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Hong Kong market misconduct prompts ‘fundamental rethink’ at SFC

Hong Kong market misconduct prompts ‘fundamental rethink’ at SFC

The CEO of Hong Kong’s Securities and Futures Commission has promised that the financial regulator will take a more proactive role in tackling misconduct in the stock market.

In a speech on Thursday, Ashley Alder said that the SFC has ‘an ever-expanding enforcement caseload’ of accounting fraud and market manipulation, while the growing links between markets in Hong Kong and the Mainland increase the opportunities for misconduct.

‘Comprehensive enforcement and supervisory cooperation between the SFC and the China Securities Regulatory Commission is now a top priority for both organisations,’ Alder said. ‘This is because investors in each of our markets are increasingly exposed to risks in the other market. And on top of that those intent on misconduct can operate from the other jurisdiction.’

Under the Stock Connect programme, launched in 2014 and expanded last year, investors can trade in certain Chinese companies listed on the Shanghai and Shenzhen Stock Exchanges through Hong Kong.

The SFC has historically deferred to the Hong Kong Stock Exchange in listing matters, Alder said. However, recent scandals – including a rout on the small-cap market in late June that was driven by governance worries related to a single broker – have damaged the reputation of Hong Kong as a financial centre.

‘In light of this, and against a background characterised by an accumulation of serious governance and misconduct issues, we decided to have a fundamental rethink,’ Alder said.

From now on, SFC will intervene earlier, focusing on ‘the most significant or systemic risks’, and making ‘thematic reviews’ of licensed firms. The regulator will also be issuing guidance about valuations in corporate transactions.

Issues of misconduct ‘certainly do not pervade the entire market,’ Alder warned. ‘But they are sufficiently serious that it would be wrong of me to try to sugar-coat the challenges we face.’

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