Glossary

Securities And Futures Commission (SFC)

The Securities and Futures Commission is an independent statutory body that regulates the securities and futures markets in Hong Kong. Its leading role is to protect the investing public by maintaining a fair, orderly, and transparent market. The SFC also promotes investor education and ensures continued market development.

The History of the Securities and Futures Commission

Hong Kong created the SFC in 1989 to regulate the local securities and futures markets. The government established the SFC in response to the global stock market crash in 1987. During that crash, the Hong Kong Stock Exchange suffered heavy losses. It highlighted the need for a dedicated regulator to oversee the securities and futures markets and protect investors. The SFC received further strengthening in 1997 after the Asian financial crisis.

A Chairman heads the SFC, and it has a 15-member Commission. It also has a 100-strong executive team, which is responsible for carrying out its regulatory functions.

The Role of the Securities and Futures Commission

The SFC focuses on protecting the best interests of consumers or investors. It also establishes guidelines that preserve the integrity of the market. These are some of the roles it undertakes to accomplish this:

  • Regulates and supervises listed or aspiring listed companies and intermediaries on the stock exchange or that deal in securities
  • Licenses and regulates persons who carry out Type 1 (dealing in securities), Type 2 (advising on securities), and Type 3 (leveraged foreign exchange trading) regulated activities
  • Monitors compliance with the listing rules of the stock exchange and take action if there are any breaches
  • Investigates suspected malpractice and takes disciplinary action where appropriate
  • Applies to the court for civil sanctions, such as asset freezes, and criminal prosecution where there is evidence of serious wrongdoing
  • Acts as a market development authority, promoting Hong Kong as an international financial center
  • Provides education and training to investors and industry participants

The Consumer Focus of the Securities and Futures Commission

Some market regulators focus on protecting the market, the economy, and the businesses. Meanwhile, others focus on consumer protection. SFC is one of the regulatory bodies that prioritizes investors or consumers. This can often mean stricter requirements for businesses.

It’s easy to focus on the tradeoffs of stricter guidelines, but there are some benefits for all parties involved:

  • Maintains high standards of market conduct
  • Enhances the quality of intermediaries
  • Encourages best practices in corporate governance
  • Promotes good settlement practices
  • Fosters transparency of information
  • Provides education and training to investors and industry participants

The Enforcement Powers Granted to the Securities and Futures Commission

Looking at the structure of the SFC makes it easier to understand the extent of the powers granted to it. While it does operate as an independent entity, it is also a branch of the Hong Kong government. This gives it far-reaching capabilities, especially after the bolstering it received following the 1997 financial crisis:

  • Investigatory powers – The SFC can investigate potential breaches of the law and take disciplinary action if necessary.
  • Prosecutorial powers – The SFC can prosecute criminal cases in the magistrate or district court. It can also apply to the Market Misconduct Tribunal for civil penalties.
  • Civil litigation powers – The SFC can take civil action in the courts to recover assets or impose financial penalties.
  • Administrative actions – The SFC can issue warnings, reprimands, or fines. It can also suspend or revoke licenses and bar individuals from working in the industry.

How the Securities and Futures Commission Is Funded

Despite being an arm of the government, the SFC receives no government funding. Instead, its budget comprises fees from the industry. Financial independence from the government improves impartiality and reduces the ability of government agents to interfere in the market.

These are some of the entities paying fees to the SFC:

  • Companies listed on the stock exchange
  • Intermediaries licensed by the SFC
  • Investors who trade in securities or futures contracts

How Message Capturing and Archiving Can Help With SFC Compliance

As a regulated financial institution, there are strict requirements for maintaining and retaining communication records. The SFC has published guidance on this, including the following criteria:

  • Records must be secure, easily accessible, and searchable.
  • Covered entities must retain records for both local and overseas clients.
  • Different records have varying record retention periods, such as two years for order records.

At LeapXpert, our team has streamlined the message capturing process, so you can focus on value-adding aspects of your business. The automated solution effortlessly adheres to your record retention requirements, whether you need to satisfy guidelines for SFC, MAS, SEC, or all of the above. Book your demo to get started.