Year of the Rat 2020-2021: Regulatory investigations and proceedings year in review

Date published




One of Chinese historian Ray Huang’s most well-known books was titled “1587, A Year of No Significance”.  In the book, he examined a series of insignificant goings on in 1587, being the mostly uneventful 15th Year in the reign of Ming Dynasty Emperor Wanli, and drew some larger historical narratives out of that.

The Year of the Rat that is now about to end can hardly be said to be insignificant for the world and for Hong Kong generally.  But what of the Hong Kong financial regulatory enforcement space?  Has that space been paralysed somewhat in the same way that much of the world has done in the midst of a pandemic? 

As we have done in recent years, we will review the regulatory enforcement lunar year that was in this e-bulletin, followed by a webinar after Chinese New Year with our prognosis on the year ahead – watch this space!  In the meantime, we wish you all a happy, healthy, prosperous and safe Year of the Ox.

A year of relative (statistical) insignificance

With the onset of COVID in 2020, the vast majority of key indicators of Securities and Futures Commission’s (“SFC”) enforcement activities painted a picture of a significant slowdown.[1]  Comparing the figures for the six months to 30 September 2019 with those for the six months to 30 September 2020:

  • commencements of inquiries into listed companies conducted issues were down 23.8% from 21 to 16;
  • issuance of directions to investigate market misconduct and licensed entities/representatives conduct issues were down 28.3% from 120 to 86;
  • investigations started fell by 28.6% from 126 to 90;
  • notices of proposed disciplinary action dropped by 23.5% from 17 to 13;
  • notices of disciplinary decisions were down by 26.9% from 16 to 19; and
  • compliance advice letters (ie letters issued by SFC enforcement confirming that it would not impose disciplinary sanctions but would contain critiques of a licensed entity’s/representative’s conduct) fell by 18% from 133 to 109.

These figures would appear to reflect two broad trends.

A continuing downward trend…

First, as stated in our regulatory enforcement year in review e-bulletin last year, while there were still quite a lot of headline-grabbing enforcement actions the amount of SFC enforcement activity was already been trending downwards even back then.  The SFC enforcement statistics cited above partly reflect a deepening of a medium-term trend.

Further, the drop-off in SFC enforcement activity in Year of the Rat arguably felt more acute due to the relative lack of “blockbuster” enforcement actions.  For sure, there was a case where a “mega-fine” was imposed (but Hong Kong was not the main sphere of “action” in that case).[2]  Some continuing “hot themes” in terms of sanctioning licensed representatives over listing sponsors’ due diligence[3] and anti-money laundering controls shortcomings[4] could also be detected.  There were even test cases on what constitutes timely public announcement of inside information in the takeovers context,[5] as well as on the SFC’s powers to obtain passwords to electronic devices seized by it.[6]  But on the whole, SFC enforcement cases in Year of the Rat could not be said to have had the same news or market impact as certain other cases in recent years.

… exacerbated by COVID-19

Second, and more anecdotally, the COVID-19 pandemic has had a practical impact on the progress of SFC enforcement activity.  Through no fault of the SFC or the parties from which it seeks information, interviews have become harder to arrange, particularly for non-Hong Kong based parties.  Obtaining documents and answers to questions inevitably take longer as those from whom these are sought face logistical disruptions which inevitably lengthen response and feedback times.  All these factors have unavoidably further affected the amount of SFC enforcement activities being conducted over the past year.

What lurks beneath

Returning to Ray Huang’s book, he concluded that while 1587 was a seemingly insignificant year for the Ming Dynasty, a number of developments that year were harbingers of major future changes.  Might the Year of the Rat 2020-2021 also be such a year in the Hong Kong regulatory enforcement world? 

There are indications suggesting that this might be the case.  While we will hold a webinar on this to discuss in more detail in our post-Chinese New Year prognosis on the shape of the Hong Kong regulatory enforcement world in the Year of the Ox (again, watch this space!), here are a selection of headlines to think about in the meantime:

  • The Stock Exchange of Hong Kong’s role as joint regulator with the SFC.
  • The distressed global and local economies in the midst of COVID-19.
  • The relatively recent flood of money flowing into Hong Kong’s capital markets.
  • Hong Kong’s role as an asset management hub in the Greater Bay Area.

Gong Xi Fa Cai/Kung Hei Fat Choy!


[1] See this link for relevant statistics:
[3] See, for example, the following cases:
[4] See, for example, the following cases: