Hong Kong watchdog flexes its muscles

The Securities and Futures Commission's new top enforcer has wasted no time making an impact. That's not just right — it's also good for business.

There’s a new sheriff in town and he’s not afraid to take action. Thomas Atkinson, the new enforcer at Hong Kong’s securities regulator, has got off to a rapid start, imposing a series of fines and working as quickly as possible to get through the regulator’s bloated backlog of cases.

Since his appointment on May 3 to the Securities and Futures Commission (SFC) for a three-year term, Atkinson has been hard at work.

UBS revealed on Friday that the regulator was investigating its role as an IPO sponsor, a move that — in the worst case scenario — could lead to the Swiss bank losing its corporate finance licence in Hong Kong. That would be an explosive move by the regulator, which so far has concentrated on working through a long backlog of smaller cases, largely through the use of fines.

Among those fined, BNP Paribas Wealth Management was charged HK$4 million for overcharging its clients between January 2011 and December 2013; Morgan Stanley was fined HK$18.5 million for internal control failures dating back to 2013; HSBC was fined HK$2.5 million for failing to comply with securities and futures rules in a case dating back to July 2014; and JP Morgan was forced to pay HK$5.6 million for breaches including disclosure failures.

Even when the regulator has not imposed fines, it has been happy to publicly reprimand firms. In June, Bank of America Merrill Lynch got a slapped wrist for breaches of the Takeovers Code, namely the partial offer for China Resources Beer and the privatisation of Power Assets Holdings, in which the bank acted as financial advisor.   

These cases, individually, are small. But they have been dragging on for far too long, soaking up the time of Atkinson’s small and overworked team. He has rightly made efforts to sort through the backlog and has made clear in private discussions that he wants to focus on “high-impact” cases. 

There are plenty of those cases for Atkinson to deal with. The UBS probe — just one of many IPO sponsor investigations the regulator has underway — will get a lot of attention. But there are plenty of other areas in Hong Kong's financial system that need cleaning up, including money-laundering.

Hong Kong’s key selling point has long been the fact that it allowed international investors access to China at the same time as providing a transparent, well-respected regulatory regime. But China is increasingly, albeit slowly, opening up its market.  

Thomas Atkinson

Since one half of the Hong Kong stock exchange’s pitch to international investors — access to China’s walled-off market —is slowly eroding as the Middle Kingdom opens up, it needs to put more emphasis on the other half: a strong, well-respected regulatory regime. This is going to be crucial to drive new business.

Senior market participants report that the SFC is taking a much keener interest in whether the companies brought to market are presenting themselves honestly to potential investors in their IPO prospectuses. This is alarming investment bankers who can nowadays be held criminally liable for any lies — no bad thing. 

Derivatives trading and clearing, for instance, is another area that requires a deep and complex web of regulations, and appears one obvious way Hong Kong can stay a step ahead of the Chinese market. Ashley Alder, the chief executive of the SFC, has pinpointed this as being a priority, while acknowledging the complexity of derivatives regulation.

Hong Kong is well placed to handle that complexity. The regulator has an international team, plucked from some of the best-known watchdogs around the world. But it has long had a reputation for taking too long to sort through cases, something that has hindered its ability to react quickly to changes in market access to China.  

For an international market like Hong Kong, smart and swift regulatory action is not just good for investors. It is also good for business. 

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