The SFC recently completed a review (“Review”) of the risk management practices and control measures of selected licensed corporations (“LC”s) in relation to their initial public offering (“IPO”) subscription and financing services. A circular dated 20 March 2025 set out the findings of the Review and provides guidance to LCs on the expected standards of conduct.

An Executive Summary of the Review

1. Key Findings from the Review

The Review identified the deficiencies including lenient credit control in assessing clients’ financial capabilities, imprudent IPO financing, thus rendering the LCs to risk exposure levels beyond their anticipation.

(1) Credit controls are too lenient

the LCs over-emphasized on the subscription levels rather the assessment of the clients’ financial capacities, resulting in over-leverage for clients, subject the LCs to increased client default risk;
practices observed like applying high multiplier to clients’ account balances based on some pre-set leverage ratios without written justification ;

(2) IPO funding arrangement

some LCs collected minimal upfront subscription deposits on non-fully funded IPO subscription orders, while relying on house money to meet pre-funding requirement, putting significant pressure on the liquidity level of the LCs;

(3) Handling subscription deposits

the LCs failed in proper and timely segregation of the subscription deposits received from the clients that were not placed with the designated banks for pre-funding confirmation; causing under-segregation of client monies in segregated bank accounts;
the LCs failed in timely segregation of the client money released from designated banks after the balloting process and before returning to clients within one day after receiving the receipts by the LCs;

2. The Regulatory Guidance

With the aim to mitigate excessive exposure for the investors, some expected standards of conduct are set out in particular with respect to FRR capital requirements and relevant internal control measure.

(1) For IPO financing activities, the LCs should:

assess the financial capabilities of the clients, and collect minimum upfront subscription deposits of not less the 10% of the subscription amounts;
conduct financial and liquidity assessment prior to offering any IPO financing activities to the clients, including estimation of the maximum amount of IPO financing as well as the utilization of any external sources of financing clients’ subscriptions;

(2) For Segregation of subscription deposits

LCs are reminded to properly segregate upfront subscription deposits that are not placed with designated banks for pre-funding confirmation;

3. Other important points with compliance Issues

(1) Investor identification requirement under FINI

to ensure the Client Identification Data (“CID”) submitted to FINI for IPO subscriptions is accurate;
to prevent clients from submit multiple subscription orders;

(2) Computation of liquid capital

the LCs which provide IPO financing facilities to clients for pre-funding confirmation should follow the guidance set out in the circular with respect to FRR rules and requirements;

FINAL REMINDER

LCs should critically review their existing policies and procedures to ensure proper implementation of and full compliance with this circular for IPOs with offering periods commencing after the date of this circular.

SIGNIFICANCE:

LCs are advised to pay attention to this circular which outlines the perspective of the SFC in relation to imprudent IPO financing and its adverse impact on FRR compliance of the LCs; it is of top priority to strike a balance between risk, viability and compliance as the pendulum needs to swing to sustain the momentum rather than staying at either side.

2. SFC proposes enhancements to targeted tools to address corporate misconduct

On 28 March 2025, the SFC began a consultation on proposed enhancements (“PPEH”) for the relating to Securities and Futures (Stock Market Listing) Rules (“SMLR”) for IPO cases and post-IPO matters, aiming to improve regulatory efficiency and providing protection for investors at large.

In the wake of the SMLR review, the PPEH was put forward to ensure the SFC with sufficient targeted tools to encourage that the listed issuers and listing applicants to make more transparent & accurate disclosures, as well as addressing misconduct.

The key PPEHs to the SMLR comprise of FOUR areas:

(1) for IPO cases: listing applicants are required to meet continuing disclosure obligations post-listing without the SFC’s objections to the listing, given that the listing conditions remain effective after listing. It is expected that some applications can be expedited with increased transparency with this bespoke disclosure requirement;

(2) for post-IPO matters: apart from the existing power to execute suspension of dealing in the securities, the SFC would be able to impose post-listing conditions on a listed issuer, requiring for more transparent and complete disclosures in order that investors can make more informed decisions;

(3) for trading suspension: to shorten the suspension time through proposed simplified procedures to handle application for trading resumption more efficiently;

(4) for issuers unsatisfied with SFC’s decisions: the aggrieved party would have the right to seek for a review by the Securities and Futures Appeals Tribunal, providing an independent safeguard to the aggrieved that the decisions made by the SFC are reasonable and fair.

SIGNIFICANCE:

The merits of these PPEHs can be summarised by what Mr. Michael Duigan, the SFC’s Executive Director of Corporate Finance, has said, “Investors and listed issuers alike stand to benefit from these comprehensive enhancements to drive regulatory and operational efficiencies in Hong Kong’ s listing market as a favourite listing destination for companies at home and abroad.”

The above PPEHs, despite its name as targeted tools for the SFC to address misconduct, are actually beneficial arrangements to both the issuers and the investing public by strengthening public accountability and streamlining the regulatory process on one hand; whereas further consolidating the execution authority of the SFC in implementing the policies and procedures with more flexibility.

Market News

3. Hong Kong capital markets showed high achievements in 2024

A Quarterly Report (Q4) of the SFC in March showed that strong asset management sector and enhanced market connectivity amidst improving investor sentiments boosted the Hong Kong capital markets to end with high scores.

Some key takeaways of the achievements:

(1) The average daily turnover of ETFs surged 35% year-over-year to HKD18.9 billion with net inflows of HKD22.8 billion for the year;

(2) Net inflows of HK-domiciled funds were up 88% to HKD 162.9 million with asset managed up 22% HKD1.64 trillion;

(3) Cross-listing of two Hong Kong ETFs in Saudi Arabia with combined market capitalization of USD1.6 billion as of December;

(4) Enhancement of the ETF Connect and the Mainland-Hong Kong Mutual Recognition of Funds scheme bolstered the fund sales in HK since January 2025;

(5) Stock Connect saw 55% jump in average daily southbound trading to HKD48.2 billion, more than 18% of turnover in HK, with net inflows hit a 10-year high of HKD807.9 billion;

(6) Total number of licensed corporations was up 1.5% with number of license applications up 15% as end of 2024;

(7) The number of SFC licensed VA trading platforms was up three more to a total of 10; and the launch of “ASPIRe” roadmap further navigated the development of the VA regime in HK;

(8) Step up of investor education and combat investment fraud, in December, the SFC launched a fresh anti-scam publicity campaign titled “Don’t be Sucker” through the mass media to arouse public alertness.

SIGNIFICANCE:

Undoubtedly, the support from Mainland is second to none as a driver for the success in Hong Kong. And to conclude the achievements, Ms Julia Leung, the SFC’s CEO, said, “Building upon the progress, the SFC will remain committed to facilitating developments and fostering innovation for our markets while upholding their integrity and quality.”

4. HKEX and Exchange Fund collaborate on development of fixed-income and currency (FIC) ecosystem

The Hong Kong Exchanges and Clearing Limited (“HKEx”) has been providing an unrivalled connectivity between China and the rest of the world, and diversifying the business of the exchange to make it more resilient to volatility and prepared for opportunities. The HKEx has established the most comprehensive product ecosystems in Asia, and it continues to work. For the cash equity market, complemented by the equity derivatives franchise, the HKEX has provided the clients with one-stop-shop to trade and manage risk. Going further, the HKEX will be focusing on driving fixed-income and currency (“FIC”) market development to cultivate a similar ecosystem or this asset class.

Mainland China’s fixed-income market, at USD24.6 trillion, ranks the second largest in the world. With strong policy support, it is expected that the growth trajectory of Mainland’s FIC market to continue and connectivity with offshore market. Two cornerstones of market liquidity and resilience:

(a) Diverse investor base: Bond Connect is a key channel for international investors to gain access to China’s domestic fixed income market, given the average daily turnover of its northbound broke records since its launch in 2017.

(b) Well-functioning derivative market: allowing investors to effectively and efficiently manage their risks.

On 4 March 2025, the HKEx marked a new milestone in building HK’s FIC ecosystem with the announcement to collaborate with CMU OminClear Limited (“CMU OmniClear”).

CMU OmniClear , a wholly-owned subsidiary of the Exchange Fund with USD610 billion assets under custody, and HKEX signed a MOU on that date to deepen their collaboration in enhancing the post-trade securities infrastructure of the Hong Kong’s capital markets, and supporting a long-term development of the fixed-income and currencies (FIC) ecosystem. Key points of the MOU are that the two parties will explore and pursue cooperation in the following areas:

(i) realising cross-asset class efficiencies across equities and fixed income;

(ii) expanding the use of Mainland bonds as collaterals;

(iii) enhancing HK as a bond issuance centre;

(iv) developing an international centre securities depository (“ICSD”) in Asia;

SIGNIFICANCE:

This MOU sets an important milestone and a commitment from both parties to the development of the capital markets, and also for building a vibrant FIC ecosystem in HK. Moreover, through the MOU, the HKEX, HKMA and the CMU OmniClear are collaborating to enhancing the development of HK’s fixed-income market, materializing the RMB internationalization and consolidating HK as an international financial centre as well as an offshore RMB business hub.

