HKMA issues guideline on exercising disciplinary power to order pecuniary penalty under the Securities and Futures Ordinance (Chapter 571)
The Securities and Futures Ordinance (Chapter 571) ("SFO") regulates the financial products, securities and futures market and industry in Hong Kong. The SFO also provides a comprehensive civil and criminal regime to address misconduct in the financial markets. On 30 September 2016, the Hong Kong Monetary Authority ("HKMA") published a guideline on exercising disciplinary power to order a pecuniary penalty under the SFO ("Guideline"). The Guideline was issued by notice in the Gazette (G.N. 5461/2016) under Section 203C(1) of the SFO in respect of the OTC derivatives regime in Hong Kong.
Summary of the Guideline
Pursuant to Section 203A of the SFO, HKMA has the power to order a pecuniary penalty in circumstances where an authorised financial institution or approved money broker ("Relevant Institution") has breached any of the reporting, clearing, trading or record keeping obligations (together, "Obligations") to which it is subject. All decisions to order a pecuniary penalty will usually be publicised by HKMA as a matter of policy.
Section 203C(1) of the SFO further requires HKMA to publish the relevant guidelines that set out the manner in which it proposes to exercise its disciplinary power to order a pecuniary penalty. HKMA is required to have regard to the published guidelines when exercising such power.
Other than the requirement that there be factors that must be taken into consideration by HKMA, there is no indication that any one or more of the other factors have greater significance than the others and will be taken into consideration at HKMA's discretion and if relevant to the particular case.
HKMA will take into consideration the following factors in exercising its power to order a pecuniary penalty:
(a) the order for pecuniary penalty should act as a deterrent to the Relevant Institution as well as other authorised financial institutions and money brokers from contravening their Obligations;
(b) the fine is determined at HKMA's sole discretion and will not necessarily be capped by the level set in Section 203A(1)(c)(ii);
(c) the financial resources of the person subject to disciplinary action ("Disciplined Person") such that the pecuniary penalty will not put such Disciplined Person in financial jeopardy;
(d) the seriousness of the contravention will be taken into account in determining the likelihood and size of the pecuniary penalty; and
(e) all the circumstances of the case.
Factors that must be taken into consideration
The factors that HKMA must take into consideration relate directly to the conduct of the Disciplined Person and these are set out at paragraph 9 of the Guideline as follows:
(a) whether the conduct was intentional, reckless or negligent;
(b) whether the conduct damaged the integrity of the securities and futures market or was potentially damaging or detrimental to the integrity of the securities and futures market or the financial stability of Hong Kong;
(c) whether the conduct caused loss to, or imposed costs on, any other person; and
(d) whether the conduct resulted in a benefit either to that person subject to disciplinary action or any other person.
Other factors (if relevant)
HKMA will also take into account the factors set out at paragraph 10 of the Guideline (if relevant to the particular case):
(a) factors related to the nature, seriousness and impact of the contravention;
(b) the conduct of the Disciplined Person after the contravention i.e. whether any remedial steps have been taken and the degree of cooperation with HKMA and other competent authorities or law enforcement agencies;
(c) any relevant previous disciplinary record and compliance history of the Disciplined Person or any action taken (or likely to be taken) by other competent authorities for the same incident;
(d) whether HKMA has issued any guidelines in relation to the conduct in question;
(e) any action taken by HKMA and other competent authorities in previous similar cases;
(f) whether the conduct is widespread in the relevant industry;
(g) the Disciplined Person's experience in OTC derivatives; and
(h) whether Disciplined Person has promptly, effectively and completely brought the contravention to HKMA's attention and the reasons for the disclosure.
THE DELTA REPORT
 HKMA expressly states that this is not an exhaustive list and that some of the factors may not be applicable to a particular case but there are others that have not been included in the list which may be applicable (Guideline, paragraph 10).
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