In December 1996, the Main Proposed Revisions to the Draft for the Composite Securities and Futures Bill were released by the Securities and Future Commission (SFC).
The Revisions incorporated the public response to the original Bill issued in April 1996 (see International Financial Law Review, July 1996, page 15), and forms the bulk of the final changes to the Bill that will be submitted to the Legislative Council for consideration. The Bill aims to consolidate the present regulatory regime of the securities industry, replacing eight of the existing 11 Ordinances. The underlying purpose of the Bill is to simplify, rationalize and update existing securities legislation.
The Revisions make material changes to the original Bill, including:
- Supervision of securities dealings by banks: The supervision of banks will remain with the banking regulator, the Hong Kong Monetary Authority (the HKMA), even if they deal in securities. As a result, all capital adequacy and risk management matters relating to securities dealing business will remain with HKMA. However, banks engaging in (i) market conduct associated with public offers and mergers and acquisitions of shares in listed companies and (ii) securities dealing involving retail clients (with assets under management or proposed sale and purchase of an amount less than US$1 million) will need to obtain a licence from the SFC and will come under SFC oversight. If bank staff conducting securities dealings are accredited to a licensed non-bank subsidiary of the bank, this requirement will be deemed complied with and the SFC will then monitor only the licensed non-bank subsidiary without any overlap of regulatory oversight between the SFC and the HKMA. Even if banks themselves wish to obtain the relevant licence, regulatory oversight by the SFC will be restricted to conducting questions arising from such activities while all other aspects of regulation will remain with the HKMA.
- Suspension or revocation of licences: The original provision of the Bill enabling the SFC to suspend or revoke licences before the time for making an appeal expires or an appeal is determined has been withdrawn.
- Cold-calling: The Revisions allow for passive cold calling using letters or facsimiles. Unsolicited in-person calls and telephone calls will not be permitted. Existing customers and professionals will be exempt from these restrictions.
- Civil penalties: The SFC will have the power to impose fines for misconduct up to a maximum of HK$500,000 (US$65,000). This represents a ten fold increase of the current maximum penalty of HK$50,000.
- Criminal offences: The SFC will not have rule-making powers to create or determine what constitutes a criminal act. Such powers will instead vest with the Governor in Council.
Damien Yeow and Edith Chan