Hong Kong authorities intensify crackdown on white-collar crime and market misconduct

Enforcement in Hong Kong remains very active 

Authorities in Hong Kong remain very active in their investigation of misconduct and white-collar crime.

The strategic focus of the SFC on high-impact cases aims to address key risks in financial markets and sends a strong deterrent message to the market. In the quarter ending on September 30, 2024, the SFC conducted 468 investigations on corporate disclosure, corporate misgovernance, insider dealing, intermediary misconduct, market manipulation, and unlicensed activities.

Disciplinary action was taken by the SFC against 14 individuals and 12 corporations, resulting in total fines of HKD49.9 million (around USD6.4 million) in 2023/2024.

Insider dealing and other market misconduct are at the top of the SFC’s enforcement agenda:

• The SFC commenced a high-profile prosecution for insider dealing in May 2024 against a hedge fund management firm, its director and chief investment officer, and a former trader for insider dealing arising out of a market sounding prior to a block trade in the shares of a listed company. 
• The Market Misconduct Tribunal (MMT) in November 2024 ordered the former chief executive of a listed company and his investment vehicle to disgorge over HKD350 million (around USD45 million), which representing the loss avoided by insider dealing of the listed company’s shares.  In the same month, the SFC commenced another action in the MMT against the former chairperson and non-executive director of a listed company, two corporate entities, and 28 other suspects for alleged manipulation of the shares of that listed company.
• The SFC also continued to work alongside the Hong Kong Police Force (HKPF) in pursuing large-scale and sophisticated syndicates suspected of ramp and dump and market manipulation. 2024 saw the first ramp and dump prosecution commenced in the District Court.

Those subject to statutory investigation powers are reminded to comply as authorities continued to show their readiness to enforce against non-compliance. The Hong Kong Competition Commission (HKCC) announced that an individual had been charged for attempting to delete relevant documents and information during a dawn raid. This marks the first criminal prosecution for non-compliance with the HKCC’s investigation powers, bringing the HKCC in line with other authorities in Hong Kong. For more details, see The first move: Hong Kong Competition Commission enforcing non-compliance with investigation powers.

Cooperation among various regulatory and enforcement authorities continued. For example:

• The SFC and the Stock Exchange of Hong Kong Limited (HKEX) collaborated to secure a disciplinary outcome in April 2024 against a listed company and its current and former directors over certain dubious investment and financial arrangements. The SFC shared relevant fund tracing information and other evidence with the HKEX.
• The SFC and the Insurance Authority (IA) joined forces to tackle suspected irregularities at a life insurance company. The SFC supported the IA’s investigation of related party transactions of the company and conducted the first ever joint operation with the IA on an SFC-licensed fund manager. Cooperation between the two authorities over the past four years culminated in the IA’s appointment of managers to take full control of the affairs and property of the company in July 2024.
• The HKCC and the Independent Commission Against Corruption (ICAC) conducted joint operations in April and August 2024 against a newly rising syndicate which allegedly engaged in bid-rigging and corruption in order to manipulate the tendering exercises of building maintenance projects.
• The SFC and the ICAC confirmed they had launched a joint investigation of suspected misconduct in public office in November 2024, which followed the SFC’s own internal probe that revealed suspicion of obtaining and misusing confidential information by its former staff.

The recently updated Guidance Note on Cooperation with the SFC emphasizes the importance of voluntary and prompt self-reporting and provision of true and complete information regarding failings. Acceptance of liability and implementation of rectification measures are also forms of cooperation that the SFC will take into account in resolving a matter and determining sanctions.

If an internal investigation unveils cartel conduct, a corporate should consider applying to the HKCC for leniency under the Leniency Policy for Undertakings Engaged in Cartel Conduct. In a recent price-fixing cartel case in the real estate agency sector, one of the defendant’s competitors provided substantial assistance to the HKCC in its investigation and secured a leniency agreement, under which the HKCC agreed not to take any legal proceedings against the company or its officers or employees.

The Hong Kong authorities continue to work closely with their counterparts in the other parts of China.

New laws on cybersecurity and national security give rise to new investigative powers and implications for internal investigations

New cybersecurity legislation to impose statutory requirements on designated operators of critical infrastructures, tentatively titled the Protection of Critical Infrastructure (Computer System) Bill, was proposed by the Hong Kong Government in June 2024 and introduced into the Legislative Council in December 2024.

The Bill seeks to regulate large organizations responsible for critical services, requiring them to secure their critical computer systems and report computer system security incidents within a prescribed timeframe.  Organizations will be subject to criminal fines of up to HKD5 million (around USD640,000) for violations.

