SFC Commences Insider Dealing Prosecution Against Segantii Capital Management
On 2 May 2024, the Securities and Futures Commission (SFC) initiated criminal proceedings against Segantii Capital Management Limited, its director and Chief Investment Officer Simon Sadler, and former trader Daniel La Rocca for insider dealing in shares of a company listed on the Hong Kong Stock Exchange prior to a block trade in June 2017.
No plea was taken at the Eastern Magistrates’ Court, and the case was adjourned to 12 June 2024. Sadler and La Rocca were released on bail with specific conditions, including cash bail and restrictions on travel and contact with prosecution witnesses.
Key Points:
- Charges of insider dealing against Segantii and its executives.
- Case adjourned to 12 June 2024.
- Bail conditions imposed on Sadler and La Rocca.
SFC Obtains Asset Freezing Order Against Leung Anita Fung Yee Maria
On 7 May 2024, the SFC obtained an interim injunction order at the Court of First Instance against Leung Anita Fung Yee Maria, former CEO and executive director of SMI Culture & Travel Group Holdings Limited. This action follows a Mareva injunction application hearing on 6 February 2024.
This marks the first instance of the SFC securing such an injunction under section 214 of the Securities and Futures Ordinance (SFO) related to an ongoing legal action. The SFC’s goal is to preserve assets to potentially satisfy a future compensation order.
Key Points:
- Interim injunction order obtained against Leung to freeze assets up to $235,363,373.
- Leung is restricted from removing, disposing, or diminishing the value of her assets.
- The order remains until the final determination of proceedings.
- SFC aims to prevent asset dissipation and ensure accountability for misconduct.
SFC Warns Public of Suspected Fraud Involving Quantum AI
On 8 May 2024, the SFC issued a warning to the public regarding suspected virtual asset-related fraud by an entity operating as “Quantum AI.”
Quantum AI claims to offer cryptocurrency trading services using AI technology. The SFC suspects the entity is using AI-generated deepfake videos and photos of Elon Musk to mislead the public into believing he is involved with their technology. Additionally, Quantum AI is suspected of using a fake “news” website to spread false and misleading information and promote its services to the Hong Kong public.
Key actions taken by the SFC:
- Requested the Hong Kong Police Force to block access to Quantum AI’s website and take down related social media pages.
- Added Quantum AI’s websites to the SFC’s Suspicious Virtual Asset Trading Platforms Alert List.
The SFC advises the public to remain cautious of “too-good-to-be-true” investment opportunities and to be vigilant against online investment scams.
Joint Press Release on Swap Connect Enhancements
On 13 May 2024, the People’s Bank of China (PBoC), the SFC, and the Hong Kong Monetary Authority (HKMA) announced enhancements to the Swap Connect to advance the high-quality opening-up of China’s financial markets. Launched on 15 May 2023, Swap Connect has seen smooth operations and increasing trading volumes with active participation from Mainland and overseas investors.
Key Highlights:
- By April 2024, 20 Mainland dealers and 58 overseas investors completed over 3,600 transactions, with a notional amount of approximately RMB1.77 trillion.
- Average daily turnover rose from RMB3 billion in the first month to over RMB12 billion in April 2024.
Enhancements to Swap Connect:
- Product Enrichment: Acceptance of interest rate swap contracts based on International Monetary Market dates to align with global products and meet diverse risk management needs.
- Ancillary Services: Introduction of compression service and clearing of backdated swap contracts to manage outstanding notional amounts, reduce capital costs, and foster active trading.
- System Enhancements: China Foreign Exchange Trade System, Shanghai Clearing House, and OTC Clearing Hong Kong Limited will roll out system improvements and incentive programmes to reduce participation costs.
The PBoC, SFC, and HKMA will guide financial market infrastructure institutions to further extend business collaboration under Swap Connect, enhancing operational arrangements to facilitate the steady opening-up of China’s financial markets and strengthening Hong Kong’s status as an international financial centre.
SFC Warns Public of Suspicious Virtual Asset Product “LENA Network”
On 13 May 2024, the SFC issued a warning regarding a suspicious investment product named “LENA Network.” This product involves virtual asset-related staking, borrowing, and lending arrangements, and claims to offer high returns to investors.
Key Points:
- “LENA Network” is not authorised by the SFC for offering to the Hong Kong public.
- The product has been added to the SFC’s Suspicious Investment Products Alert List.
- The SFC cautions investors about staking arrangements, which could amount to unauthorised collective investment schemes (CIS) and carry high risks, offering little to no protection under the Securities and Futures Ordinance (SFO).
- Investors should be wary of “too-good-to-be-true” investment opportunities and exercise vigilance in their investment decisions.
The SFC will take appropriate actions against any breaches of the law.
