Hong Kong SFC Consults on Greater Information Gathering Forces on Licensed Companies to help Overseas Government bodies

Hong Kong’s Investments and Future Commission (SFC) has started per month-lengthy consultation1 on suggested changes towards the Investments and Futures Ordinance (SFO) to permit the supply of greater supervisory help overseas government bodies, upon request. Written reactions towards the consultation are needed to become posted by 16 The month of january 2015.

The SFC’s mentioned goal for making the suggested changes would be to align Hong Kong’s provisions around the supervision of controlled multi-national organizations with worldwide standards. Therefore should result in the getting into more supervisory cooperation plans between your SFC and overseas government bodies and access for Hong Kong controlled organizations to individuals overseas marketplaces which restrict admission to areas with mutual cooperation plans in position.

The extension from the SFC’s forces underneath the suggested changes is rather limited: Sections 180 and 186 from the SFO could be amended to boost the SFC’s information gathering forces. The changes will give the SFC the discretion (although not a duty) to workout its supervisory forces under Section 180 to acquire records or documents from an SFC-licensed corporation or its related corporation with regards to a controlled activity transported on through the SFC licensed corporation, to be able to assist overseas government bodies in non-enforcement related matters.


As the SFO provisions which permit the SFC to help overseas government bodies on enforcement matters meet worldwide standards, its provisions permitting SFC assistance on supervisory matters are unsuccessful of worldwide norms in a single narrow respect: they don’t enable the SFC to workout its supervisory forces to acquire information to be able to assist a foreign regulator with regards to non-enforcement matters. The suggested SFO changes usually are meant to rectify this disadvantage.

The SFC views it essential that the SFC should have the ability to provide assistance on supervisory matters to overseas government bodies since this makes it simpler for Hong Kong to initiate supervisory memoranda of understanding (MOUs) with overseas government bodies. Up to now, Hong Kong has joined only a number of sector-specific supervisory MOUs and also the SFC fears the current limitation on its forces could negatively affect being able to enter further MOUs. This, consequently, could adversely change up the SFC’s capability to obtain the help of overseas government bodies.

The main difference between supervisory cooperation and cooperation within the enforcement context is essential. With regards to enforcement, cooperation between government bodies requires the analysis of suspected misconduct using the goal of acquiring evidence to be used in court proceedings. Supervisory cooperation, however, is mainly preventive in character and requires the exchange of knowledge which isn’t intended as utilized in court proceedings. Its goal would be to improve supervision of controlled organizations with use of information from overseas government bodies.

The SFC needs the suggested changes will afford Hong Kong controlled organizations greater use of foreign marketplaces because it should open marketplaces that access is fixed to areas with worldwide supervisory cooperation plans.

Current Framework

The SFC likes supervisory and investigatory forces under Section 180 and Sections 182 and 183 from the SFO, correspondingly.

Section 180 SFO

Section 180 allows the SFC to examine making inquiries of licensed companies without getting reasonable induce to think that misconduct has occurred. However, the SFC are only able to exercise its forces under this to find out whether an authorized corporation or its connected entity is within compliance using the Hong Kong regulating provisions specified by Section 180(2) SFO, including any SFO provision, any provision from the SFO’s subsidiary legislation and then any terms or conditions that an SFC licence is subject. Although information acquired through the SFC on exercise of their supervisory forces under Section 180 isn’t searched for for enforcement reasons, the data might be utilized in its disciplinary proceedings where appropriate.

Sections 182-183 SFO

These provisions let the SFC to research where it’s reasonable induce to believe a thief might have involved in defalcation, fraud, misfeasance or any other misconduct regarding the getting investments etc. or that market misconduct might have occurred.

Existing SFO Provisions regarding SFC Help Overseas Government bodies

The SFO consists of the next provisions with regards to giving help overseas government bodies.

