Conflicting Legal Advice Seen to be Hampering SFC's Enforcement Cases, Report Finds

Hong Kong's securities regulator could speed up the handling of enforcement cases by improving the way it obtains legal advice, a report has found. 

The report recommended that the Securities and Futures Commission ("SFC") should put in place an effective system to improve the way it obtained legal advice from outside counsel, a process which, it said, could at times be lengthy and lead to the provision of conflicting advice when counsel was sought from more than one source. 

The SFC could also improve the way it prioritised important cases, communicated priorities internally and liaised with overseas regulators, especially in mainland China, the report said. 

The report was issued late last month by the Process Review Panel, an external body tasked with reviewing the SFC's operations. The PRP occasionally makes recommendations to improve the regulator's operational efficiency. 

Duplication of Efforts

In its latest report, the PRP surveyed some 20 enforcement cases which closed in 2015, and found that the processing time for those cases had taken anything from one month to 5 years and 11 months. In most of the lengthy cases, the SFC was found to have spent more than half of the processing time obtaining legal advice from its own in-house counsel, external counsel and the Department of Justice, and collecting evidence from suspects and witnesses living outside of Hong Kong. 

In one case, the SFC completed its fact-finding within 14 months but spent a period of three years and six months seeking advice successively from a range of different sources. The investigation process had also been delayed at various stages as a result of staff departures, heavy workloads, changes in counsel and a decision to obtain external legal advice, the report said. 

"The [SFC] should monitor the overall progress … to keep in view the advice given to avoid any duplication of efforts between the in-house team and external counsel," the report suggested. It also said the regulator should set down guidelines on how to handle potentially conflicting legal advice from different parties, and should designate case officers to bring investigations forward. 

In a response to the report's findings, the SFC said that a memorandum of understanding between the SFC and the Department of Justice, signed in March this year, would help speed up future case resolutions.

The regulator also said that multiple rounds of legal advice were sometimes unavoidable, as it often found it needed to seek additional advice once it had considered the first piece of legal advice. 

Year-on-Year Rise in Enforcement Cases

The report has come amid a year-on-year rise in the number of enforcement cases completed by the SFC, seen by some in the market as an effort by the regulator's new head of enforcement, Thomas Atkinson, to clear out a backlog of enforcement actions and focus on high-impact cases.

In recent weeks, both UBS and Standard Chartered have announced that they are under investigation by the SFC in connection with their roles as sponsors of initial public offerings in Hong Kong. The territory enacted a stricter regulatory regime for listing sponsors in 2013, including criminal liability for misrepresenting information in an IPO prospectus.


North Asia editor for Thomson Reuters Regulatory Intelligence. He is based in Hong Kong.