Securities & Futures Commission of Hong Kong

Disclosure of investigations commenced by licensed corporations in the notifications of cessation of accreditation

Q1:

What is this disclosure requirement?

A:

Under this requirement, a licensed corporation should provide the SFC with information about whether a licensed individual who ceases to be accredited to it ("outgoing employee") was under any investigation commenced by the licensed corporation within six months preceding his/her cessation of accreditation, when the licensed corporation notifies the SFC of his/her cessation of accreditation.  If the internal investigation commences subsequent to the notification of cessation of accreditation, the licensed corporation should also notify the SFC as soon as practicable.

Q2:

What is the purpose of this requirement?

A:

The SFC is required to have regard to any matter that the SFC considers relevant when considering whether an individual is a fit and proper person to be licensed or to remain licensed under the Securities and Futures Ordinance ("SFO").  In doing so, the SFC may take into account information from various sources. Information pertaining to whether an outgoing employee was under any internal investigation is useful and relevant information for the performance of the SFC's functions.

Q3:

What action constitutes an "investigation" conducted by a licensed corporation?

A:

The SFC recognises that licensed corporations may adopt different terms, such as checking, inquiry, enquiry, review, examination, inspection or investigation, in respect of their investigative actions.  The subject matter of such investigative actions may cover the conduct of regulated activities by their outgoing employees, as well as other activities, issues, processes or incidents that involve their outgoing employees.

The SFC expects licensed corporations to proactively disclose information of all investigative actions (no matter how they are described) to the SFC.  The following is a non-exhaustive list of examples of investigations involving an outgoing employee that a licensed corporation should disclose to the SFC:

  • investigations about suspected breach or breach of applicable laws, rules and regulations;
  • investigations about suspected breach or breach of the licensed corporation's internal policies or procedures;
  • investigations about misconduct that are likely to give rise to concerns about the fitness and properness of the outgoing employee;
  • investigations about any matter that may have an adverse market or client impact; and
  • investigations about any matter potentially involving fraud, dishonesty and misfeasance.
Q4:

What level of detail is needed to satisfy this disclosure requirement?

A:

A licensed corporation should disclose information that it can lawfully disclose to the SFC for the SFC's thorough understanding of the subject matter of the investigation. In general, the disclosure should contain a clear description of the matter, and should include, without limitation:

  • the nature and the background of the matter;
  • the date(s) when the matter occurred;
  • the duration of the matter;
  • the role played by the outgoing employee in the matter;
  • the (potential) impact to the market and clients and assessment of materiality;
  • the status of the investigation; and
  • the outcome of the investigation and the basis of conclusion, if the investigation is completed.
Q5:

If a licensed corporation has completed its investigation and concluded that there is no negative finding against the outgoing employee, is the licensed corporation still required to notify the SFC of the investigation?

A:

Yes.  However, in this situation, the licensed corporation only needs to provide a brief description of the nature of the matter and an explanation about the basis of conclusion.

Q6:

If a licensed corporation commences an investigation after the departure of its outgoing employee, is such investigation required to be disclosed to the SFC?

A:

Yes.  Where a licensed corporation initiated an investigation against its outgoing employee, regardless of how long ago he/she has ceased to be accredited to or left the licensed corporation, the licensed corporation should disclose the investigation to the SFC as soon as practicable.

Q7:

If there is new development in an investigation that was previously disclosed to the SFC by a licensed corporation, is the licensed corporation required to update the SFC?

A:

Yes.  If there is new development (such as new information or updates on the outcome of the investigation and the basis of conclusion) in an investigation previously disclosed to the SFC, a licensed corporation should provide such information to the SFC as soon as practicable, irrespective of whether the investigation was previously concluded.

Q8:

Will the SFC disclose the information collected under this disclosure requirement to the outgoing employee or his/her prospective employer?

A:

The SFC is bound by section 378 of the SFO to preserve secrecy with regard to any information obtained during the performance of its regulatory functions.  The SFC will treat any information collected under this disclosure requirement as confidential. Unless permitted by law, the SFC will not disclose information obtained in the performance of the SFC's regulatory functions to any other person, including the outgoing employee and the prospective employer of the outgoing employee concerned.

Q9:

Is a registered institution required to comply with this disclosure requirement?

A:

Yes.  However, a registered institution is required to comply with this disclosure requirement only when it notifies the SFC that an individual ceases to be its executive officer. The registered institution should also observe the above FAQs where applicable.

3.6038 s