The Securities and Futures Commission (SFC) prevailed in a judicial review application filed against the regulator in AA & EA v. The Securities And Futures Commission [2019] HKCFI 246 (the "Decision"). The SFC's provision to Japanese regulators of information collected from a financial institution in Hong Kong was found to be neither unlawful nor unconstitutional. 


The 1st Applicant is a Hong Kong licensed investment manager of a hedge fund incorporated in the Cayman Islands ("Fund"). The 2nd Applicant is the majority shareholder and one of the responsible officers of the first applicant in accordance with section 126 of the Securities and Futures Ordinance, Cap. 571 (SFO). 

Upon receipt of a suspicious transaction report concerning the Fund, the SFC sent a series of requests for information to the 1st and 2nd Applicants, pursuant to sections 181 and 183 of the SFO. The requests related to the 1st Applicant's trading activity on a Japanese company's shares shortly before the Japanese company became a constituent member of the Nikkei Index ("Trading Activity"). The SFC also conducted an interview with the 2nd Applicant in the presence of representatives of Japan's Financial Services Agency (FSA) and the Securities and Exchange Surveillance Commission (SESC) (collectively the "Japanese regulators") and the 2nd Applicant's solicitors. 

Copies of the materials and information collected by the SFC from the 1st and 2nd Applicants were provided by the SFC to the Japanese regulators, in several tranches, following the latter's requests for assistance. The SFC had shared the information and materials with the Japanese regulators pursuant to the mutual assistance and exchange of information framework under the International Organization of Securities Commission Multilateral Memorandum of Understanding (IOSCO MMoU) and a Statement of Intent (SOI) signed by the SFC and the FSA. 

A few days after the SFC's interview of the 2nd Applicant, the SESC announced it had made a recommendation to the Prime Minister of Japan and the Commissioner of the FSA to issue an administrative monetary penalty to the 1st Applicant for market manipulation pursuant to Japanese law. The FSA eventually made an administrative monetary penalty order against the 1st Applicant in the sum of JPY 684,240,000 (approximately HKD 48.5 million) on the finding that the Trading Activity on 25 September 2013 by the 1st Applicant was an act of market manipulation and violated Article 159(2) of the Financial Instruments and Exchange Act of Japan .


The relief sought by the Applicants in the judicial proceedings included:

  1. A declaration that the SFC acted unlawfully in transmitting compelled answers, testimony and documents to the Japanese regulators absent a binding prohibition against their use in criminal proceedings and/or proper assurance against their contents being leaked to the media or otherwise made public; and
  2. A declaration that section 181 of the SFO contravenes Article 10 of the Hong Kong Bill of Rights Ordinance, Cap. 383 and is unconstitutional.

The Hong Kong Court of First Instance (CFI) dismissed the application for judicial review on the basis that:

  1. The proceedings against the 1st Applicant in Japan were administrative or regulatory in nature and were not criminal proceedings. The CFI considered the (a) classification of the offence under domestic law; (b) the nature of the offence; and the (c) nature and severity of the potential sanction. In particular, the CFI noted that the basis and method of calculation of the Japanese administrative monetary penalty were aimed at disgorging illicit profits and were not intended as a penalty or criminal sanction. Indeed, the Decision noted that the 1st Applicant's transactions records indicated that its gains from the Trading Activity far exceeded the amount of administrative monetary penalty imposed by the FSA.
  2. The SFC took all reasonable steps and implemented all reasonable measures necessary to ensure that the secrecy provisions of the SFC were adhered to by the Japanese regulators. In reaching this conclusion, the CFI reviewed the communications between the SFC and the Japanese regulators at the material time and the various confidentiality provisions and undertakings that the Japanese regulators were bound by. This included, amongst others, confidentiality obligations under Japanese law, the IOSCO MMoU, the SOI between the SFC and the FSA and a written undertaking provided by the Japanese regulators to the SFC pursuant to section 186 of the SFO that any testimony or statements of an interviewee subject to the privilege of self-incrimination would not be used by the Japanese regulators in any criminal proceedings against the interviewee and shall not be disclosed to any other pursuant unless the SFC consents to that disclosure. 
  3. Section 181 of the SFO did not override or abrogate the privilege against self-incrimination since it allows for non-compliance where there is "reasonable excuse". The privilege against self-incrimination constitutes reasonable excuse for non-compliance. 
  4. Even if there is any intrusion on the privilege against self-incrimination (which the CFI found there was none), section 181 of the SFO fulfils the proportionality analysis. Section 181 is rationally connected with accomplishing the legitimate aim of ensuring that the financial markets of Hong Kong operate fairly and honestly and the nature and limitation of the section provides a measure that is no more than reasonably necessary for accomplishing this purpose. 
  5. The SFC's failure to administer a caution to the Applicants of the privilege against self-incrimination did not render section 181 of the SFO unconstitutional. However, the judge was of the view that the SFC should warn and caution a person who is the subject of a section 181 demand of such privilege. 
  6. Finally, the CFI found that the 1st and 2nd Applicant's application for leave to apply for judicial review was made out of time and no satisfactory or sufficient explanation had been provided for the delay to justify the court granting an extension of time.

Learning points

The Decision provides rare insight into the high level of co-operation between the SFC and foreign regulators during a live investigation. There are currently 112 signatories to the IOSCO MMoU, including securities regulators from Australia, China, Singapore, United Kingdom and the United States. Companies should be prepared for a foreign regulator's request for assistance from the SFC to be answered favourably, provided the requesting regulator meets the requirements of the mutual assistance agreements in place with the SFC, section 186 of the SFO and the provision of any required confidentiality undertakings. Practically, this means that companies need to be resourced to handle investigations by multiple regulators simultaneously if a case has multi-jurisdictional elements.

The facts of this case also highlights the importance of asserting privilege against self-incrimination in investigations. Such privilege must be expressly invoked for it to apply as a justification to decline to provide information in response to a section 181 SFO request. In contrast, the right to assert privilege against self-incrimination is not a reasonable excuse for non-compliance of other provisions of the SFO, such as section 179(16) and section 184(4). These more intrusive powers were not the subject of the proportionality analysis in the Decision and it remains to be seen if they will be the subject of a constitutional challenge in the future.