Established in 1989, the Securities and Futures Commission (SFC) is an independent statutory body set up to regulate the securities and futures markets in Hong Kong.
It derives a broad range of investigative, remedial and disciplinary powers from the Securities and Futures Ordinance (SFO) and a subsidiary legislation. The SFC works to ensure orderly securities and futures market operations, to protect investors and help promote Hong Kong as an international financial centre and a key financial market in China.
The SFC is funded by levies on transactions conducted on the Stock Exchange of Hong Kong and the Hong Kong Futures Exchange, as well as fees charged to those who apply for and hold licences with us or who make other types of application for licences.
The Securities and Futures Ordinance has vested us with multiple roles, chiefly to strike a balance among the interests of industry participants, market players and the community in general. More precisely, the scope of our work can be delineated as follows:
- Setting and enforcing market regulations including, investigating breaches of rules and market misconduct and taking appropriate enforcement actions;
- Licensing and supervising intermediaries seeking to conduct regulated activities for which the SFC has regulatory responsibility, such as, brokers, investment advisers and fund managers;
- Supervising market operators including exchanges, clearing houses and alternative trading platforms, and helping to enhance market infrastructure;
- Authorizing investment products and/or offering documents prior to their distribution to retail investors;
- Overseeing regulations governing takeovers and mergers of public companies and The Stock Exchange of Hong Kong’s regulation of listing matters;
- Co-operating with and providing assistance to local and overseas regulatory authorities; and
- Helping investors understand market operations, the risks of investing and their rights and responsibilities
Shared regulatory responsibilities
We are one of the four financial regulators in Hong Kong, each of which is responsible for regulating certain aspects of finance and investing. We co-operate with each other to ensure proper conduct in the markets and to forestall financial crime and misconduct.
|Banking||The Hong Kong Monetary Authority||Regulates financial institutions (including banks, deposit-taking companies and money lenders) and aims to keep the Hong Kong dollar stable through management of the Exchange Fund and monetary policy operations|
|Insurance||The Office of the Commissioner of Insurance (OCI)||The Insurance Authority, the primary regulator, delegates power to the OCI to regulate insurance companies and intermediaries. Self-regulatory bodies also help with supervision.|
|Mandatory provident fund system||The Mandatory Provident Fund Schemes Authority||Regulates and supervises the operations of provident fund schemes|
|Securities and futures||SFC||Regulates the securities and futures markets|
Our historical background
Until the mid-1970s, the stock and commodities markets in Hong Kong were largely unregulated. It was only after the stock market crash of 1973-1974 that legislation was introduced to govern the industry.
The legislation was administered by two part-time commissions - one for securities and the other for commodities trading. Their executive arm, the Commissioner for Securities and Commodities Trading, headed the Office of the Commissioner for Securities and Commodities Trading (OCSCT), which was established as part of the Government. Over the next decade, the local and international securities and futures markets evolved rapidly, but this structure remained unchanged.
The deficiencies of such a regulatory structure became evident when the markets crashed again in 1987. A steep plunge in the Hang Seng Index led to the closure of the local stock and stock index futures markets for four days. In the aftermath of the crash, the six-member Securities Review Committee, chaired by Ian Hay Davison, was created to examine Hong Kong’s regulatory structure and regime and how to improve them to minimise the risk of a repeat of the chaos of October 1987.
In May 1988, the Committee released its report* concluding that the OCSCT had insufficient resources to regulate properly the rapidly growing and changing Hong Kong markets.
The Committee found that too much effort had been spent on ineffective routine vetting, instead of active surveillance and monitoring of markets and intermediaries. The two commissions were not performing effectively because they lacked strong direction and had become passive and reactive when they should have been active and proactive.
It was recommended that the then existing structure be replaced by a single statutory body outside the civil service, headed and staffed by full-time professional regulators and funded primarily by the markets. In the view of the Committee, such a body should have broad investigative and disciplinary powers to enable it to perform its regulatory functions properly.
In May 1989, the SFC was established pursuant to the enactment of the Securities and Futures Commission Ordinance, which created a new regulatory framework to address local market needs and to keep pace with global developments and standards.