SFC Regulatory Alert: Court reaffirms procedural safeguards and fairness YTL LLP

The recent judgment in Securities and Futures Commission v oOo Securities (HK) Group Ltd ([2025] 5 HKLRD 934) represents a watershed moment for regulatory litigation in Hong Kong. The Court of First Instance (CFI) has delivered a robust reinforcement of the Securities and Futures Commission’s (SFC) investigative powers, while simultaneously clarifying the strict procedural boundaries the regulator must respect.

For General Counsel and Compliance Officers of Licensed Corporations (LCs), this case is an essential study in the risks of “inherited” regulatory liability during management transitions and the high evidentiary bar required to establish a “reasonable excuse” for non-compliance.

Background

The proceedings arose from an SFC investigation into suspected fraudulent IPO schemes involving several companies between 2018 and 2020. The defendant, oOo Securities (HK) Group Ltd (formerly AMTD Global Markets Ltd), was a corporation licensed for Type 1, 4, and 9 regulated activities.

The SFC issued four notices under Section 183 of the SFO between July 2021 and January 2023, requiring the production of voluminous records. The litigation intensified as the firm underwent a total change in ownership and management in late 2022, shortly after which critical records were allegedly moved to Beijing and lost in a storage incident. The SFC sought statutory orders to compel compliance and punish the firm for what it deemed incomplete or non-existent responses.

Statutory Framework

The litigation centered on the interface between the SFC’s power to demand information and the Court’s power to punish non-compliance.

Section 183(1) SFO (Investigative Notices): Empowers SFC investigators to require a person under investigation to produce any record or document relevant to an inquiry. This extends to providing “an explanation or further particulars” and providing “all assistance… [the person] is reasonably able to give”.
Section 185 SFO (Applications to Court): When a person “fails to do anything” required under section 183, the SFC may apply to the CFI for an inquiry into the failure. The Court conducts a dual-track inquiry:
- Section 185(1)(a): A civil-standard inquiry into whether a compliance order should be made.
- Section 185(1)(b): A quasi-criminal inquiry into whether the failure was without reasonable excuse and should be punished in the same manner as contempt of court.

Analysis

The judgment clarifies that the SFC must navigate two distinct evidentiary standards when seeking both compliance and punishment.

The Compliance Track (section 185(1)(a))

Standard of Proof: The SFC bears the legal burden to prove failure on the balance of probabilities.
Reasonable Excuse: The burden shifts to the defendant to prove a “reasonable excuse” on the balance of probabilities. The Court objectively assesses if the excuse is genuine and whether a reasonable person would accept it to justify non-compliance.
Judicial Discretion: The Court retains the discretion to refuse an order if compelling compliance would be “oppressive” to the recipient, which is a “high test”.

The Contempt Track (section 185(1)(b))

Standard of Proof: Because of the penal consequences, the burden is beyond reasonable doubt.
Existence and Possession: The SFC must prove that requested documents existed and were in the defendant’s possession or control at the time of the notice.
Evidential Burden: The defendant carries only an evidential burden to raise a reasonable excuse; the SFC must then disprove that matter beyond reasonable doubt.

Key Findings: Service, Secrecy, and Fairness

Defeating Service by Email via Section 378

The SFC’s attempt to enforce its 2023 Notice failed due to improper service. The SFC emailed the notice to a Responsible Officer (RO). The Court held that because the RO was personally bound by Section 378 secrecy obligations, they could not disclose the investigation to the corporation without SFC consent. Therefore, emailing an individual RO did not constitute valid service on the corporate entity itself under Sections 141 or 400.

Estoppel by Regulatory Assurance

The SFC was held to its “Duty of Fairness” regarding a previous “No Further Action” letter sent to the defendant concerning “Company C”. The Court ruled that unless “different facts or circumstances” came to light, the SFC was barred from resiling on its assurance to take no further action on those specific matters.

The Section 130 “Trap”

The defendant argued that books and records were moved to Beijing and subsequently lost. The Court ruled that moving records relating to regulated activities to unapproved premises contravenes Section 130 SFO. Consequently, an unlawful act cannot constitute a “reasonable excuse” for failing to comply with statutory notices.

Strategic Implications for Licensed Corporations

This judgment proves that while the SFC has broad powers, these powers are not absolute. Market participants should prioritize:

Procedural Audits: Challenging any notice that fails to meet the strict service requirements of Sections 141 or 400.
Management Handover Protections: Understanding that “Management Change” per se is not a reasonable excuse for non-compliance, as the legal entity remains responsible for its regulatory obligations.
Data Sovereignty: Maintaining records in SFC-approved premises to avoid the Section 130 compliance trap.

Protect Your Licence

The SFC v oOo Securities (HK) Group Ltd judgment is a stark reminder that in the face of aggressive enforcement, procedural precision is your most effective defense. Whether your firm is navigating a complex management transition, addressing historical compliance gaps, or responding to active Section 183 notices, proactive legal strategy is critical to mitigating penal risk.

Our Regulatory Defense and Investigations team offers specialized services to protect your interests.