Other Author      Sara Troughton, Professional Support Lawyer (Litigation)

The Securities and Futures Appeals Tribunal (SFAT) has affirmed the decision of the Securities and Futures Commission (SFC) to sanction a former managing director (MD) of a financial institution who put himself in a position of conflict in respect of two transactions for which the financial institution was mandated. The MD has been banned from re-entering the industry for two years for breaching the Code of Conduct for Persons Licensed by or Registered with the SFC (Code). Please see the SFAT’s reasons here.

The two transactions related to a pre-IPO investment involving HK$500 million and a sale of shares involving HK$1.15 billion. In both transactions, the MD acted as project sponsor and team leader. The SFAT found that the MD, especially in light of his seniority, had fallen far short of the standards required of a project sponsor because he had intentionally (as opposed to recklessly or negligently) acted against the interest of his employer and its clients by being involved in the business of the counterparties. By doing so he had put the financial institution at regulatory and reputational risk. In particular, the MD had:

  • failed to disclose his personal and familial connection with a counterparty to his employer (this was also a breach of the employer’s policies and guidelines); 
  • repeatedly assisted a counterparty in drafting documents to intentionally secure advantage for them in negotiations;
  • provided assistance to counterparties through private email conversations, not involving any other deal team members; and
  • on numerous occasions acted in a conflict of interest by deliberately passing on confidential information to counterparties, against the interest of the financial institution’s clients. 

The SFC said it is pleased that the SFAT has affirmed its decision to sanction the MD, and that this decision is a clear message to the market that it is a “fundamental duty of licensed persons to avoid conflicts of interest and ensure that clients are treated fairly in carrying out their business activities”.