regulatory overview of the hong kong financial industry
TRANSCRIPT
FINANCIAL LAW AND FINANCIAL LAW AND REGULATIONSREGULATIONS
WEEK 3
Regulatory Overview of the Hong Kong Financial Industry
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Financial Systems and Markets
2 major parts:• Securities and futures markets• Banking system
Government Officers In Charge• Financial Secretary• Financial Services and the Treasury B
ureau
Regulatory Structure
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Statutory Bodies
- Securities and Futures Commission
- Hong Kong Monetary Authority
MOU
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Regulatory Structure
Formation of SFC- statutory body established in 1989- reports to the Financial Secretary
Securities and Futures Commission (SFC)- super-regulator of the securities industry- supervisory and regulatory authority on Hong Kong Exchanges and Clearing Ltd.
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SFC’s Accountability
SFC – Accountability to the GovernmentThere are checks and balances on thesuper-regulatory power of SFC- Chairman and directors appointed by the HKSAR’s Chief Executive- Government’s written directions on the performance of its function- SFC reports to the Financial Secretary
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SFC’s Accountability
SFC – Accountability to the Government
- the Financial Services and the Treasury
Bureau formulates policy for markets
and influence the activities of the SFC
- Annual budget approved by Government
- Annual report to the Financial Secretary
and the Legislative Council
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SFC – Regulatory Objectives
- maintain and promote fairness, efficiency,
competitiveness, transparency &
orderliness
- promote public understanding of the
operation and functioning of the industry
- provide protection for investors
SFC’s Objectives
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SFC – Regulatory Objectives (cont’d)- minimize crime and misconduct in the securities and futures industry- reduce systematic risks in the industry- assist the Financial Secretary on policies in relation to the industry
SFC’s Objectives
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The Hong Kong Monetary Authority (HKMA)
- established in April 1993- license authorized institutions- supervise banks’ operations and activities- de facto “central bank” in HKSAR
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The Hong Kong Monetary Authority (HKMA)
Banking System
- a 3-tier banking system including• licensed banks,• restricted licensed banks, and• deposit-taking companies
- approval of authorized institutions by HKMA
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The Hong Kong Monetary Authority (HKMA)
Objectives of the HKMA
- maintain currency stability through
the linked exchange rate system
- ensure safety and stability of the
banking system
- promote efficiency, integrity and
development of the financial system
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The Hong Kong Monetary Authority (HKMA)
Accountability of the HKMA
- the Chief Executive is appointed by the Financial Secretary and is a public officer
- required to submit an annual budget for approval by government
- annual report to the Legislative Council
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The Hong Kong Monetary Authority (HKMA)
Accountability of HKMA
- Financial Services & the Treasury Bureau
formulates policy & influence the activities
of the HKMA
- responsible to the Exchange Fund Advisory Committee
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The Hong Kong Monetary Authority (HKMA)
HKMA’s Linkage with the SFC
- securities related business conducted
by banks in HKSAR
- authorized institutions (AI) (authorized financial institutions) needed to register with SFC for regulated activities
- HKMA takes a lead role in vetting applications for such registration and in supervising SFC-regulated activities
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The Hong Kong Monetary Authority (HKMA)
HKMA’s Linkage with the SFC
- SFC may suspend or revoke the registrations or issue reprimands and impose fines
- HKMA may remove the names of relevant employees from the Banking Ordinance register which authorizes bank staff to carry out regulated activities
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The Hong Kong Monetary Authority (HKMA)
HKMA’s Linkage with the SFC
- HKMA and SFC signed Memorandum of Understanding (MOU) to minimize regulatory overlaps
More about SFC
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SFC – Role and Functions
- supervise the exchanges and markets
- promote self-regulation of industry bodies
- regulate market intermediaries
- authorize securities & investment products
- regulate corporate disclosures
SFC’s Role and Functions
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SFC – Role and Functions (cont’d)- regulate mergers and takeovers- set regulations on money laundering- set ‘secondary legislations’ e.g. rules- enforce codes of conduct- promote investor education
SFC’s Role and Functions
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SFC – Operational Divisions
Corporate Finance
- administer codes
- raise standards of corporate governance
- oversee listing in exchange
- recommend changes to the Listing Rules
Operational Divisions
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SFC – Operational Divisions Intermediaries and Investment Products
- licensing firms and individuals to conduct regulated activities
- monitor licensed firms financial positions - raise professional standards - monitor disclosures of investment products
Operational Divisions
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SFC – Operational DivisionsEnforcement Division
- monitor trading irregularities- inspect books and records- disclosure of substantial shareholders- cooperate with other regulatory bodies
Operational Divisions
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SFC – Operational DivisionsSupervision of Markets
- encourage participation in markets - strengthen markets - regulate share registrars - manage compensation funds
Operational Divisions
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Regulatory Power
SFC has regulatory power on
- Hong Kong Exchanges & Clearing Ltd.
