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Hong Kong SFC Annual Report 2021/2022: 48,401 Licensees, $4.45 Trillion AUM, 2,849 Funds, 4,401 Complaints, 27 Criminal Charges

1st July 2022 | Hong Kong

The Hong Kong SFC (Securities & Futures Commission) has released the latest Hong Kong SFC Annual Report for 2021/2022, proving an overview of the financial industry in Hong Kong.  Key findings include a total of 48,401 licensees, 2,849 Funds, $4.45 trillion AUM in Hong Kong (Asset Mgmt: $3.06 trillion, Private Bank & Private Wealth: $1.44 trillion) and 121 ESG Funds with $142 Billion AUM.  There were also 4,401 complaints against intermediaries & market activities, 512 cases of market misconduct (Primarily, alleged market manipulation and insider dealing), 270 cases of scams and frauds, 301 cases of anti-money laundering breaches, 27 criminal charges, 37 cases with search warrants executed, 36 disciplinary actions, 168 individuals & corporations subject to ongoing civil proceedings, and a total of $52.2 million (HKD 410 million) fines imposted on licensees.  (Data 31/3/22) See below for key highlights & summary | View Hong Kong SFC 2021/2022 Report

“ Hong Kong: 48,401 Licensees, $4.45 Trillion AUM, 2,849 Funds, 4,401 Complaints, 27 Criminal Charges “

 

Hong Kong SFC Annual Report 2021/2022

Hong Kong 3
Hong Kong, Asia’s leading financial centre

Key Findings:

  • 48,401 licensees
  • 2,849 Funds
  • $4.45 trillion AUM in Hong Kong (Asset Mgmt: $3.06 trillion, Private Bank & Private Wealth: $1.44 trillion)
  • 121 ESG Funds with $142 billion AUM
  • 4,401 complaints against intermediaries & market activities
  • 512 cases of market misconduct (market manipulation, insider dealing)
  • 270 cases of scams and frauds
  • 301 cases of anti-money laundering breaches
  • 27 criminal charges
  • 37 cases with search warrants executed
  • 36 disciplinary actions
  • 168 individuals & corporations subject to ongoing civil proceedings
  • Total of $52.2 million (HKD 410 million) fines imposted on licensees.  
  • Reprimanded and fined Citigroup Global Markets Asia Limited HK$348.25 million for serious regulatory breaches over client facilitation activities 
  • Reprimanded and fined UBS AG and UBS Securities Asia Limited HK$11.55 million for multiple regulatory breaches 
  • Conducted a joint operation with the Hong Kong Police Force, the Monetary Authority of Singapore and the Singapore Police Force against a syndicate suspected of operating cross-border ramp and dump manipulation schemes 
  • Issued a statement to clarify that no entity in the Binance group is licensed or registered to conduct regulated activities in Hong Kong and warned investors against investing in stock tokens offered on unregulated platforms 

Hong Kong AUM (2020 AUM Survey)

  • Hong Kong Asset & Wealth Management AUM: $4.45 trillion (HKD34.9 trillion)
  • Asset management & fund advisory: $3.06 trillion (HKD 24 trillion)
  • Private banking & private wealth management: $1.44 trillion (HKD 11.3 trillion)
  • SFC-Authorised ESG funds: 121
  • SFC-Authorised ESG funds AUM: $142.7 billion

Key Fund Numbers:

  • Authorised Collective investment schemes: 2,849 
  • Unit trusts and mutual funds – Hong Kong-domiciled: 866
  • Unit trusts and mutual funds – non-Hong Kong-domiciled: 1,381
  • ILAS: 300
  • Pooled retirement funds: 32
  • MPF schemes: 26
  • MPF pooled investment funds: 219
  • Others (14 paper gold schemes and 11 REITs): 25
  • Total: 2,849 

Key Numbers

  • 7,163 new licence application 
  • 48,401 licensees & registrants (+3.3% from 2019 to 2022)
  • 3,321 licensed corporations
  • 262 on-site inspects of intermediaries 
  • 2,849 authorised collective investment schemes
  • 866 Hong Kong domiciled funds
  • 306 listing applications received
  • 385 takeovers-related transactions

Key Enforcement Highlights

  • 4,041 complaints against intermediaries & market activities
  • 512 cases of market misconduct (Primarily, alleged market manipulation and insider dealing)
  • 270 cases of scams and frauds
  • 301 cases of anti-money laundering breaches
  • 162 complain advice letters issued
  • $52.2 million (HKD 410 million) total fines imposted on licensees
  • 7,308 requests for trading & account records
  • 220 cases initiated for investigation
  • 168 individuals & corporations subject to ongoing civil proceedings
  • 36 disciplinary actions
  • 27 criminal charges laid
  • 37 cases with search warrants executed
  • Total On-site inspections in 3 years: 883

Complaints against intermediaries and market activities 

  • Conduct of licensees: 725
  • Conduct of registered institutions: 27
  • Listing-related matters and disclosure of interests: 1,761
  • Market misconduct (Primarily, alleged market manipulation and insider dealing): 512
  • Product disclosure: 17
  • Unlicensed activities: 96
  • Breach of offers of investments: 50
  • Boiler rooms and suspicious websites: 374
  • Scams and frauds: 270
  • Other financial activities not regulated by SFC (eg. bullion trading and banking services): 209
  • Total: 4,041