5. Hong Kong’s securities industry posted broad-based growth in 2024

On 26 March 2025, the SFC published that from a report on the financial review of the securities industry, it showed that the securities industry demonstrated a remarkable resilience in financial performance in 2024 with total net profits up 56% year-on-year to HKD44.4 billion. The encouraging findings are as below:

(i) earning growth of 11% increase in total income to HKD222.6 billion;

(ii) the total value of transactions of all securities dealers and securities margin financiers jumped 34% to HKD144.1 trillion;

(iii) broad-based growth across different categories: securities commission up 18% to HKD20.2 billion; asset management income up 14%to HKD37.5 billion, and underwriting and placing of securities (up 18% to HKD11.1 billion).

For details of the financial review, it is available on the website.

6. Hashkey Capital was granted type 1 license by the SFC

On 18 March 2025, HashKey Capital was granted a Type 1 license from the SFC on top of its Type 9 (providing discretionary account management) and Type 4 (providing advisory service on securities and virtual asset investments) licenses. Under the new Type 1 license, HashKey Capital can now offer brokerage services to both retail and professional investors, as well as marketing and distributing funds including those related to virtual assets.

With the addition of Type 1 license, HaskKey Capital can now offer a broader range of services which can be classified into three major categories:

(1) Market access: providing brokerage services to two markets between crypto exchanges and brokers;

(2) Investment funds: its clients now have the access to funds with diverse strategies;

(3) Structured products: its clients are now provided with access to diverse suite of structures products

HashKey Capital is now able to serve investors with more diversified goals and trading strategies.

Enforcement News

7. SFC obtains disqualification order against former financial controller of Anxin-China Holdings Limited

SFC has successfully obtained a court order disqualifying Ms. Yang Shuyan, the former financial controller of Anxin-China Holdings Limited (“Anxin”, 01149.HK), from serving as a director, liquidator, receiver, or manager of any listed or unlisted corporation in Hong Kong, or being involved in their management, for three years. This ruling, effective without court permission, stems from her admitted failure to uphold the required standards of skill, care, and diligence in her role.

Case Details:

The Court of First Instance issued the order following Ms. Yang’s admission that she did not adequately oversee Anxin’s financial reporting. Between 2011 and 2015, the company significantly overstated its cash position, with discrepancies amounting to $1.26 billion in 2012 and $1.73 billion in 2013, as reflected in its audited financial statements. To mask these inaccuracies, false bank records were supplied to auditors during a 2014 audit.

As financial controller, Ms. Yang was tasked with ensuring the accuracy of Anxin’s financial statements and overseeing the audit process. However, she failed to take reasonable steps to verify the company’s cash reserves or investigate discrepancies identified by auditors. Additionally, as a member of a special team formed to probe these inconsistencies, she accepted the team’s findings without scrutiny, neglecting to raise concerns about cash flow irregularities or the integrity of senior management.

The court described her negligence as "nothing short of breath-taking," emphasizing that such large-scale financial misstatements could not have occurred without gross oversight on her part.

SIGNIFICANCE:

Mr. Christopher Wilson, SFC’s Executive Director of Enforcement, commented:

“The role of financial controllers in listed companies is pivotal to ensuring the integrity of financial reporting. Professional scepticism is not just a best practice; it is an essential duty. Financial controllers must approach their responsibilities with a critical mindset, actively questioning and verifying financial information to protect stakeholders.”

This is not the first instance of regulatory action against Anxin’s leadership. In June 2021, SFC secured an eight-year disqualification order against a former executive director of the company, as part of broader proceedings against its senior management. These repeated interventions signal the severity of governance issues at Anxin and SFC’s resolve to address them.

The disqualification of Ms. Yang serves as a powerful reminder of the responsibilities financial professionals bear in safeguarding stakeholder trust. Her failure to exercise professional scepticism and diligence led to significant misrepresentations that undermined the company’s credibility and misled investors.

For further details of the case, please refer to - Case No.: HCMP314/2020

8. SFC seeks disqualification and compensation orders against entire former board of 3DG Holdings (International) Limited

SFC has initiated legal proceedings in the Court of First Instance against eight former directors of 3DG Holdings (International) Limited, previously known as Hong Kong Resources Holdings Company Limited (“HK Resources”, 02882.HK), which listed on the Main Board of Stock Exchange of Hong Kong since 30 June 2003. SFC is seeking disqualification and compensation orders for their alleged failure to prevent the misappropriation of $74.4 million in corporate funds.

There are in total of eight directors (5 Executive Directors & 3 Non-Executive Directors), all serving on the board at the time of the alleged misconduct.