Section 186 SFO

Section 186 enables the SFC to workout its investigatory forces under Sections 182 and 183 SFO, whether it receives an enforcement-related request from a foreign regulator for help in looking into suspected contraventions of certain legal or regulating needs, so long as certain the weather is met. To workout its forces, the SFC should be satisfied that:

i.It’s desirable or expedient the assistance ought to be provided within the interest from the trading public or perhaps in the general public interest, or the assistance will enable or profit the overseas regulator to do its functions which is not unlike the eye from the trading public in order to the general public interest2 and

ii.The overseas regulating body works an identical function to that particular carried out through the SFC or even the Hong Kong Registrar of Companies, and it is susceptible to sufficient secrecy provisions.3

Additional safeguards are located in Section 186(6) from the SFO which supplies that claims that the producer has stated the privilege against self-incrimination cannot be utilised by a foreign authority in criminal proceedings.

Section 378(3)(g)(i) SFO

Section 378(3)(g)(i) from the SFO enables the SFC to reveal non-public information to overseas government bodies for enforcement or supervisory reasons so long as certain conditions (as put down in section 378(5), 378(6)(a) and (b) SFO), that are basically identical to the conditions that the SFC’s exercise of their forces under Section 186 are subject, are met.

Existing Forces to supply Information to Overseas Government bodies

Accordingly, the SFC is presently titled to supply non-public information to overseas government bodies in 2 conditions:

i.For Enforcement Reasons

The SFC can acquire information under Section 186 SFO by working out its enforcement forces (e.g. to research under Sections 182 and 183), and disclose similarly info for an overseas regulator under Section 378(3)(g)(i) and

ii.For Enforcement or Non-enforcement Reasons

In which the information asked for has already been the responsibility of the SFC during the time of the overseas regulator’s request, the SFC can disclose it for an overseas regulator under Section 378(3)(g)(i).

However, Section 186 doesn’t offer the SFC to workout its supervisory forces under Section 180 to be able to provide help a foreign regulator. Thus, while Section 180 enables the SFC to acquire information because of its own supervisory reasons, the SFO presently consists of no express provision enabling the SFC to workout its supervisory forces to acquire information for that reasons of aiding overseas government bodies in non-enforcement related matters.

Suggested Changes

The suggested changes provides merely a narrow type of supervisory cooperation to be able to strike an account balance between assisting mix-border information exchange and safeguarding against excessive disclosure.

Character of Assistance

Underneath the suggested changes, the SFC could only provide assistance with regards to:

i.an SFC licensed corporation that’s also controlled through the overseas regulator and/or

ii.an associated corporation of the SFC-licensed corporation in which the related corporation is controlled through the overseas regulator.

The word “related corporation” is determined within the SFO4 to incorporate:

a holding company

a subsidiary

another subsidiary of the identical holding company and

several companies in which the same individual: (i) controls the composition from the board of company directors of every company (ii) controls over fifty percent the voting energy at general conferences of every company or (iii) holds over fifty percent from the released share capital of every company.

The type of assistance could be restricted to acquiring records and documents in the licensed corporation (or related corporation) that are otherwise not available to the overseas regulator and making inquiries about these and related transactions and activities. The data to become acquired would also need to connect with a controlled activity transported on through the licensed corporation, or perhaps a transaction or activity that was carried out throughout, or which might affect, a controlled activity carried out through the licensed corporation. The SFC couldn’t therefore provide assistance with regards to information relevant for an not regulated activity carried out with a licensed corporation (e.g. gold buying and selling).

However, the SFC might have no energy underneath the amended provisions to go in a corporation’s premises with respect to a foreign regulator in order to obtain information from parties apart from licensed companies as well as their related companies.

Reasons of Collection

The SFC would simply be able provide assistance where its purpose would be to allow a foreign regulator to find out:

the potential risks to and also the effect on the soundness from the economic climate in the jurisdiction or

compliance with legal or regulating needs (excluding tax) given through the overseas regulator with regards to transactions and activities relevant to investments, futures contracts, utilized foreign currency contracts, collective investment schemes, OTC derivative items or any other similar transactions it adjusts.

The suggested changes don’t need to cover registered institutions because the Hong Kong Financial Authority has already been allowed to supply help overseas government bodies underneath the Banking Ordinance.


Existing Safeguards

Help overseas government bodies would simply be provided susceptible to the present safeguards (as referred to above) including the necessity the SFC should be satisfied that it is help the overseas regulator is supplied within the “public interest”. In identifying whether supplying assistance could be within the “public interest”, among the factors the SFC must consider is whether or not the overseas regulator making the request is ready and prepared to provide reciprocal assistance as a result of a request the help of Hong Kong5. Further, an individual from whom the SFC demands an announcement within the exercise of their investigatory forces under Section 179 or 183 may assert privilege against self-incrimination under Section 186(6) SFO. In this situation, the SFC cannot supply the self-incriminating statement for an overseas regulator to be used in criminal proceedings in the jurisdiction.

Additional Safeguards

Overseas government bodies would furthermore be needed to supply written undertakings towards the SFC that they’ll:

just use information acquired in the SFC for that reasons of identifying: (i) the potential risks to and also the effect on the soundness from the economic climate within their jurisdiction or (ii) compliance with legal or regulating needs (excluding tax) given through the overseas regulator

not make use of the information in almost any proceedings unless of course the authority or regulating organisation has searched for, and also the SFC has decided to provide similarly info in compliance with Section 186(1) SFO

treat information presented to them as private and won’t disclose it holiday to a person with no SFC’s approval

inform the SFC the moment reasonably practicable if they’re needed to reveal the information within legally enforceable demand, and take all appropriate steps to preserve the discretion from the information and

cooperate using the SFC in almost any actions or proceedings trying to preserve the discretion from the information received.

It ought to be noted the suggested changes wouldn’t impose a duty around the SFC to supply help a foreign regulator asking for assistance: it might only provide the SFC a discretion to supply assistance carrying out a request.

Overseas Comparison

Appendix A towards the consultation paper sets out a table showing the extent of assistance permitted to become supplied by government bodies around australia, Singapore and also the Uk and also the scope from the written undertakings needed from the asking for overseas regulator like a condition to provision of these assistance.

The Consultation Questions

The consultation seeks reactions towards the following 4 questions:

Question 1: Have you got what other tips to the plans within this Consultation Paper that could also attain the same objectives the suggested changes to sections 180 and 186 plan to achieve?

Question 2: Have you got any comments around the proposal the reasons of supervisory assistance ought to be restricted to individuals talked about in paragraph 25(b) from the Consultation Paper?

Question 3: Have you got any comments around the proposal the energy to collect information for supervisory assistance reasons ought to be restricted to individuals talked about in sentences 25(a) and (c) from the Consultation Paper?

Question 4: Would you agree that there’s a must have the legal pre-requisite of acquiring written undertakings in the overseas government bodies? Have you got any comments around the scope from the undertakings talked about in paragraph 25(d) from the Consultation Paper?

Response Submission

Your customers should submit comments around the plans on paper on or before 16th The month of january 2015:

i.by on-line submission through the SFC website

ii.by email to:

iii.by publish to:

Intermediaries Supervision Department

Intermediaries Division Investments and Futures Commission

35/F, Cheung Kong Center

2 Queen’s Road Central

Hong Kong

iv.by fax to: +852 2284 4660


1.The SFC’s “Consultation Paper on Suggested Changes towards the Investments and Futures Ordinance for Supplying Help Overseas Government bodies in a few instancesInch of 19 December 2014

2.Section 186(3) SFO.

3.Section 186(5) SFO.

4.Section 3 of Part 1 of Schedule 1 towards the SFO.

5.Section 186(4)(a)(ii) from the SFO.

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