Jurisdiction - Hong Kong
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Hong Kong – The Securities And Futures (Amendment) Ordinance 2014: New Investigative And Disciplinary Powers Of The SFC And HKMA Regarding OTC Derivative Activities.

29 September, 2014



In this article written by Peter So, Senior Associate at Deacons, we examine the new powers granted to the HKMA and SFC under the Securities and Futures (Amendment) Ordinance 2014, as well as other miscellaneous amendments.

The new regime under the Securities and Futures (Amendment) Ordinance 2014, which will come into operation on a date to be specified by the Secretary for Financial Services, will be jointly overseen and regulated by the Securities and Futures Commission (the SFC) and the Hong Kong Monetary Authority (the HKMA). The HKMA will regulate OTC derivative activities of authorised institutions (AI) and approved money brokers (AMB), while the SFC will regulate OTC derivative activities of licensed corporations (LC) and other prescribed persons.


HKMA’s New Powers

As one of the major changes brought about by the new amendment ordinance, the HKMA is given substantially similar, if not the same, investigative and disciplinary powers as those of the SFC in relation to contravention of the reporting obligation, clearing obligation, trading obligation and record keeping obligation (collectively the Mandatory Obligations) of AI and AMB for their OTC derivative activities. These new powers of the HKMA are modelled on similar powers given to the SFC under the existing provisions of the Securities and Futures Ordinance (Cap 571) (SFO).

If the HKMA has reasonable cause to believe that an AI or AMB may have contravened the Mandatory Obligations, the HKMA and the person directed or appointed to investigate the matter (the MA investigator) can:


  • investigate the matter
  • request the AI, AMB or other persons whom the MA investigator has reasonable cause to believe is in possession of relevant records or documents to produce records and documents and 
  • require the AI, AMB or other relevant persons to attend an interview with the MA investigator

The HKMA’s new investigative powers will be contained mainly in the amended SFO, s 178 and the new sections of SFO, ss 184A–184E and 186A.

The existing SFO, s 187 (use of incriminating evidence in proceedings) has been amended to extend the right to make a claim that the answers might be self-incriminating to persons who are subject to HKMA’s OTC investigations. HKMA’s OTC investigations are also subject to a similar secrecy obligation (new sections SFO, ss 381A–381F).

The HKMA has also been given disciplinary powers similar to those available to the SFC to take action against AI and AMB for breaches of the Mandatory Obligations (mainly through the new sections of SFO, s 203A–203F). Such actions include public orprivate reprimand, prohibition against carrying on the business of OTC derivative transactions and a fine not exceeding HKD 10m or three times the profit gained or loss avoided, whichever is greater.

SFC’s New Powers

The SFC’s investigative and disciplinary powers have been expanded to cover:


  • breaches of the Mandatory Obligations by LC or other prescribed persons (other than AI or AMB) (new section SFO, s 182(da)) and
  • non-compliance by registered systematically important participants (SIP) with the specified requirements of the SFC pursuant to the new section of SFO, s 101X (new section SFO, s 182(db)); such requirements of registered SIPs may include:
    • refraining from increasing or reducing the registered SIP’s exposure arising from its positions
    • collecting collateral or increasing the amount of collateral posted or
    • restricting the use of collateral or type of collateral collected or posted

Miscellaneous Amendments

Two other major amendments have been made to SFO, namely:


  • power is given to the criminal court to make a disgorgement order as a result of commission of market misconduct (amended SFO, s 303), and 
  • market misconduct offences are now subject to the confiscation regime under the Organized and Serious Crimes Ordinance (Cap 455) (OSCO) (amended OSCO, Sch 2)


This article was supplied by Lexis Practical Guidance.


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