Hong Kong SFC Concludes Consultations on Proposed Amendments to Enforcement-related Provisions of the Securities and Futures Ordinance

Other Author      Alexandra Kinross, Regional Director of Knowledge Management - Asia

On 8 August 2023 and following 12 months' consultation, the Hong Kong Securities and Futures Commission (SFC) published its conclusions regarding three proposed amendments to the Securities and Futures Ordinance (SFO). The SFC viewed the amendments as being required in order to better protect investors and to uphold Hong Kong's reputation in financial markets by introducing more effective enforcement measures.

The proposals were in general very negatively received by the industry. The SFC, having taken on board the generally negative reaction, will now proceed with one amendment – to broaden the scope of the insider dealing provisions of the SFO to cover certain cross-border activities involving securities listed on Hong Kong or overseas stock markets or their derivatives. The amendment will be available for review during the legislative process.

Significantly, the SFC decided to put on hold the other two proposed amendments:

(a) Amendment to exemptions in section 103 of the SFO (under which it was proposed that unauthorised advertisements of investment products which are to be sold only to professional investors (PIs) may only be issued to PIs who have been identified as such in advance by an intermediary through its know-your-client and related procedures) is now withdrawn. It was recognised that the proposal may have adverse impact upon the industry in business development and marketing of products.

(b) Amendment to section 213 of the SFO (under which it was proposed that the SFC may, as an additional ground, apply for a section 213 order after a finding of a breach of codes or guidelines against a regulated person is established upon the SFC exercising its disciplinary powers under the SFO; and that the remedies available under section 213 are expanded to include a restoration order) is put on hold. This proposal attracted much criticism from the industry as it was perceived as a conflation of the disciplinary regime and section 213. Acknowledging the complexity in implementation, the SFC will consider other options, including strengthening the SFC disciplinary regime.

Suspension of the two proposed amendments has been well received by the industry. The amendments which have been put on hold were ill conceived and sought to address issues which in reality did not exist. The SFC are to be congratulated for taking on board the feedback. It is hoped that the issues are not brought back in the future for further consideration.

Mayer Brown Partner, Alan Linning was closely involved in the consultation process and provided written submissions on behalf of the Hong Kong Law Society and Mayer Brown respectively.