HK regulator zeroes in on asset management sector

Hong Kong is following China’s lead in tightening its oversight of the asset management industry both as a way to facilitate the flow of money into the real economy and to protect investors and the city’s all-important stock market.


In a recent bout of inspections, the Hong Kong Securities and Futures Commission (SFC) looked into 250 licensed asset management firms and identified multiple cases of regulatory non-compliance. Asset managers were warned to review their internal control procedures and asked to enhance them to meet the SFC’s expectations. Further penalties are likely if the firms fail to comply with regulatory requirements.

The inspections were quickly followed by the release in early November of an SFC consultation paper that aimed to seek ideas on how to improve asset management regulation. The regulator also launched another bout of consultations on disclosure requirements.

“These enhancements ensure our regulations are properly benchmarked to evolving international standards and strengthen Hong Kong’s position as a major asset management centre,” said SFC’s CEO Ashley Alder.

The inspections and proposals came amid a series of announcements from authorities in Mainland China of radical reform in the country’s asset management industry this month. The move was the latest attempt by the government to curb investment risks accumulating across its financial system. Draft guidelines were unveiled that would ban institutions from giving investors guarantees against losses.

“Tighter scrutiny would improve quality in the asset management sector,” said Tao Ling, deputy head of the financial stability bureau at the People’s Bank of China. “This is helpful in our attempt to direct capital flow to the real economy.”

Since 2016, both Hong Kong and China’s stock market have seen cases in which the share prices of listed companies plunged more than 20% in a single day. There are many who feel more regulation is needed to protect investors from such volatility.

“I see this as SFC giving signals to show a zero-tolerance stance on illegal behaviour among asset management companies,” Philip Ho, equity analyst at Yicko Securities, told Harbour Times. “This is a good sign because this means Hong Kong’s regulators are proactive in protecting its investors and this in turn creates a healthier investing environment.”

“Asset management is not the only industry that is being heavily regulated. For example, there has been a nationwide drive to clamp down on illegal home financing and anti-money laundering activities this year. Online-lending businesses used to be lightly regulated too, but has been received increased scrutiny from government nowadays,” Ho added. “Increased regulation is the new normal.”

Since 2016 it has been reported that there’s an increasing number of high-risk but fundamentally poor listed companies in Hong Kong. Such stocks, commonly known as cheater’s stocks, or “Lao Qian Gu” in Chinese, are reportedly engaged in stock price manipulation activities instead of focusing on creating profits and prioritising the investors’ interest.

While China has long had in place a suspension mechanism to cap the movement of stocks at 10% in a single day, Hong Kong does not currently have a comparable system. As a result, cheater stocks pose  great risks for investors, especially when they are leveraged.

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