The proposed legislation only applies to critical infrastructure operators (CIs) designated by a new Commissioner’s Office, which will be given extensive powers to investigate computer system security incidents and offenses. CIs will cover two major categories:

(a) infrastructure in the following eight essential services sectors: (i) energy; (ii) information technology; (iii) banking and financial services; (iv) air transport; (v) land transport; (vi) maritime transport; (vii) healthcare services; and (viii) telecommunications and broadcasting services; and

(b) other infrastructure for maintaining critical societal and economic activities, such as major sports and performance venues.

For more details, see Hong Kong Government releases critical infrastructure Cybersecurity Bill.

Separately, the Safeguarding National Security Ordinance came into force in March 2024, introducing new national security offenses such as treason, theft of state secrets, and external interference.  The offenses relating to state secrets are of particular relevance to cross-border investigations as multinational businesses are now required to consider whether documents may contain state secrets prior to disclosure to overseas authorities.

Corporates conducting internal investigations, especially those in sectors involving higher national security and geopolitical risk, should give careful consideration to document retrieval, transfer, and review processes to prevent inadvertent contraventions.

Virtual asset sector a focus for enforcers 

The licensing regime for VASPs came into full force in June 2024. Apart from collaborating with the HKPF in monitoring and investigating illegal activities involving virtual assets, the SFC also raised public awareness by publishing warnings against 30 suspicious trading platforms in 2024.  Active enforcement in the virtual assets sector is expected to continue into 2025 as Hong Kong establishes itself as a credible virtual assets hub with investor protection.

Meanwhile, the HKCC continues to focus on a wide range of sectors which directly impact consumers. Its areas of interest in 2024 included funeral services, online hire car hailing platforms, car maintenance and repair services, building maintenance, and government subsidy schemes.

Predictions for 2025

• Virtual assets: The Hong Kong Government is expected to develop further a legislative framework for virtual asset trading and custody. The SFC has been actively reaching out to the virtual asset community to understand the business models of asset managers, market makers, broker dealers, and traders as well as the operation flow for efficient and AML-compliant conversion between fiat currencies and cryptocurrencies.
• Audit accountability: The Accounting and Financial Reporting Council (AFRC), the independent regulator of the accounting profession, is expected to become more active in its investigation and sanction of auditing/reporting irregularities or misconduct to hold accounting professionals responsible. The AFRC indicated in September 2024 that its investigation into the audits of China Evergrande Group, a Chinese real estate developer now in liquidation, is in progress.
• Market soundings: The SFC published its consultation conclusions on market soundings in October 2024 and its guidelines will come into effect in May 2025, requiring protocols to be implemented to protect confidential information which licensed or registered persons are entrusted with during market soundings.  The SFC’s guidance says that when a bank is sounding out a hedge fund about its interest in buying shares in a possible block trade, it can only give details that are so “broad, limited, vague and anonymized” that the fund cannot guess the identity of the issuer—unless the fund has agreed to treat it as confidential.  While the guidelines do not carry the force of law, failure to comply may adversely affect the SFC’s consideration of whether a person remains fit and proper for licensing or registration purposes.
• Personal data: Legislative amendments to the Personal Data (Privacy) Ordinance include establishing a mandatory data breach notification mechanism, requiring data users to formulate a data retention period policy, empowering the PCPD to impose administrative fines, and regulating data processors directly.  The Hong Kong Government indicated in October 2024 that it could consider a piecemeal approach by first putting forward smaller changes to minimize the impact on small businesses amid a lukewarm economic climate.

On the horizon

• Adoption of artificial intelligence (AI) and machine learning: The use of AI and machine learning in investigations will become more prevalent. While these technologies can help to enhance the efficiency and effectiveness of investigations, they would also give rise to heightened risks in areas such as personal data and intellectual property rights.
• Cybersecurity and data breaches: As businesses increasingly rely on digital platforms, the risk of cybersecurity and data breaches will rise. In-house teams will need to focus on cybersecurity measures and get ready to respond to incidents swiftly.
• Environmental, social, and governance (ESG) risks: There will be a growing emphasis on ESG, and companies will face more regulatory scrutiny over their environmental and social impact. In-house legal and investigations teams will need to ensure compliance with applicable ESG regulations and be prepared to address any related enforcement risks.

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• “Matt Bower gives excellent tactical and practical advice, and is very sensitive to the needs and objectives of clients.” —Legal 500 2025: Dispute Resolution: Litigation—Hong Kong
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This article is part of the A&O Shearman Cross-Border White-Collar Crime and Investigations Review. Please click here for our overviews and insights in other jurisdictions.