Securities Legislation and Code of Conduct 證券法例及操守準則

Securities and Futures Ordinance (SFO) 《證券及期貨條例》

The Securities and Futures Ordinance (Cap. 571) consolidated and modernised ten earlier ordinances governing Hong Kong’s securities and futures markets. Its main purposes are to bring the relevant law together, regulate financial products and market activities, and protect investors; section 4 sets out the SFC’s regulatory objectives.

Collective investment schemes include unit trusts and mutual fund corporations. Their usual features are that participants do not control the day-to-day management of the property, the operator or someone acting for it manages the property as a whole, and participants’ contributions and the profits or income used to pay them are pooled.

The definition in Part 1 of Schedule 1 includes investment-linked insurance policies as collective investment schemes. Interests in a CIS generally constitute “securities”, but that definition expressly excludes insurance contracts relating to classes of insurance business specified in Schedule 1 to the Insurance Ordinance. An investment-linked policy therefore falls outside securities while remaining subject to relevant CIS requirements. [Securities and Futures Ordinance](https://www.elegislation.gov.hk/hk/cap571)

Licensing and Registration Requirements 發牌及登記要求

Section 114(1) prohibits carrying on a business in regulated activities without the appropriate licence or registration. The maximum penalty is a fine of HK$5,000,000 and seven years’ imprisonment, with a further fine of HK$100,000 for each day of a continuing offence.

Distinguish three statuses: section 116 concerns licensed corporations, section 119 registered institutions, and section 120 licensed representatives. Corporate or institutional status and an individual representative’s status have separate requirements; an employer’s licence does not itself license the individual. Consider the actual activity and applicable requirements rather than the job title alone.

Other Relevant Codes Issued by the SFC 其他證監會發佈的有關守則

The Code on Unit Trusts and Mutual Funds addresses authorisation requirements for CIS such as unit trusts and mutual fund corporations. The Code on Investment-Linked Assurance Schemes, or ILAS Code, addresses authorisation requirements for investment-linked assurance schemes. Insurance intermediaries selling investment-linked policies should understand the relevant provisions of both. [SFC codes](https://www.sfc.hk/en/rules-and-standards/codes-and-guidelines/codes)

The ILAS Code requires prospective customers to receive up-to-date offering documents, including the principal brochure, illustration document and product Key Facts Statement (KFS), so they can assess the proposal with sufficient information. The KFS is part of the document package; providing it does not justify omitting the other documents.

When checking premium and charge explanations, follow the order specified in the documents. For example, if the terms require an initial charge to be deducted before units are allocated, divide the amount remaining after that charge by the price used for allocation, rather than treating the whole premium as invested.

Offers of Investment 投資要約

Part IV of the SFO treats schemes and promotional material separately: section 104 concerns CIS authorisation, while section 105 concerns authorisation of advertisements, invitations or documents. Either authorisation may carry conditions. Authorisation of a scheme does not automatically authorise an intermediary’s own advertisement.

Under section 103(1), issuing an advertisement, invitation or document known to be or contain an invitation to the public to acquire a CIS interest is an offence unless authorised or exempted. The maximum penalty is a fine of HK$500,000 and three years’ imprisonment, with a further fine of HK$20,000 per day for a continuing offence. Preparing the material personally does not remove the authorisation requirement.

Fraudulent misrepresentation involves a statement known to be false, misleading or deceptive when made; reckless misrepresentation involves making such a statement recklessly. A promise, forecast or omission may also qualify. Section 107 criminalises using either form to induce covered securities, structured product, regulated investment agreement or CIS transactions, including relevant offers. Neither a gain to the maker nor an actual investment by the recipient is necessary. The maximum penalty is a fine of HK$1,000,000 and seven years’ imprisonment.

Civil liability under section 108 covers fraudulent, reckless and negligent misrepresentation. Negligence involves making a false, misleading or deceptive statement without reasonable care to ensure accuracy. Where this induces another person to take a covered investment action and suffer financial loss, damages may be payable. Negligence alone does not establish the fraud or recklessness required by section 107.

Market Misconduct 市場失當行為

Part XIII of the SFO establishes a market misconduct regime that may give rise to civil liability. Recognise insider dealing, false trading, price rigging, stock market manipulation, disclosure of information about prohibited transactions, and disclosure of false or misleading information likely to induce investment decisions or have a material price effect.

In an examination question, look at whether the trading or information disclosure involves prohibited conduct. An investment loss or price fall alone does not establish market misconduct. Equally, a person’s lack of direct trading does not remove the need to consider liability arising from disclosure.

CIS Internet Guidance Note 《集體投資計劃互聯網指引》

In April 2013, the SFC updated its Guidance Note for Persons Advertising or Offering Collective Investment Schemes on the Internet, commonly called the CIS Internet Guidance Note, to clarify regulatory requirements for internet CIS activities. [SFC guidance note](https://www.sfc.hk/-/media/EN/assets/components/codes/files-current/web/guidelines/guidance-note-for-persons-advertising-or-offering-collective-investment-schemes-on-the-internet/Guidance-Note-for-Persons-Advertising-or-Offering-Collective-Investment-Schemes-on-the-Internet.pdf)

Read it alongside the SFC’s Guidance Note on Internet Regulation issued in March 1999 and the IA’s Guideline on the Use of Internet for Insurance Activities (GL8). Using a website or electronic medium does not automatically exempt the activity from regulation.

Its eight parts cover introduction, scope, general regulatory approach, internet advertisements, internet CIS offers, analytical tools, electronic communication with CIS investors, and regulatory development, in that order. Its scope therefore extends beyond advertising to online offers and interaction with investors.