SFC Facilitates Broader Offerings of Master-Feeder ETFs in Hong Kong
On 16 May 2024, the Securities and Futures Commission (SFC) published a revised circular allowing SFC-authorised feeder ETFs under a master-feeder structure to invest in overseas-listed master ETFs, including actively managed ETFs from various markets, under streamlined conditions.
Key Points:
- Global ETF market AUM reached US$12.7 trillion by Q1 2024, with actively managed ETFs showing significant growth.
- Asia-Pacific saw an 82% growth in AUM for actively managed ETFs in 2023, with their market share in Hong Kong rising from 1% in 2019 to 13% in 2023.
- The revised circular aims to capitalise on the interest of product issuers in bringing well-established overseas actively managed ETFs to Hong Kong.
Enhancements to Master-Feeder ETFs:
- Streamlined requirements now apply to both passively and actively managed ETFs.
- Eligible schemes include those with a sizable AUM and a good track record, ensuring investor protection.
- Aims to reduce costs, provide flexibility to ETF issuers, and expand investment choices for investors.
Ms Christina Choi, SFC’s Executive Director of Investment Products, highlighted that these changes would enhance Hong Kong’s competitiveness and strengthen its position as a premier asset management hub.
SFC Welcomes Consultation on Voluntary Code of Conduct for ESG Ratings and Data Providers
On 17 May 2024, the SFC welcomed the launch of a public consultation by an industry-led working group on a voluntary code of conduct (VCoC) for ESG ratings and data products providers in Hong Kong.
Key Highlights:
- The proposed VCoC, supported by the SFC and led by the International Capital Market Association (ICMA), is based on international best practices recommended by IOSCO.
- The VCoC aims to enhance transparency, quality, and reliability of ESG information, promoting comparability of products.
- The draft VCoC includes a self-attestation document to help end users, such as SFC-licensed intermediaries, in their due diligence and ongoing assessment of ESG ratings and data providers.
- The public consultation period will end on 17 June 2024.
The SFC’s Chief Executive Officer, Ms Julia Leung, and ICMA’s Chief Executive, Mr Bryan Pascoe, both expressed their support for the initiative, highlighting its importance for the sustainable finance market and industry-led standards.
Two Former Brokers Jailed for False Trading
On 17 May 2024, the Eastern Magistrates’ Court sentenced two former licensees, Mr Yip Chi Wing and Mr Tsoi Chiu Kwan, to three months of imprisonment each for false trading in the shares of Forebase International Holdings Limited.
Key Points:
- Yip and Tsoi, in their capacity as licensed brokers, engaged in false trading over a period of 10 months during 2015 and 2016.
- Magistrate Mr Jeffrey Sze Cho Yiu emphasised the serious nature of the offence and the need to protect the investing public, deeming immediate custodial sentences appropriate.
- The SFC’s Executive Director of Enforcement, Mr Christopher Wilson, reiterated the SFC’s stance against market misconduct and the importance of maintaining high standards of conduct among licensed persons.
The court’s decision underscores the legal consequences of false trading and the SFC’s commitment to safeguarding market integrity.
Pre-Trial Review Set for False Trading in Shares of China All Access
On 23 May 2024, the Eastern Magistrates’ Court scheduled a pre-trial review for 5 September 2024 regarding the prosecution of Ms Wong Yuk Lan by the SFC. Wong, a former administration controller of China All Access (Holdings) Limited, is accused of false trading.
Key Points:
- Wong pleaded not guilty to charges of creating a false or misleading appearance in the market for China All Access shares between 29 and 31 December 2014.
- The pre-trial review is set for 5 September 2024.
- The case involves alleged violations under section 295 of the Securities and Futures Ordinance.
This case highlights the ongoing efforts by the SFC to uphold market integrity and enforce regulations against market misconduct.
SFC Bans Cheung Wing Hung for 18 Months
On 27 May 2024, the SFC announced the 18-month ban of Mr Cheung Wing Hung from re-entering the industry, effective from 24 May 2024 to 23 November 2025. This action follows Cheung’s criminal conviction for carrying out unlicensed activities under the Securities and Futures Ordinance (SFO).
Key Points:
- Cheung was convicted on 25 July 2023 for acting as an agent dealing in securities without a valid SFC license.
- The SFC deemed Cheung not fit and proper to be licensed due to his criminal conviction.
- Cheung pleaded guilty, was fined $6,000, and ordered to pay the SFC’s investigation costs.
This ban underscores the SFC’s commitment to maintaining the integrity of the securities industry and ensuring that individuals conducting regulated activities are properly licensed.
SFC Suspends Wong Ka Ching for Four Years
On 28 May 2024, the SFC suspended Mr Wong Ka Ching, former responsible officer of China On Securities Limited, for four years from 28 May 2024 to 27 May 2028. This disciplinary action follows SFC’s sanctions against China On for failures as the placing agent in a share placement in late 2019.
Key Points:
- Wong’s suspension is due to his gross negligence or reckless handling of the share placement, failure to maintain proper conduct standards, and neglecting to safeguard vendor assets.
