markets to which entry is restricted to jurisdictions with international supervisory cooperation preparations.

Current Framework

The SFC enjoys supervisory and investigatory powers beneath Part one hundred eighty and Sections 182 and 183 of the SFO, respectively.

Part 180 SFO

Part one hundred eighty entitles the SFC to examine and make enquiries of licensed firms with out having cheap cause to imagine that misconduct has taken place. However, the SFC can only exercise its powers under this section to find out whether a licensed corporation or its related entity is in compliance with the Hong Kong regulatory provisions specified in Part 180(2) SFO, which embrace any SFO provision, any provision of the SFO's subsidiary laws and any terms or conditions to which an SFC licence is topic. Although data

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