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Hong Kong Appeals Court Will Not Allow Criminal Law Principles to Be Imported into SFC Disciplinary Proceedings

By Jim Hamilton

A Hong Kong appeals court has ruled that it is not appropriate for the tribunal reviewing disciplinary decisions of the Securities and Futures Commission to guide itself by analogy to criminal proceedings. Criminal procedures are not applicable to SFC disciplinary proceedings, said the court. Li Kwok Keung Asser v. Securities and Futures Commission, CACV 85/2010, Nov. 26, 2010.

The SFC decided to revoke the license of a securities dealer and ban him for lying to the Commission and breaching his undertaking to co-operate. On appeal, the Securities and Futures Appeals Tribunal reduced the 10-year ban to 18 months and equated the obligations of the SFC in disciplinary proceedings with that of a prosecutor in criminal proceedings.

The SFC appealed to the Court of Appeal against both the penalty imposed by the SFAT and its analogy drawn between the SFC?s disciplinary process and criminal procedures.

A panel of the Court of Appeal unanimously allowed the SFC?s appeal and increased the penalty from a suspension of license for 18 months to a three year industry ban. Since the dealer is no longer a licensed person, a suspension of license could not be imposed on him, so the appeals panel imposed a three-year industry ban.

Writing for the court, Justice Stone said that the Securities and Futures Ordinance (SFO) specifies that the standard of proof to be applied by the tribunal in reviewing SFC disciplinary actions is to be the civil standard. Analogies to criminal proceedings are inappropriate and unhelpful, said the panel, and also obscure the fact that that the SFO contains what clearly is intended to be a self-sufficient statutory code for dealing with regulatory disciplinary matters.

Quite naturally, continued the court, the tribunal?s analogy to criminal proceedings caused alarm bells to ring in the mind of the SFC, which clearly foresaw the complications arising in its regulation of the market, as currently authorized by statutory principle, should criminal law principles effectively be imported by a side-wind into its disciplinary activities.

The basis and tenor of the jurisprudence as laid down in the initial six years of the life of the tribunal is entirely premised upon the statutory principles enshrined in the SFO as to the operation of the Tribunal, noted the court, the provisions of which make it abundantly clear that the disciplinary appellate process created by the statute is not to be confused with considerations specifically pertinent to the criminal law.

In a concurring opinion, Justice Kwan said that it was inappropriate to import by analogy criminal procedure and the giving of evidence under immunity in a criminal prosecution. To do so would undermine the legislative policy of the SFO providing for compulsory power to require information from a person under investigation and abrogating the privilege against self-incrimination in exchange for a limited use immunity.

Full post as published by Jim Hamilton's World of Securities Regulation on December 11, 2010 (boomark / email).