HK watchdog calls for more accountability in investment industry

Fund firms, broker-dealers and investment advisers can help plug gaps in Hong Kong’s responsible officer regime, says Julia Leung of the Securities and Futures Commission.
HK watchdog calls for more accountability in investment industry

More clarity is needed in Hong Kong’s investment industry about management accountability at licensed firms, said one of the city’s most senior market regulators yesterday.

Julia Leung, head of intermediaries at the Securities and Futures Commission (SFC), pointed to “gaps” in the watchdog's responsible officer (RO) regime and described how it aimed to plug them.

She was speaking in Hong Kong at the Asia-Pacific annual forum of the Alternative Investment Managers Association, part of the Asian Financial Forum.

The SFC is introducing a ‘Manager-in-Charge’ regime – set out in a circular last month – to increase the accountability of senior management and, in turn, drive proper conduct at fund managers, broker-dealers and investment advisers. 

“We hope to see more cases of misconduct detected by firms and reported to us, rather than having regulators detect them,” said Leung. “We also hope to see front-line business managers take on the responsibility for compliance, instead of solely relying on the compliance department.

“Most of all, we hope to see a tone from the top that consistently and as a matter of course places client interests and the integrity of the market at the centre of business decisions.”


In the past, Leung conceded, SFC did not spell out precisely who was regarded as senior management, so there are gaps when it comes to identifying who has real responsibility.

For one thing, some firms have not necessarily appointed their most senior managers as ROs, she noted. In some extreme cases, she added, junior executives have been made ROs while the senior executives “stay in the shadows in the hope of escaping regulatory scrutiny”.

Another issue is that there was previously no systematic way for the SFC to collect information on management structures, particularly for certain core functions, such as risk management and compliance, that are not regulated activities.

Hence why the Manager-In-Charge initiative aims to provide more guidance on who is regarded as senior management and who should seek to become ROs, as well as on the management structure information required by the SFC.

Implementation time

The often-complex webs of reporting lines at global firms means it could take time to implement the Manager-in-Charge regime, conceded Leung. But she noted that some companies, in considering whom to appoint as managers in charge, have sought to clarify their management responsibility and governance structure.

“We expect [the regime] to be bedded down over the course of this year,” noted Leung, adding that the SFC issued a circular inviting reps of licensed firms to workshops in February and March.

Licensed firms must appoint Managers-In-Charge and provide management structure information to the regulator by July 17. Managers in charge of regulated activities are expected to have obtained or applied for RO status by October 16.

In her concluding remarks, Leung noted: “Nobody seems to have any problems embracing this concept [of responsibility and accountability] when it comes to allocating performance bonuses. Why should it be any different when it comes to allocating responsibility and owning up to the conduct of the corporation?”

There is reason to be hopeful. Recognition of the importance of following best practice appears to be spreading in Asia’s investment industry. For instance, the London-based Hedge Funds Standards Board has reported a significant rise in the number of its members in Asia Pacific during 2016.

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