Total Breaches 2021/2022 (2020/2021, 2019/2020)

  • Internal control weaknesses: 427 (515, 451)
  • Breach of Code of Conduct: 265 (262, 273)
  • Non-compliance with anti-money laundering guidelines: 301 (208, 331)
  • Failure to safekeep client money: 35 (35, 42)
  • Failure to safekeep client securities: 23 (28, 31)
  • Others: 365 (302, 361)
  • Total: 1,416 

Notable Enforcement 

  • 7,308 requests for trading and account records from intermediaries as a result of surveillance of untoward price and turnover movements 
  • Commenced 220 investigations and laid 28 criminal charges against 3 persons and 1 corporation and secured convictions against them 
  • Reprimanded and fined Citigroup Global Markets Asia Limited HK$348.25 million for serious regulatory breaches over client facilitation activities 
  • Reprimanded and fined UBS AG and UBS Securities Asia Limited HK$11.55 million for multiple regulatory breaches 
  • Conducted a joint operation with the Hong Kong Police Force, the Monetary Authority of Singapore and the Singapore Police Force against a syndicate suspected of operating cross-border ramp and dump manipulation schemes 
  • Issued a statement to clarify that no entity in the Binance group is licensed or registered to conduct regulated activities in Hong Kong and warned investors against investing in stock tokens offered on unregulated platforms 

Tackling misconduct and improper behaviour in new listings 

  • Investigations identified suspected misconduct and improper behaviour in a number of recent new listings. 
  • Suspicious arrangements were made to artificially satisfy the initial listing requirements. 
  • Shares were allocated to controlled placees at an inflated IPO price to meet the minimum Main Board market capitalisation requirement of $500 million. 
  • Other questionable arrangements were apparently designed to enable market manipulation of the shares of listed companies at a later date, including through ramp and dump schemes. The SFC and SEHK are concerned that these issues may affect the quality and integrity of Hong Kong’s capital market and its reputation as an international financial centre. 

Red Flags:

  • Market capitalisation upon listing barely meeting the minimum threshold of $500 million under the Main Board Listing Rules or $150 million under the GEM Listing Rules 
  • Very high price-to-earnings ratios compared to listed peers; 
  • Unusually high underwriting commissions or other listing expenses; 
  • High concentration of shareholding. 

Greater Bay Area Wealth Management Connect 

  • In September 2021, launch of Greater Bay Area Wealth Management Connect.
  • Pilot scheme commenced in October with 19 banks in Hong Kong
  • The number of eligible Hong Kong banks was later increased to 24 

Key Numbers:

  • Aggregate remittance: RMB 829 million
  • Northbound investors: 16,726
  • Southbound investors: 9,110
  • No. of participating Hong Kong banks: 24
  • No. of participating Mainland banks: 27
  • No. of SFC-authorised funds available under the scheme: 125

Stock Connect 

  • 1,487 Mainland stocks and 547 Hong Kong stocks 
  • Net inflows reached RMB1,983.1 billion for southbound trading 
  • RMB1,610.2 billion for northbound trading. 

Bond Connect 

  • Total trading volume reached RMB6.5 trillion
  • Eligible foreign investors admitted for trading was up 37.5% to 3,223 from 2,352 as at end-2020 

 

Strategic Priorities (Current initiatives)

Listing

  • About 170 direct intervention in initial public offerings (IPO) & listed companies (since 2017)
  • Tackle misconduct related to new listings 
  • Warehousing of shares (actual control is disguised through the use of nominees)
  • Grants of unusually high commissions to underwriters of problematic IPOs 
  • Alerted market to expect heightened scrutiny of listing applications with red flags indicating a lack of genuine 
  • investor interest (2021)
  • Hold directors and other individuals accountable for misconduct and rule breaches
  • listing regime for special purpose acquisition companies (SPACs) 

Intermediaries 

Intermediaries face significant operational challenges arising from pandemic-related disruptions 

Hong Kong is the regional hub for many global financial institutions’ equities and prime brokerage businesses. 

Stepped up our supervision to maintain an orderly, resilient market (sizeable equity portfolios and material risks managed by prime brokers in Hong Kong)

  • Incorporate over-the-counter (OTC) derivatives data reported to the Hong Kong Trade Repository into our monitoring of potential concentrated exposures of prime brokers and their counter-parties. 
  • Monitor financial risks through stress tests, including on licensed corporations to assess their risk exposures to the Mainland property sector and take appropriate risk mitigation measures when needed. 
  • Other regulators joint annual surveys with the Hong Kong Monetary Authority (HKMA) on the sale of non-exchange traded investment products 
  • Maintaining an efficient price discovery process and high conduct standards for intermediaries are vital to support Hong Kong’s status as a leading capital raising centre. 
  • new conduct requirements for book-building and placing activities take effect in August 2022 and will help ensure the fairness, transparency and orderliness of these activities. 
  • New requirements which expect fund managers managing collective investment schemes to consider climate-related risks in their investment and risk management processes and provide appropriate disclosures will be implemented in phases starting from 20 August 2022. 
  • A new, fully-digitalised licensing platform has modernised our licensing work by making our data collection processes more efficient and effective.  Since 1 April 2022, we require all applications and regulatory filings to be submitted electronically. 
  • Prepare legislative changes to the Anti-Money Laundering and Counter-Terrorist Financing Ordinance for a new licensing regime for centralised virtual asset exchanges trading non-security tokens to be licensed and regulated by the SFC. 

