In Hong Kong’s financial sector, licensed individuals and corporations are expected to uphold high standards of conduct. A breach of internal policies—such as using personal email account for client communication or concealing trade errors—can trigger regulatory investigations and potentially career-altering penalties.

We regularly advise clients on navigating these complex regulatory risks and defending against enforcement action by the Securities and Futures Commission (“SFC”).

Why Breaches of Internal Policies Matter

Under section 182 of the Securities and Futures Ordinance (Cap. 571) (“SFO”), the SFC is empowered to investigate whether a person is guilty of misconduct or is fit and proper to carry on regulated activities. Breaches of internal policies — whether intentional or inadvertent — may prompt  investigations.

Where the SFC concludes that a licensed person is/was guilty of misconduct or is not fit and proper to carry out regulated activities, it may impose disciplinary action against the licensed person under section 194 of the SFO, including suspension or revocation of licences, reprimands, and bans from re-entering the industry.

Self-Reporting Obligations for Licensed Corporations

Pursuant to Paragraph 12.5 of the Code of Conduct for Persons Licensed by or Registered with the SFC, licensed corporations are obliged to self-report, inter alia, any material breach of applicable laws or regulations by their employee. Such obligation also extends to situation where internal investigations are conducted in relation to breaches of internal policy that may call into question of the employee’s fitness and properness to remain as a licensed person.

This duty applies even where internal investigations are ongoing. A self-report often leads to a formal investigation by the SFC.

Recent Enforcement Cases – Key Lessons

The following examples illustrate how internal policy breaches (which may not necessarily amount to criminal offences) can result in serious disciplinary outcomes:

Proactive Steps to Mitigate Risk

For Licensed Individuals:

• Adhere strictly to internal policies and regulatory requirements.
• Actively participate in internal training.
• Seek legal advice early if involved in internal or regulatory investigations.

For Licensed Corporations:

• Establish robust compliance and monitoring systems.
• Establish comprehensive internal policies and procedures.
• Conduct regular staff training on regulatory and internal policy obligations.
• Implement whistleblower and internal reporting mechanisms.
• Conduct legal audits to identify and rectify compliance gaps.

How YTL LLP Can Help

YTL LLP is a trusted advisor to licensed individuals and corporations in navigating SFC-related matters. Our services include:

• Representing clients in SFC interviews and disciplinary proceedings (including mitigating damage);
• Advising on internal investigations and self-reporting obligations; and
• Conducting compliance health checks and staff training.

Facing an SFC Inquiry or Internal Breach? Act Promptly.

Delays in responding to internal investigations or regulatory inquiries can worsen the situation. For guidance on how to respond, please refer to our earlier article, “How to Handle SFC Investigations and Interviews”.

Contact us today to learn how YTL LLP can help you protect your interests and manage regulatory risks.

Tiffany Lee, Of Counsel

(tiffanylee@hkytl.com;   +852 3468 7038)

Ariel Kong, Associate

(arielkong@hkytl.com;    +852  3468 7358)

This article is introductory in nature. Its content is current at the date of publication.  It does not constitute legal advice and should not be relied upon as such. You should always obtain legal advice based on your specific circumstances before taking any action relating to matters covered by this article. Some information may have been obtained from external sources, and we cannot guarantee the accuracy or currency of any such information.