- Wong allowed an unqualified individual to be heavily involved in China On’s operations, disclosed confidential investigation details, and provided false or misleading information to the SFC.
- The SFC emphasised the importance of this sanction to deter grossly negligent or reckless conduct in the industry.
The suspension underscores the SFC’s commitment to upholding market integrity and ensuring licensed persons adhere to high standards of conduct.
SFC Statement on End of Non-Contravention Period for Virtual Asset Trading Platforms
On 28 May 2024, the SFC reminded the public that the non-contravention period for virtual asset trading platforms (VATPs) operating in Hong Kong under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (AMLO) will end on 1 June 2024.
Key Points:
- All VATPs in Hong Kong must be licensed by the SFC or be “deemed-to-be-licensed” applicants. Operating without a license is a criminal offence.
- Investors should only trade on SFC-licensed VATPs and verify this on the SFC’s website.
- Deemed-to-be-licensed VATPs are not formally licensed and must meet all regulatory requirements before being granted a license.
- The SFC expects deemed-to-be-licensed VATPs to comply fully with regulatory requirements and not to market services or onboard new retail clients until formally licensed.
- VATPs must ensure compliance with all laws, including preventing access by Mainland Chinese residents.
- The SFC will conduct on-site inspections of deemed-to-be-licensed VATPs to ensure compliance, with a focus on safeguarding client assets and know-your-client processes.
SFC Executives Visit Saudi Arabia and UAE to Foster Financial Services Collaboration
On 29 May 2024, the SFC Chief Executive Officer, Ms Julia Leung, and Executive Director of Investment Products, Ms Christina Choi, embarked on the SFC’s first official visit to the Middle East, specifically to Saudi Arabia and the United Arab Emirates (UAE).
Key Points:
- The visit aims to strengthen financial services collaboration between Hong Kong SAR and these key partners under the Mainland’s Belt and Road Initiative.
- The focus is on promoting mutual market developments and leveraging Hong Kong’s position as an international asset and wealth management hub.
- Ms Leung and Ms Choi will visit Abu Dhabi, Dubai, and Riyadh, meeting with top executives from local financial regulators, stock exchanges, and financial industry stakeholders.
- They will participate in roundtable discussions with senior executives of major asset managers and financial institutions to discuss regulatory trends and market developments.
Ms Leung highlighted the significance of the visit in laying a foundation for sustained two-way investment flows and enhancing regional market connectivity.
This statement emphasises the SFC’s commitment to ensuring regulatory compliance and protecting investor interests in the virtual asset market.
Market Manipulators Convicted in Landmark High Court Jury Trial
On 29 May 2024, the Court of First Instance convicted Ms Sit Yi Ki, Ms Lam Wing Ki, and Mr Tam Cheuk Hang of conspiracy to carry out false trading in the shares of Ching Lee Holdings Limited. This historic 22-day market manipulation trial marked the first time an offence under the SFO was tried by jury in the Court of First Instance.
Key Points:
- The jury unanimously found Sit and Tam guilty, with Lam convicted by majority.
- The prosecution stemmed from SFC investigations revealing a complex market manipulation scheme between March 2016 and September 2016, resulting in illicit profits of over $124 million.
- The scheme involved manipulative transactions among 156 securities accounts to create a false appearance of active trading in Ching Lee shares.
- Sentencing is set for 17 June 2024, with the defendants remanded in custody.
Mr Christopher Wilson, SFC’s Executive Director of Enforcement, highlighted the verdict’s significance in reinforcing market integrity and deterring misconduct. The SFC continues to take robust action against financial crimes, with ongoing proceedings to freeze assets and arrest warrants issued for other conspirators.
Top Executives of SFC and DFSA Meet in Dubai to Extend Market Ties
On 31 May 2024, Chief Executive Officer, Ms Julia Leung, and Executive Director of Investment Products, Ms Christina Choi, held a high-level meeting with top executives of the Dubai Financial Services Authority (DFSA) in Dubai, UAE. This meeting was part of the SFC’s official visit to the Middle East.
Key Points:
- Attendees included DFSA’s Chief Executive, Mr Ian Johnston, Managing Director of Policy and Legal, Ms Charlotte Robins, and Senior Director, Head of Markets, Strategy & Risk, Mr Brad Douglas.
- Discussions focused on strengthening financial collaboration between Hong Kong SAR and the Dubai International Financial Centre (DIFC) and exchanging views on regulatory developments.
- The SFC and DFSA co-hosted a roundtable with over 15 DIFC stakeholders, where Ms Leung and Ms Choi highlighted Hong Kong’s business environment, market landscape, and regulatory regime, emphasising opportunities in the asset and wealth management sector.
This meeting underscores the ongoing efforts to enhance financial ties and mutual understanding between Hong Kong and Dubai.
