Regulation & Investor Protection
Stock
Warrant
CBBC
Regulation & Investor Protection
Market regulation and investor protection

The Securities and Futures Commission (SFC) is an independent non-governmental statutory regulator of the Hong Kong securities and futures markets.
The SFC has six statutory regulatory objectives for the securities and futures industry in Hong Kong:
    • to maintain and promote the fairness, efficiency, competitiveness, transparency and orderliness of the industry;
    • to promote understanding by the public of the operation of functioning of the industry;
    • to provide protection for the investing public;
    • to minimize crime and misconduct in the industry;
    • to reduce systemic risks in the industry; and
    • to assist the Financial Secretary in maintaining the financial stability of Hong Kong by taking appropriate steps in relation to the industry.
In carrying out its regulatory responsibilities, the SFC adopts a philosophy of considering the interest of investors first and providing adequate, but not absolute, protection to investors. While the SFC tries to ensure that the behaviour of market participants follows prescribed regulations, investors are expected to accept responsibility for their own investment decisions and for assessing the level of risk which they are able to accept.

The SFC acts as the gatekeeper by operating a licensing regime. Intermediaries such as brokers and investment advisers must first meet qualifications requirements before dealing in securities or giving investment advice to clients. They must then conduct their business in compliance with ongoing conduct and financial position requirements.
Listed companies
in Hong Kong are
regulated under
a disclosure-based
regime that is
essentially
"caveat emptor or
buyers beware"
approach
Disclosure RegimeRelevant information is made available to investors under this disclosure regime but it is up to the investors to ensure that they utilise this appropriately. For listing on the SEHK, companies must first meet basic financial, track records and corporate governance requirements and disclose sufficient information in a prospectus for investors to make informed investment decisions. After listing, they must meet ongoing obligations including timely disclosure of financial reports, price-sensitive information and discloseable transactions. Frontline RegulatorThe SEHK is the frontline regulator of listing activities. The SFC oversees the SEHK and also regulates takeovers and mergers, reviews company announcements and listing applications filed to both the SFC and SEHK under the Dual Filing regime. The SFC also conducts activities to detect and investigate insider dealing and market manipulation, as well as enforcing disclosure of interests of substantial shareholders, directors and chief executives of listed companies.
The SFC closely monitors the securities and futures markets and co-ordinates market contingency planning to reduce systematic risks and seeks to ensure that the markets operate orderly under all circumstances, especially during crisis situations.

Effective regulation needs to be backed by credible enforcement. The SFC closely monitors activities of the markets and intermediaries to combat misconduct and crimes that jeopardise the interests of investors. It will take firm regulatory action including disciplinary or legal proceedings, against parties who breach regulations.

The SFC also keeps close contact with overseas and Mainland regulators to combat international financial crime and misconduct. Whilst the SFC's regulatory power generally stops at the borders of Hong Kong, it may share intelligence information with and provide assistance to overseas and Mainland regulators concerning enforcement matters, or request information and assistance from them. It may also refer complaints falling within the competence of other jurisdictions to the relevant overseas regulators.
Investor Compensation Fund (ICF)

While the SFC rigorously pursues those who defraud investors, it has no legal powers to make an order for compensation. However, in cases of broker default only, a separate Investor Compensation Fund (ICF) exists to compensate retail investors for their loses, regardless of their nationality. This is based on a per-investor compensation limit of HK$150,000 for trading securities and futures contracts respectively. The ICF generally covers only securities and futures contracts traded respectively on the SEHK and The Hong Kong Futures Exchange. It does not cover losses due to drops in share prices or corporate failure of listed companies (e.g. liquidation).
No regulation can eliminate all regulatory breaches nor the risk of broker default or failure, and the regulatory Hong Kong environment is designed to minimise but not eliminate their occurance.

In every market, well-informed and financially literate investors are the first line of defence against fraud and malpractice. The SFC therefore complement regulation, by conducting a variety of activities to advise investors of both their rights and responsibilities as well as educate them to understand market risks, make informed choices and safeguard their own interests.