The Securities and Futures Commission took more action against problematic listed companies last year and imposed heftier fines, a trend that analysts say shows the regulator is keen on cracking down
on poor corporate behaviour in light of some high-profile scandals.
The commission took enforcement action against 33 companies last year, up 57 per cent year on year, according to an annual study by law firm Freshfields Bruckhaus Deringer.
However, the number of enforcement actions against individuals dropped to 55 last year, down 48 per cent from the 107 in 2014. However, the study said the high number in 2014 was an anomaly and last year’s number was in line with previous years.
Imposing fines has become the SFC’s most-used weapon. It imposed fines in all enforcement actions last year, with the amount collected totalling HK$70.9 million, 13 per cent more than in 2014 and up 75 per cent on 2013.
The average fine last year was HK$4.73 million, 20 per cent more than in 2014 and 75 per cent more than in 2013.
Chamber of Hong Kong Listed Companies chief executive Mike Wong Ming-wai said the SFC had deployed more staff to check on listed companies’ behaviour.
The regulator set up a team in 2014 to check corporate announcements and transactions including financial statements and changes of directors or auditors to identify potential misconduct. Companies with frequent transactions, changes in directors or auditors or unusual share price movements were put on a watch list.
“It would be a good move for the SFC to crack down on malpractices in the market and to enhance investor protection,” Wong said. “From the listed companies’ point of view, we would only hope the SFC gives clear guidance on its regulations and does not to make it difficult for companies to operate. Most listed companies are well behaved and comply with all the regulations.”
Freshfields’ Hong Kong dispute resolution partner Georgia Dawson said the SFC had carried out some important enforcement actions against listed companies last year, including the first legal action suing a company for failing to disclose price-sensitive information since the enactment of a disclosure law in January 2013.
Growth Enterprise Market-listed AcrossAsia, its chairman Albert Cheok and chief executive Vicente Ang were named by the SFC in a filing submitted to the Market Misconduct Tribunal in July last year for their failure to tell the public about an insolvency petition against the company in Indonesia in January 2013.
The tribunal will hear the case this year. If convicted, the company and the two executives could each face up to HK$8 million in fines or be banned from trading in the local markets for several years.
“Right now, there is a real emphasis in Hong Kong on reducing abuses of, and unnecessary delays in, market disclosure,” Dawson said. “It is seen as something of a linchpin for retail investors in the market and a key to the market’s international reputation.
“With those concerns in mind, it is very likely that the SFC will continue to aggressively pursue these sorts of violations – particularly if the AcrossAsia enforcement results in significant penalties against the company and senior management.”
Dawson said she believed the SFC’s focus on companies over individuals was likely to be short-lived as SFC executive director James Shipton had recently talked about the need for individual accountability from business leaders.
“Many regulators around the world currently hold the view that individual enforcement has a higher deterrent value in the market and the SFC is no different,”she said. “In years to come, we are likely to view 2015 as an anomaly against a more gradual trend towards placing greater scrutiny on individuals at the top.”