- Listed companies
- Approved share registrars
- Investor Compensation Company Ltd
- Participants in markets
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Regulated Activities
SFC – Regulated Activities
Types
1. Dealing in securities
2. Dealing in futures contracts
3. Leveraged foreign exchange trading
4. Advising on securities
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Regulated Activities
SFC – Regulated ActivitiesType5. Advising on futures contracts6. Advising on corporate finance7. Providing automated trading services8. Securities margin financing9. Asset management
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Law Enforcement
SFC – Responsibilities in Law Enforcement- ensure compliance with the laws- report suspected insider dealing- supervise financial intermediaries- monitor activities of HKEx- cooperate with other regulatory bodies- take actions against misconducts
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Legal Powers
SFC – Legal PowersSFC has specific powers- prosecution- court order- revocation / suspension / reprimand
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SFC – Prosecution- prosecute for summary offences- involve the Police, Customs & Excise and the Department of Justice on offences tried on indictment
Legal Powers
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SFC – Court Order - restrain from dealing securities - appoint a person to administer property - answer to contempt of court - direct a person to refrain from an act - ban a person from managing a listed co.
Legal Powers
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SFC – Revocation/Suspension/Reprimand
SFC finds a person guilty of misconduct if: - failed to comply with requirements
- failed to comply with licensing conditions - committed by act or omission
prejudicial to the investing public - failed to comply with the Rules
Legal Powers
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SFC – Revocation / SuspensionSFC may revoke or suspend the license of a
registrant- mental disorder- bankruptcy - criminal offence of dishonesty- offence of relevant ordinances- not carrying on business
Legal Powers
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SFC – Revocation / SuspensionSFC may revoke or suspend a corporation
registration- liquidation- receiver appointed- enter into arrangement with creditors- not carrying on business in Hong Kong
Legal Powers
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Legal Powers
SFC – Revocation / SuspensionSFC may revoke or suspenda corporation registration- a director convicted of crime of fraud- a director convicted of crime against the Ordinance- fail to satisfy a levy of execution
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Appeals
SFC – Appeals
Securities and Futures Appeals Tribunal
- independent to hear appeals against
the decisions made by the SFC
- High Court judge as chairman
and 2 lay members with no conflicts of interest in the appeal
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Three – tier System of Regulation for regulating the securities & futures
markets- Ordinances- Codes- Rules of the exchanges & clearing houses
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Class Discussion
A Memorandum of Understanding (MOU) was executed between HKMA and SFC on 12th December, 2002.
Why is this MOU so important in terms of (a) Registration of AIs and (b) Disciplinary Actions? [READ p.1-3, Section 6: Registration] Can you draw a flow chart to show the workflows in
(a)?
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Review questions
Describe the regulatory framework of the securities industry in Hong Kong. Focus on the main regulatory bodies and their relationship.
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Review questions
Discuss about the main legal powers of SFC in response to offences and misconduct.