Misconduct "Away From Home"

The Securities and Futures Commission's "Statement of Disciplinary Action", attached to its Press Release dated 14 February 2020 (in the matter of a locally licensed company "CGML"), is another reminder to the market that non-compliance with applicable overseas laws and regulations, when conducting business abroad, is relevant to whether a licensed person is t and proper. This general principle should be of interest to regulated and professional persons generally.

Representatives of the company are stated to have conducted investment business in Taiwan in contravention of local securities legislation. Following action taken by a prosecution authority in Taipei, the SFC conducted its own investigation, which con rmed that the company's licensed representatives had conducted investment business for clients in Taiwan without obtaining proper prior approval.

The company's conduct in Taiwan constituted a breach of General Principle 7 ("Compliance") and paragraphs 4.2 ("Staff supervision") and 12.1 ("Compliance – in general") of the SFC's Code of Conduct – which (among other things) require a licensed entity to ensure compliance with all applicable laws and regulations, including the requirements of any regulatory authority.

As a result of the SFC's investigation, the company was ned HK$1.5 million and given a public reprimand, pursuant to s. 194 of the Securities and Futures Ordinance (Cap. 571). It is noteworthy that the SFC did not impose a larger ne (potentially up to HK$10 million) or impose a more serious sanction.

The SFC's Press Release and Statement of Disciplinary Action is a timely reminder of its Circular titled "Regulatory Compliance regarding Cross-border Business Activities" (28 January 2014) which, with respect to paragraph 12.1 ("Compliance") of the Code of Conduct, states:

"This general obligation to observe legal and regulatory requirements applies to activities conducted by the licensed person whether in or outside Hong Kong, with respect to all applicable requirements of any relevant regulatory authority". (emphasis added)

These regulatory requirements are particularly important with respect to a licensed entity's or registered person's duty to supervise their staff or any person appointed to conduct business on their behalf.

For solicitors, it is worth remembering that their conduct duties apply as much when practising outside of Hong Kong as they do when practising in Hong Kong, with "any modification necessitated by local conditions". Where it is not possible to reconcile a material difference between foreign and local conduct rules, a Hong Kong solicitor should observe the standards of conduct applicable to the jurisdiction concerned to the extent that this can be done without infringing the rules applicable in Hong Kong and without hindering the proper exercise of his or her profession ("The Solicitors' Guide to Professional Conduct", Principle 1.08 – "Practice Outside Hong Kong").


Senior Consultant and Accredited Mediator, RPC

A commercial disputes lawyer with over 35 years' experience, David has extensive experience in handling the defence of professional indemnity, financial lines and other special risks claims as well as advising insurers in relation to such claims.

David has worked on the defence of claims in various jurisdictions including England, Hong Kong, Singapore, Malaysia, the PRC, Taiwan, Bermuda and the BVI.  He also has significant experience in handling regulatory and disciplinary matters.

He has considerable experience providing general risk management advice to professionals such as accountants, solicitors, insurance brokers, surveyors and stock-brokers. 

Most recently, he has been developing a practice as a commercial mediator. David is accredited as a mediator by both the Centre for Effective Dispute Resolution (CEDR) and the Hong Kong Mediation Accreditation Association Limited (HKMAAL).