Allegations of Misconduct

SFC’s investigation revealed that on 8 June 2017, HK Resources acquired a company with a money lender’s license. Between June 2018 and March 2019, the company issued 12 loans totalling $74.4 million through this new money lending business, all of which defaulted. SFC alleges that the acquisition and subsequent loans were part of a scheme to misappropriate HK Resources’ cash.

Legal Action and Potential Consequences - SFC is seeking:

Compensation Orders: To recover the $74.4 million paid out for the loans, with the directors potentially liable individually or jointly.
Disqualification Orders: To bar the directors from serving in corporate management roles for up to 15 years, under Section 214(2)(d) of SFO.

SFC claims the directors breached their duties by failing to exercise proper skill, care, and diligence in their roles.

SIGNIFICANCE:

This case highlights SFC’s commitment to upholding corporate governance and protecting shareholders. The outcome could influence future standards for director accountability in Hong Kong’s financial markets.

9. SFC obtains disqualification orders against former executive directors of Tech Pro Technology Development Limited

On 20 January 2025, SFC has won disqualification orders in the Court of First Instance against three former executive directors of Tech Pro Technology Development Limited (“Tech Pro”, 03823.HK) for failing to oversee a joint venture, resulting in significant financial losses.

Directors Penalized

Mr. Li Wing Sang (former Chairman and Executive Director): Disqualified for 7 years.
Mr. Liu Xinsheng (former Executive Director): Disqualified for 7 years.
Mr. Chiu Chi Hong (former Executive Director): Disqualified for 4 years.

Case Details

SFC’s investigation revealed that Li, Liu, and Chiu failed to properly supervise a joint venture, leaving its management to the mainland partner. Li and Liu served as director and supervisor of the venture, respectively, while Chiu had no direct role in it. Their lack of oversight allowed the partner to misappropriate over RMB 300 million. Worse still, the partner didn’t pay rent for a Shanghai building (the venture’s main asset), leading to a mainland court order terminating its sub-leasing rights. This wiped out Tech Pro’s investment, and the directors were oblivious to the legal proceedings.

The disqualification orders bar Li, Liu, and Chiu from acting as directors, liquidators, receivers, or managers, or being involved in managing any listed or unlisted corporation in Hong Kong. For Li and Liu, this lasts until 2032; for Chiu, until 2029.

SIGNIFICANCE:

SFC’s Executive Director of Enforcement, Mr Christopher Wilson, said: “As executive directors of the company, they should be responsible and accountable for managing the financial and operational status of the joint venture. Any delegation of the management of the joint venture to the mainland partner would not exonerate their fiduciary duties and obligation to act in the best interests of the company and safeguard its assets.”

“These judgments reinforce the SFC’s commitment to upholding the highest standards of corporate governance and individual accountability in protecting the interests of investors and ensuring market integrity.” Mr Wilson added.

The disqualifications which barring the trio from corporate roles in Hong Kong highlight the importance of diligent oversight in joint ventures and SFC’s resolve to maintain market integrity.

For further details of the case, please refer to - Case No.: HCMP 2068/2020

10. SFC suspends a Finfluencer for 16 months for unlicensed investment advice on Telegram

SFC has suspended Mr. Wong Ming Chung, a financial influencer known as Franky Wong, for 16 months, from 19 March 2025 to 18 July 2026. Wong, a licensed representative of Tse’s Securities Limited (“TSL”), was penalized following his criminal conviction for providing investment advice through a subscription-based Telegram chat group without the proper license.

Case Details

Between 2 January 2018 and 21 May 2019, Wong operated the Telegram chat group in his personal capacity, offering investment advice without the requisite licensing. This led to his conviction on 20 June 2024, where he pleaded guilty, receiving a $10,000 fine and an order to pay SFC’s investigation costs.

Although Wong held SFC licenses for Type 1 (dealing in securities) and Type 4 (advising on securities) regulated activities and has been accredited to TSL since 20 August 2010, he was only authorized to act on behalf of TSL.

Under the SFO, "advising on securities" is a regulated activity requiring an SFC license. Sections 114(1)(a) and 114(8) of the SFO make it an offense to carry on such a business without proper licensing, barring a reasonable excuse. Wong’s operation of the Telegram group violated these provisions, leading to his conviction.

SFC determined that Wong’s actions rendered him unfit to remain licensed to conduct regulated activities. However, in deciding the 16-month suspension, SFC took into account Wong’s cooperation in addressing their concerns.

