Consultation Paper on Draft SFC Disciplinary Fining Guidelines

  1. Attached are draft guidelines on how the SFC proposes to exercise its power to fine under the Securities and Futures Bill (Bill) now being scrutinised by the Legislative Council (Fining Guidelines). The draft Fining Guidelines are also available on the SFC's internet website at http://www.sfc.hk.
  2. The SFC is now seeking comment on the draft Fining Guidelines from the securities and futures industry, professional bodies concerned and the public in general.
  3. Under clause 187(2) of the Bill, the SFC will be able to fine a "regulated person" up to a maximum of $10 million or 3 times the profit made or loss avoided, whichever is the higher, as a result of their improper conduct. A "regulated person" is a licensed corporation, a licensed representative or a person involved in the management of a licensed corporation including a responsible officer. Fines have been primarily proposed as an intermediate sanction between a reprimand and the suspension or revocation of a person's licence, this is because a reprimand may be too light and suspension or revocation too severe, particularly against a corporation in the latter case when many innocent parties may be adversely affected. However, the SFC may fine in any circumstances it considers appropriate and may do so in other suitable circumstances (e.g. in cases where an intermediary has profited from their conduct). The proposed fining power will allow the SFC to tailor disciplinary sanctions to more closely fit the circumstances of a particular case. Before fining a person, the SFC must tell that person why it is considering fining them and how much it intends to fine them. The person is then granted a chance to make representations. If, after considering the person's representations, the SFC decides to impose a fine, it must give the person written notice of the decision and the reasons for the decision. Both the decision to fine and the level of fine will be appealable to the independent merits review body, the Securities and Futures Appeals Tribunal (SFAT) under Part XI of the Bill.
  4. To give some guidance about the relevant factors in deciding the amount of a fine, clause 187(7) of the Bill requires the SFC to publish, in the Gazette and in any other appropriate manner, guidelines on the manner in which it proposes to exercise its fining power. Without such guidelines, fines cannot be imposed.
  5. The draft Fining Guidelines are general as the SFC considers that all the circumstances of a particular case are the best guide to what level of fine to impose, if any. The draft Fining Guidelines therefore emphasise as a starting point that all a case's circumstances must be considered and describe important relevant considerations including:
  1. The US Commodity Futures Trading Commission (CFTC) which may fine intermediaries it licences takes a similar approach. The UK Financial Services Authority (FSA), which will be empowered to impose unlimited fines upon intermediaries it regulates when the Financial Services and Markets Act comes into operation, also proposes to take this approach in drawing up fining guidelines in most instances. The CFTC and FSA guidelines have acted as references for the proposed Fining Guidelines.
  2. An alternative approach would be to list the types of conduct for which a person may be disciplined and set certain levels of fine for each type of conduct. However, the SFC considers that the grounds for which disciplinary conduct can be taken are too varied to allow for precise categorisation or conclusive itemisation. If such an approach were adopted, the SFC considers that it would necessarily be arbitrary and there would always be scope for argument as to whether certain conduct was excluded and, if not, an artificial approach of likening a regulated person's particular conduct to categories of listed conduct would have to be adopted. The SFC considers this undesirable from a policy perspective as it leads to arbitrary results and obscures the real issue of setting a fine suited to an individual firm's or person's conduct.
  3. To help make more consistent disciplinary decisions, the SFC's keeps a non-public database of details of all its past disciplinary decisions irrespective of whether or not a penalty was imposed. When a decision is made on the penalty to be imposed in disciplinary proceedings, details of past like cases are given to the decision maker for comparison with a recommended penalty. Fining decisions will benefit from this database when a number of fining decisions have been made. As fining decisions will also be appealable to the SFAT, SFAT decisions will also form an important guide to the level of fine to impose. The SFC hopes that the SFAT will, in practice, also refer to the Fining Guidelines when considering appeals from fining decisions. However, as the SFAT will be independent, the SFC cannot oblige it to do so. The public can find press releases about the SFC's past disciplinary decisions in which a penalty other than a private reprimand has been imposed on the SFC's internet website at http://www.sfc.hk.
  4. The SFC invited a Working Group of intermediary directors and compliance staff, a solicitor and a representative of the Consumer Council to advise the SFC on the draft Fining Guidelines. The Working Group met twice in November and December 2000 and the SFC has incorporated many of their suggestions into the draft Fining Guidelines.
  5. Please submit your comments before 11 May 2001 by sending them to:

    SFC Disciplinary Fining Guidelines
    Level 12 Edinburgh Tower
    The Landmark
    15 Queen's Road Central
    Hong Kong

    or to:

    fining-guidelines@sfc.hk

Draft

Securities and Futures Bill

Considerations relevant to the level of a disciplinary fine

These guidelines are made under clause [187(7)] of the Securities and Futures Bill to indicate the manner in which the Securities and Futures Commission (SFC) will perform its function of imposing a fine on a regulated person under clause [187(2)].

In determining the appropriate disciplinary action to take, the SFC regards a fine as a more severe sanction than a public or private reprimand and will not impose a fine if the circumstances of a particular case only warrant a private or public reprimand. As a matter of policy, the SFC will publicise all fining decisions.

When considering whether to impose a fine under clause [187(2)] and the size of any fine, the SFC will consider all the circumstances of the particular case, including the Specific Considerations described below.

The more serious the conduct, the greater the likelihood that the SFC will impose a fine and that the size of the fine will be larger.

In determining the seriousness of conduct, in general, the SFC views some considerations as more important than others. The General Considerations set out below describe conduct that would be generally viewed as more or less serious. In any particular case, the General Considerations should be read together with the Specific Considerations in determining whether or not the SFC will impose a fine and, if so, the amount of the fine.

General considerations

The SFC generally regards the following conduct as more serious:

The SFC generally regards the following conduct as less serious and so generally deserving a lower fine:

These are only general considerations and will not bind the SFC: the circumstances of each individual case including the Specific Considerations described below will be determinative.

Specific considerations

The SFC will consider all the circumstances of a case, including: The nature and seriousness of the conduct

The amount of profits accrued or loss avoided

The size, financial resources and other circumstances of the firm or individual

Other relevant factors, including

 



Page last updated : 1 Aug 2012