Asset and wealth management 

  • Strengthening Hong Kong’s competitiveness as a leading asset and wealth management centre and preferred fund domicile is a top priority. 
  • Cross-boundary Wealth Management Connect Pilot Scheme in the Guangdong-Hong Kong-Macao Greater Bay Area (GBA) is a major initiative. 
  • Cooperating closely with the HKMA and Mainland regulators to explore enhancements such as increasing quotas, expanding the scope of eligible investment products, inviting more participating firms and improving distribution arrangements. 
  • Enhance Hong Kong’s attractiveness as a hub for family offices
    Government’s taskforce on providing tax concessions for eligible family-owned investment holding vehicles managed by single family offices. 
  • Supplementary product design guidance we introduced for investment- linked assurance schemes (ILAS) helps achieve better investor protection. 
  • To enhance the regulation of public funds in Hong Kong, a new regulated activity, RA 13, will be introduced to bring depositaries under our direct supervision. 
  • Open-ended fund companies (OFCs) – The new re-domiciliation regime facilitates the migration of overseas corporate funds to Hong Kong with enhanced legal and tax certainty.
  • Working with Mainland and Hong Kong exchanges and clearing houses to include eligible ETFs in Stock Connect 
  • Hong Kong real estate investment trusts (REITs) also have more options following the listing of the first logistics REIT. 
  • Work with the China Securities Regulatory Commission (CSRC) to enhance the Mainland-Hong Kong Mutual Recognition of Funds scheme, including relaxing the sales limit and restrictions for overseas delegation, and offer Mainland investors a more diversified pool of funds managed in Hong Kong. 

Markets

  • Develop ex-ante analytical tools and collaborate with local and overseas regulatory bodies to identify systemic risk and assess other potential risks in exchange-traded and OTC derivatives markets to stay on top of changing conditions. 
  • Working with HKEX to enhance its risk management and control functions as well as to enhance its group compliance functions to ensure that they have sufficient authority, independence and resources to carry out their functions effectively. 
  • Provide risk management tools for global investors to hedge exposures in the A-share market. The MSCI China A 50 Connect Index Futures contract, launched in October 2021, strengthens Hong Kong’s position as an internationally significant financial risk management centre and gateway to the Mainland market. 
  • Set up a working group with HKMA and HKEX to conduct a study of the feasibility of issuing and trading RMB-denominated securities in Hong Kong and explore the inclusion of RMB counters in southbound trading under Stock Connect to enhance market liquidity 
  • The new investor identification system for the Hong Kong securities market and the OTC securities transactions reporting regime for shares listed on SEHK will enable
    far more effective and timely market surveillance. 

Enforcement

  • Tackling investment fraud and scams on online platforms remains an enforcement priority. 
  • We trace the operators of ramp and dump schemes and dissolve their nominee networks through timely search operations and freezing assets which we believe to be the proceeds of fraud. 
  • Investor education also forms an important part of the overall strategy. Regularly informing the public of the latest trends we observe helps them avoid falling victim to these scams. 
  • Efforts against misappropriation of listed companies’ assets, such as by siphoning off
    a company’s cash reserves through dubious loans to associates and nominees. 
  • Combatting IPO-related fraud, in particular those involving other serious white-collar crimes such as bribery, forgery, false accounting and conspiracy to defraud. 
  • We keep intermediaries’ misconduct on close watch, including internal control deficiencies, sponsors’ due diligence failures and mis-selling of financial products. 
  • We aim to maximise the impact of our disciplinary actions by imposing fines with the strongest possible deterrent effect commensurate with the gravity of the misconduct. 
  • We will make active use of the Manager-In-Charge 
  • regime to identify culpable individuals, particularly in large organisations with complex management structures. 
  • Strengthen our collaboration with other local regulators and law enforcement agencies, including
    the Hong Kong Police Force, Independent Commission Against Corruption, Financial Reporting Council, HKMA and Insurance Authority. 

Green and sustainable finance: Hong Kong is well-positioned to become a green and sustainable finance hub for the GBA and the wider Asian region. 

Communications: We adopt a proactive, fully integrated external communication strategy to articulate to our stakeholders increasingly complex and impactful regulatory initiatives and policies and promote public understanding of our vital work. 

Technology: Process automation and digital transformation help bolster our internal processes’ effectiveness and efficiency and provide greater convenience to our external stakeholders, even when working remotely. 

Regulatory collaboration: To support Hong Kong’s development as an international financial centre, we foster close collaboration with our overseas counterparts and actively participate in the work of international standard-setting bodies. 












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