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Health check: Do you know what your licensed corporation is doing overseas?

  • Hong Kong
  • Other


Earlier this year, the Securities and Futures Commission of Hong Kong (“SFC”) reprimanded and fined a licensed asset manager (the “Licensee”) HK$1.5 million for failing to comply with local laws and regulations in distributing investment funds and offering investment advice in Taiwan, and for failing to adequately supervise the activities of its licensed representatives.[1]

The SFC conducted an investigation after the former owners of the Licensee were prosecuted and fined for failing to obtain the necessary approvals from the Taiwanese regulator to distribute offshore investment funds and offering investment advice in Taiwan. The SFC found that the Licensee’s licensed representatives lived in Taiwan (visiting Hong Kong only a couple of days each month) and acted as sales persons to distribute investment products and provide investment advice to clients in Taiwan, all with little supervision by the directors and responsible officers of the Licensee. The Licensee had guidelines on cross-border activities but it did not specify the steps to ensure compliance with local laws and regulations.

The failures of the Licensee were found by the SFC to have breached General Principle 7, paragraphs 4.2 and 12.1 of the “Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission”, which require a licensed corporation to comply with, and implement and maintain measures appropriate to ensuring compliance with, the law and applicable regulatory requirements, and to diligently supervise persons employed to conduct business on its behalf.

The SFC’s disciplinary action against the Licensee serves as a reminder to Hong Kong licensed corporations to be mindful of their cross-border activities as overseas regulatory breaches and disciplinary measures could have regulatory and reputational implications in Hong Kong as well. Indeed, this is particularly pertinent in the current COVID-19 environment where a licensed corporation may need to accommodate its licensed representatives and employees working in other countries and unable to return to Hong Kong due to travel and/or lockdown restrictions.

For licensed corporations with business activities overseas and customers located outside of Hong Kong, it would be prudent to seek local legal advice and implement regular “health checks” to ensure compliance with all applicable laws and regulations in the jurisdiction(s) in which it operates.

A licensed corporation should seek appropriate legal advice if in doubt.

[1] SFC press release titled “SFC reprimands and fines Capital Global Management Limited $1.5 million” and dated 14 February 2020.