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REGULATORY ENFORCEMENT NEWSLETTER - ISSUE 1

A quarterly roundup of regulatory issues

7

without a trial. … this is a rule of practice and not a rule

of law.’ Taking account that the paramount duty of the

court is to do the fullest justice for the victim, he

decided when a genuine need existed declaratory relief

can be granted in the absence of the defendant.

When is there a ‘

genuine need

’?

DHCJ Cooney SC stated the necessary need existed

when:

The defendant bank account holder receives funds

obtained by fraud.

The victim makes a proprietary claim for the funds

traced into the defendant’s bank account.

A victim is at risk should other creditors appear.

A declaration by the court that the funds are the

victim’s will earmark them as their property and put

them out of the reach of the any other creditors. This

approach is obviously a welcome change. Victims of

fraud can safe guard their property at an early stage. A

Statement of Claim will be needed but if this is served

on the defendant at the start of the litigation it will then

be possible to enter judgment with the necessary

declaratory relief after the passage of 14 days.

Vesting Orders

Combining the above approach with vesting orders

under section 52 of the Trustee Ordinance allows a

victim with the declaratory relief to then obtain their

money. Vesting orders can be made when there is no

prospect of the defendant transferring the victim’s

money back to them. This situation will clearly exist

when the defendant has disappeared. The courts are

nowadays prepared to make a vesting order against a

bank where the funds are held, requiring the bank to

transfer the sum back to the victim.

Justice

That the courts are prepared to give declaratory relief

when a need arises is an encouraging development and

combining this with the relief available in the Trustee

Ordinance, victims can secure their property and have

it transferred back to them more quickly and with less

risk than before.

Miscellaneous

Anti-money laundering (“AML”)

In their circular to licensed corporations and associated

entities dated 26 January 2017, the SFC has identified

compliance with AML and counter financing of terrorism

(“

CFT

”) as a focus for their market supervision.

The SFC has been and will continue to conduct in-depth

reviews of firms’ internal AML/CFT policies, procedures

and controls.

During 2016 and the review of AML/CFT practices in

over 290 firms, the SFC found more than 200 incidents

of non-compliance. No doubt, the SFC’s increased

action is related to the fact that the Financial Action

Task Force (the inter-governmental body promoting

effective implementation of legal, regulatory and

operational measures for combating money laundering,

terrorist financing and other related threats to the

integrity of the international financial system) will be

evaluating Hong Kong in mid-2018.

What can breaches of the AML/CFT

requirements mean?

In April alone, the SFC has disciplined and fined:

Guoyan Securities Brokerage (HK) Ltd. HK$4.5

million for breaches between 2010 and 2012 of the

SFC’s Prevention of Money Laundering and

Terrorist Financing Guidance Note, the Guideline on

Anti-Money Laundering and Counter-Terrorist

Financing and Code of Conduct; and

iStar International Futures Co. Ltd. HK$3 million for

its failures to comply with AML requirements when

processing third party deposits and transfers, such

as not verifying the source of funds, providing AML

training or having effective compliance.

Are you ready for new client agreements?

In December 2015, licensed intermediaries were

instructed that they had until 9 June 2017 to comply

with new Code of Conduct requirements governing the

contents of all client agreements.

Aimed at reducing misselling and the effect of

contractual boilerplate, client agreements are required

to include a representation that the sale or

recommendation of any financial product must be

reasonably suitable to investors taking account of their

financial situation, investment experience and

investment objectives.

The SFC has stated that all client agreements must be

in compliance with the above by 9 June. Failure to do

so will no doubt incur disciplinary action.