On 2 June 2021, the Court of First Instance granted orders sought by the SFC under section 213 of the Securities and Futures Ordinance against 3 unlicensed entities purportedly based in Hong Kong which defrauded 75 investors. The unlicensed entities solicited investors through cold calls to open trading accounts on their websites (www.broadspansecurities.com ; www.shepherdshillhk.com ; www.richfutureshk.com ) and asked them to deposit funds into 6 Hong Kong bank accounts. None of the investments in securities and/or futures products agreed with the investors were executed on any recognised / licensed exchange.

The recent orders follows injunctions obtained by the SFC in December 2014 to freeze the 6 bank accounts held by the boiler room fraudsters and orders obtained by the SFC in January 2015 restraining them from carrying on unlicensed activities. Administrators have been appointed by the High Court to receive proceeds in the 6 bank accounts in the sum of approximately HK$4.3 million for distribution to the 75 investors on a pro rata basis.

See the judgment of Deputy High Court Judge Maurellet SC:-

https://legalref.judiciary.hk/lrs/common/search/search_result_detail_frame.jsp?DIS=136150&QS=%28HCA%7C2511%2F2014%29&TP=JU

In addition to the review on the profit requirement of new Main Board listing applicants, the Stock Exchange of Hong Kong Limited (“SEHK”) has also recently published its consultation conclusions on its proposed enhanced disciplinary powers.

The SEHK will implement all proposed changes to its disciplinary powers and sanctions with minor modifications. The major changes to the SEHK’s disciplinary powers include:-

1. Extending the scope of a public statement that the retention of office by the director is prejudicial to the interest of investors (“PII Statement”) to include directors and senior management of the relevant listed issuer and any of its subsidiaries;
2. Enhancing the available follow-on actions (in addition to suspension and cancellation) in cases involving more serious conduct to include denial of facilities of the market to that listed issuer for a specified period;
3. Introducing a director unsuitability statement (i.e. a public statement that the director is unsuitable to be a director or senior management member of the named listed issuer) as a new sanction;
4. Imposing secondary liability on relevant parties (including any substantial shareholder, senior management of the listed issuer or their subsidiaries) if they have caused by action or omission or knowingly participated in a contravention of the Listing Rules;
5. Including express obligations on professional advisers to provide complete, accurate and up-to-date information when interacting with the SEHK in respect of its enquiries or investigations.

Copies of the consultation conclusion are available on the SEHK’s website.

On 20 May 2021, The Stock Exchange of Hong Kong Limited (SEHK) published the consultation conclusions on the Main Board Profit Requirement.  On the same day, the Securities and Futures Commission (SFC) and SEHK issued a joint statement (Joint Statement) on IPO-related misconduct and their approach in tackling such issues.

With effect from 1 January 2022, the aggregate profit requirement for the three-year trading record period for a Main Board’s listing applicant will increase by 60% to HK$80 million with a profit spread of 56%:44% (Modified Profit Increase).  SEHK will be prepared to grant a relief from the profit spread on case-specific circumstances to provide flexibility.  Potential applicants seeking or contemplating seeking a Main Board listing should critically assess the potential impacts of the Modified Profit Increase on their eligibility for listing as well as their proposed listing timetable.

The SFC and SEHK have observed an increasing number of suspected “ramp-and-dump” schemes in recent IPOs.  A joint statement was issued highlighting a number of non-exhaustive features of problematic IPOs that may lead to enquiries by the regulators, such as market capitalisation which only barely meets the minimum requirement, high P/E ratio, high underwriting fees or expenses and high shareholder concentration.  It is also set out in the Joint Statement the regulators’ approach in tackling suspected misconduct, including exercising their discretion to object to a new listing, suspending trading or taking appropriate action against the parties involved in the suspected misconduct.

For more information, please click here

The Insurance Authority (IA) recently published the latest issue of Conduct In Focus .

In this issue, the IA announces that it received 1,494 complaints in year 2020 and 348 complaints in the first three months in 2021.  The top complaint category (taking up about 30% of the total number of complaints) relates to conduct issues such as problems in insurance sales process, the handling of client’s premiums, cross-border selling and allegations of fraud.

The publication also features the recent trend of insurance agents’ promotion of insurance products in public places like temporary booths and vacant retail outlets and the potential conduct issues involved.  First, certain marketing materials used in these places may not have been approved by the insurance agents’ principals, as required by the Code of Conduct for Licensed Insurance Agents.  Further, such sales channels may not be able to provide adequate time and information to prospective customers to enable them to make informed decisions. To address this concern, the IA recommends good practices in the  publication.

For more information, please refer to the IA’s website.

Date: 26 May 2021

Practice Area(s): Financial Services Regulatory / Insurance / Corporate Governance

Key Contact(s): Nathan Dentice / Iris Cheng

On 1 June 2021, our Partner William Barber and Associates Iris Cheng and Rachel Liu delivered a webinar entitled “An Overview of International Arbitration and Arbitration at the Hong Kong International Arbitration Centre” organized by The Hong Kong Federation of Insurers (HKFI) for its members.

William, Iris and Rachel presented an overview on the characteristics and advantages of arbitration, typical procedures involved in Hong Kong International Arbitration Centre administered arbitrations, interim measures of protection and emergency relief, and recognition and enforcement of arbitral award.