Updated Guidance Note on Cooperation with the SFC

Q1 : What are the key changes made to the updated Guidance Note on Cooperation with the SFC?


New section on civil proceedings: The section describes our current practice of resolving proceedings in the civil court (initiated under section 213 or section 214 of the Securities and Futures Ordinance) or Market Misconduct Tribunal with cooperative parties and highlights the benefits of cooperating with us in civil proceedings.

Updated section on disciplinary matters: We have divided our disciplinary process into three stages and added caps on the sanction reduction a party may receive for cooperating and resolving proceedings at each stage (bar exceptional circumstances which may warrant a further reduction).

Q2 : In recent months, the industry has seen the SFC grouping together multiple cases which a firm might be involved in and resolving these in a single resolution.


(i) What is the philosophy behind the SFC’s approach? 

This is a deliberate effort to target systemic issues. Where we identify multiple failings within a company or corporate group, we may consider these together and assess whether they are attributable to systemic weaknesses. We will more likely adopt this approach where the failings identified have not caused losses to clients or the investing public.

We are committed to using our resources efficiently and strategically to take enforcement actions that send clear and strong deterrent messages to the public and promote a good compliance culture amongst major market players. Taking a holistic enforcement approach to tackle systemic issues can be an effective way to achieve this. 

For details, please see the “Focusing on systemic problems” section in our Enforcement Reporter (December 2016).

(ii) Many of these cases involve the use of third-party reviews as part of the resolution package. 

What is the rationale behind the SFC's use of third-party reviews?

  • As part of our effort to tackle systemic problems, we may use third-party reviews to ensure that a firm has identified and addressed all systemic problems at the corporate group level. 
  • The use of third-party reviewers should not be seen as a compromise of our standards. Their role is to provide us with assurance that all the underlying causes of a firm’s regulatory failings have been addressed.

On the firm’s part, what is normally involved in engaging a third-party reviewer?

  • This is set out in paragraph 6.3 of the new Guidance Note on Cooperation with the SFC. Generally, firms pay for, and we have the right to access, the review findings.   

If a firm had a third-party review conducted before the SFC became involved, will this be taken into account as a form of cooperation?

  • Under paragraph 12.5 of the Code of Conduct for Persons Licensed by or Registered with the SFC, firms are obliged to report material breaches to the SFC immediately.  Where a firm detects a material problem, it should not wait for a third-party review to be conducted before notifying us.
  • Further, in resolution agreements which include the use of third-party reviews, we generally consider it necessary to be involved, for instance, in devising the terms of reference.

(iii) From a firm’s perspective, what are the benefits of resolving matters in this way?

Global resolution: Significant savings of time and resources can be achieved by resolving multiple cases in one go.

Publicity and reputation: The disciplinary outcome will normally be published in one press release (as opposed to multiple press releases issued over a longer period of time).

Recognition: We may consider it appropriate to reduce the disciplinary sanctions imposed if cooperation is demonstrated by the firm, eg, by agreeing to engage a third-party reviewer.

Q3 : Would cases resolved as a result of cooperation with the SFC be subject to scrutiny or review by the Process Review Panel (PRP) or the SFC’s Non-Executive Directors?


All of our enforcement cases, including those resolved as a result of cooperation, are subject to review by the PRP.

Last update: 12 Dec 2017

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