SUBMISSIONS
BY THE SECURITIES LAW COMMITTEE OF THE LAW SOCIETY OF HONG
KONG ON THE SECURITIES AND FUTURES LEGISLATION (PROVISION
OF FALSE INFORMATION) BILL 2000
Executive
Summary
Background to the Bill
The Government announced on 7 September 1998 its "Measures
to Strengthen the Order and Transparency of the Securities
and Futures Markets". The Measures included a proposal to
criminalise false reporting to the SFC and the Exchanges.
This was followed by a SFC Consultation Paper in February
1999 and, following on from this, the Bill was gazetted
on 3 March 2000.
Overview of the Bill
In summary, the Bill would make it a criminal offence for
a person to provide to the SFC, Hong Kong Exchanges and
Clearing Limited, the Exchanges or their clearing houses
any information that:
- he knows to be false, misleading or incomplete in a
material particular; or ·
- he does not believe to be true, accurate and complete
in every material particular.
If the information was provided in purported compliance
with a legal requirement, the offence would be punishable
with a fine of HK$1,000,000 and imprisonment for 2 years.
If the information was provided in other circumstances,
but was relevant to or was connected with the performance
of the regulators' functions, the offence would be punishable
with a fine of HK$500,000 and imprisonment for up to 6 months.
The Bill seeks to introduce provisions to the above effect
in the Securities and Futures Commission Ordinance, Commodities
Trading Ordinance, Stock Exchanges Unification Ordinance,
Securities and Futures (Clearing Houses) Ordinance and Exchanges
and Clearing Houses (Merger) Ordinance.
The Securities Law Committee's concerns
We recognise the importance of the regulatory authorities
receiving accurate and timely information, to assist them
in the performance of their functions. We also endorse the
view that appropriate sanctions should be taken against
anyone who deliberately misleads regulatory authorities
in the exercise of their functions, and that this should
apply to misleading HKEx, the Exchanges and the clearing
houses, as well as the SFC. Nevertheless, we have a number
of serious concerns on the scope of the proposed offence.
- We do not believe that it is appropriate to extend the
criminal law to the provision of information to regulators
except in clearly specified circumstances. The Bill would
create an all-encompassing offence which would extend
to information provided orally and in an informal context.
- As presently drafted, the Bill would also lead to potential
criminal liabilities extending far wider than the situation
of a person who deliberately provides false or misleading
information to a regulator. The offence would apply not
only to information which was false or misleading, but
also where the information provided was not complete in
every material particular. This imposes an impracticably
broad requirement, for the reasons discussed in the Appendix.
- The offence would apply if the person did not believe
the information to be true, accurate and complete in every
material particular. Very often, a person will supply
information to regulators which is not within his personal
knowledge, but has been provided by someone else, where
he has no reason to believe it is inaccurate. However,
it is difficult to say that he positively believed it
to be true, accurate and complete unless he takes steps
to verify that information. Again, for the reasons mentioned
in the Appendix, we do not believe that this is practical
and unfairly exposes a person who deals with the regulators
to the risk of criminal liability.
The combined effect of 1-3 above would, in our view, create
an extremely unsatisfactory position. Persons in the financial
services industry who communicate with the SFC, exchanges
and clearing houses would be at risk of criminal liability
for errors and oversights (whether their own or other peoples)
in the course of their day to day activities.
We are concerned that the introduction of such a wide-ranging
offence would, rather than assisting the regulators in the
performance of their functions, instead be counter-productive
and constrain open dialogue between the regulators and participants
in the financial markets. The Bill is likely to make the
financial markets industry very reluctant to co-operate
with the regulators by providing information to the regulators
on an informal basis. It will create great difficulties
for financial intermediaries and lawyers who liaise with
the regulators on behalf of their clients and potentially
hinder the efficiency of Hong Kong as a centre for capital
raising and corporate finance activity. It may well discourage
people from accepting roles where they will be responsible
for providing information to regulators.
We set out in the Appendix our comments as regards the
drafting of the new offence. It is to be hoped that significant
drafting changes will be made to the Bill before it is enacted.
Securities Law Committee
The Law Society of Hong Kong
15 March 2000
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