SIGNIFICANCE:

Mr. Christopher Wilson, SFC’s Executive Director of Enforcement, issued a stern warning to investors: “Investors should remain vigilant and exercise caution when availing themselves of information shared by finfluencers. Some finfluencers who provide investment-related content on social media and other online platforms may in fact be conducting regulated activities for which they need to be licensed by SFC. Finfluencers who are not licensed may not adhere to SFC’s requisite standards of conduct and accountability, and investors may suffer by relying on their advice.” He further advised: “Before acting upon an investment advice, investors should ensure that firms and individuals who provide the advice are properly licensed.”

Wong represents a growing trend of finfluencers who use social platforms like Telegram to share investment-related content. This case highlights the risks of relying on unlicensed advice and reinforces SFC’s commitment to protecting investors by enforcing strict regulatory standards.

11. SFC fines Enlighten Securities Limited $5 million for securities margin financing failures

SFC has taken disciplinary action against Enlighten Securities Limited (“ESL”), imposing a $5 million fine and a reprimand for serious internal control lapses in its securities margin financing operations. Additionally, Mr. Denny Kua Kong Chak, a responsible officer (“RO”) and senior manager at ESL, faces a seven-month suspension of his licence, effective from 21 March 2025 to 20 October 2025.

Case Details

SFC’s investigation uncovered multiple deficiencies in ESL’s risk management practices over margin financing during the period of 1 May 2020 to 30 November 2022. The key issues included:

No safeguards to halt further securities purchases by clients with insufficient equity in their accounts.
Weak margin call enforcement, including a failure to liquidate positions when necessary and inadequate documentation for policy deviations.
Inadequate oversight of clients’ credit limits.
Delayed action on collecting overdue margin payments.

These failures breached the Internal Control Guidelines, the Code of Conduct, and the Guidelines for Securities Margin Financing Activities, standards that ESL, as a licensed entity under the SFO, was obligated to meet.

Consideration behind the Penalties

SFC’s decision was influenced by several factors:

Recurring issues: Similar problems were flagged by SFC in 2015, yet persisted into 2022.
Prior warnings: ESL received reminders from SFC in 2015 and 2022 to tighten its risk management practices.
Kua’s responsibility: His oversight failures as a senior manager were a significant factor.
Financial context: ESL’s decision to cease operations and its financial state led to a reduced fine (from a potential $6.5 million).
Deterrence: SFC aimed to send a clear message to the industry about the importance of robust controls.
Clean records: Both ESL and Kua had no prior disciplinary history, a mitigating factor.

SIGNIFICANCE:

This case highlights SFC’s commitment to enforcing prudent risk management and holding both firms and their leaders accountable, particularly in high-stakes areas like margin financing. The penalties serve as a warning to other licensed corporations to prioritize compliance or face serious consequences.

For further details of the case, please refer to - STATEMENT OF DISCIPLINARY ACTION

12. SFC bans former RO of Kylin International for private fund management failure

SFC has barred Mr. Steven Wong Yung, former Responsible Officer (“RO”) and CEO of Kylin International (HK) Co., Limited (“Kylin”), from the industry for 14 months, from 18 March 2025 to 17 May 2026. The sanction stems from his failure to properly manage private funds under Kylin’s oversight.

Case Detail:

Between August 2018 and July 2021, Kylin acted as the investment manager and/or consultant for sub-funds of a Cayman-incorporated fund. Wong, who served as RO for Type 9 (asset management) regulated activity from 2016 to 2023, was tasked with overseeing Kylin’s operations and internal controls.

SFC found that he :

Failed to ensure Kylin maintained appropriate standards of conduct and adhered to proper procedures in managing the funds.
Did not adequately manage risks tied to Kylin’s business.

These lapses fell short of the standards expected of an RO and senior manager, roles in which Wong also served as manager-in-charge for critical functions like compliance, risk management, and overall oversight.

The Penalty

Wong’s industry ban reflects SFC’s stance on accountability. In determining the 14-month duration, SFC considered:

His cooperation in addressing their concerns.
His clean disciplinary record prior to this incident.
Wong, no longer licensed by the SFC as of 30 November 2023, cannot re-enter the industry until mid-2026.

SIGNIFICANCE:

Kylin ceased regulated activities on 31 December 2023, and its licence was revoked by the SFC on 22 January 2025 at the firm’s request. SFC’s action against Wong ties into broader disciplinary proceedings against related entities involved with the same funds. Details of these failures remain under wraps until those cases conclude.

This ban underscores SFC’s commitment to holding senior management accountable for fund oversight failures. It’s a reminder that ROs must proactively manage risks and uphold rigorous standards to protect investors and maintain market integrity.

[End of ComplianceOne Newsletter – March 2025]

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