Hong Kong gets tougher on enforcement

Hong Kong has been taking a much more aggressive approach to enforcement of financial industry regulations than it has in the past, imposing stricter penalties on breaches, delegates heard at the PE Asia CFO & COO Conference in Hong Kong.

Private equity is a comparatively new industry in Asia, but the surge of capital into the region has made Hong Kong regulators realise that a laissez faire approach to enforcement will no longer work.

“They want to protect the reputation of Hong Kong,” said Kapil Kirpalani, legal counsel at Ortus Capital Management. “Hong Kong realises that it must take the lead in giving confidence to investors that this is a good jurisdiction.” 

The renewed emphasis on enforcement means that private equity firms will have to begin offering much more transparency to Hong Kong regulators, Kirpalani said. 

“The only way to keep the regulators from your door is to give them the comfort that you have your own system of checks and balances in place.”

Regulators have been active in prosecuting breaches of regulations, and the penalties handed down have been closer to the maximum allowed, he added. 

The Securities and Futures Commission (SFC) has handled about 70 cases so far in 2012, according to its website. The penalties have ranged from fines to jail terms to being banned from the financial industry.

In November, a former CITIC Pacific senior executive, Simon Chui Wing Nin, was fined HK$1.2 million and sentenced to 18 months in prison for insider dealing; and Polly Sun Chor Fun, a former officer of Grand Capital Asia, was in June sentenced to two years in prison and banned from the industry for life for fraud conspiracy, according to the SFC website.

The Hong Kong law authorising criminal penalties for financial crimes, the Securities and Futures Ordinance, was passed in 2003. But the first conviction came only in 2009 when former Morgan Stanley employee, Du Jun, was convicted of insider dealing.

The case marked the first time that someone was actually thrown in jail over a securities crime in Hong Kong, said William Hay, general counsel at Baring Private Equity Asia, who was also on the panel.  

When the ordinance was first passed, there was a lot of pushback from local private equity firms and other financial institutions, but Hong Kong has stuck by the law. “Once the law was passed, the direction was clear,” Hay said.

Kirpalani added that Hong Kong’s aggressive approach is set to continue because in the context of Asia, officials have seen the need for a rigorous regulatory system. “Hong Kong is trying to stand on its own two feet.”

Hong Kong currently ranks as the 14th least corrupt jurisdiction in the world, according to Transparency International’s recently released Corruptions Perception Index 2012. However, more than half of all countries in Asia scored below the world average.