Press Release
LCQ17:SFC's Code of Conduct
Wednesday, June 2, 1999
Following is a question by the Hon Cheung Man-kwong and a written reply by the Secretary for Financial Services, Mr Rafael Hui, in the Legislative Council today (Wednesday):
Question :
According to the Securities and Futures Commission's ("SFC") 97/98 Annual Report, a total of 197 Investment Advisers and 51 Commodity Trading Advisers were found to have breached the Code of Conduct in the course of routine inspections carried out by SFC during the year. In this connection, will the Government inform this Council whether it knows:
(a) the breakdown of the cases by the provisions in the Code of Conduct;
(b) how the SFC has followed up these cases; and whether the offenders have been penalized; if so, the details of the penalties imposed; and
(c) the Ordinances under which the SFC can take disciplinary actions against the offenders?
Reply:
Madam President,
(a) The Code of Conduct for persons registered with the Securities and Futures Commission ("SFC") is a non-statutory guideline in accordance with which the SFC performs its function of ensuring that all registered persons are fit and proper in relation to the manner in which they conduct the business for which they are registered. The Code of Conduct highlights seven principles including honesty and fairness, diligence, capabilities, information about clients (Note 1), information for clients, conflict of interest and compliance. These principles have been developed and recognised by the International Organisation of Securities Commissions and are fundamental to the undertaking of a registered person's business.
In the 1997-98 financial year, a total of 197 Investment Advisers and 51 Commodity Trading Advisers were found to have breached the Code of Conduct. Breakdown of number of breaches is as follows :
Commodities
Investment Trading
Advisers Advisers
------
Information about clients
(Note 1) 26 2
Inadequate information
provided to clients
relating to transactions
conducted for them 15 7
Agreement signed by clients
before providing advisory
services to clients 42 10
Lax management supervision
and weak internal control 61 15
Failure to comply with
staff dealing policy laid
down by the firm 38 8
Soft dollar policy (Note 2) 14 -
Others 1 9
------
197 51
------
(b) Follow-up actions in relation to breaches of Code of Conduct vary, depending on the nature of the breaches. If the suspected breaches compromise investor interests and/or market integrity, they will be pursued by the Enforcement Division or Licensing Department of the SFC. The Enforcement Division will carry out investigations, collect evidence to support prosecutions or instigate disciplinary procee