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The Process Review Panel for the Securities and Futures Commission today (September 7) published its sixth annual report covering its work from January 1 to December 31, 2006.
"In 2006, the panel reviewed 40 completed cases and the procedures of the Securities and Futures Commission covering various areas of its work. The panel has found that in general, the commission had been adhering to its established internal procedures in their decisions and actions. The panel has also identified certain areas where there could be room for improvement," panel chairman Mr Anthony Chow said.
In the past year, the panel reviewed completed cases and internal procedures of the SFC which cover the following areas of the SFC's regulatory functions -
(a) licensing of intermediaries;
(b) inspection of intermediaries;
(c) authorisation of collective investment schemes;
(d) handling of complaints;
(e) investigation and disciplinary action; and
(f) processing of listing applications under the Dual Filing regime.
The panel has also considered the industry's views on the commission's procedures with a view to identifying areas for improvement and referred the industry's comments to the commission for consideration.
The sixth annual report of the panel contains observations and recommendations which cover a wide spectrum of the commission's regulatory work. Specific observations and improvements arising from the past year's review that are adopted by the commission include -
Inspection of intermediaries
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(1) Advising on various regulatory tools adopted to detect changes in a licensed corporation's risk profile which forms the basis for the selection of intermediaries for inspection or prudential visit.
(2) Following the established procedures of issuing an interim letter of deficiencies in a timely manner to a licensed corporation.
Authorisation of collective investment schemes
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(3) Introducing a time limit on putting on hold an application for authorisation of collective investment schemes in order to avoid undue delay in the processing work.
(4) Reviewing the procedural manual to ensure that the processing milestones are given in terms of business days instead of weeks following the implementation of the five-day week arrangement in the Securities and Futures Commission from July 1, 2006.
Handling of complaints
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(5) Enriching its replies to complainants to provide additional information on the proper channel to lodge a complaint about the quality of service of securities companies, which is outside the commission's jurisdiction.
(6) Updating the procedural manual to reflect a new requirement introduced in March, 2005, to issue an interim reply to the complainant at a quarterly interval so as to keep the complainant informed that the case is receiving attention.
(7) Noting with hindsight that in its investigation into a complaint, the commission should not rely solely on a paper review of media reports and company announcements, but should consider interviewing the subject of the complaint to obtain clarifications.
Investigation and disciplinary action
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(8) Clarifying the commission's new policy to initiate settlement negotiation with persons proposed to be disciplined, which deviates from the commission's advice given in the panel's Annual Report for 2004 that a regulator should not initiate settlement negotiation.
(9) Updating the procedural manual to set out the criteria for the commission to initiate settlement negotiation so as to ensure consistency in application.
(10) Making reference to a database of precedent cases in considering the level of fines and maintaining proper audit trails of such comparisons and deliberations in order to ensure consistency.
(11) Putting in place proper guidelines to guide its staff in deciding when to take or recommend criminal proceedings against licensees in lieu of or in addition to internal disciplinary procedures.
(12) Introducing suitable steps in the disciplinary procedures to guard against delaying tactics used by persons to be disciplined.
(13) Clarifying that the commission had made comparison with similar precedent cases in deciding the penalty for diligence failings and explaining the commission's considerations in making penalty decisions.
(14) Updating the procedural manual to ensure that a proper audit trail would be maintained on the decisions to open or close investigation cases.
"We appreciate the co-operation and support rendered by the commission to the work of the panel and look forward to continuing to work closely with the Commission in future," Mr Chow said.
In the coming year, the panel will continue to discuss with the Securities and Futures Commission issues relating to the commission's development of a policy on initiating criminal proceedings against licensees in lieu of or in addition to internal disciplinary proceedings, and the circumstances in which the commission may initiate settlement negotiation.
"We welcome views from the public, in particular the market participants affected by the commission's internal procedures, on our work in the coming year," Mr Chow said. People may submit views to the panel by email (Email address: prp@fstb.gov.hk).
The report and its Executive Summary can be downloaded from the Financial Services and the Treasury Bureau's website (www.fstb.gov.hk/fsb/topical/preport06.htm).
Ends/Friday, September 7, 2007
Issued at HKT 17:01
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