The Securities and Futures Commission (SFC) of Hong Kong has fined a hedge fund HK$1.75mn for failures relating to its non-compliance with the EU’s short selling regime.
The SFC also banned the fund’s former Head of Compliance for two months from October 2022 to December 2022.
This fine and ban is on top of a £873k fine imposed by the UK’s FCA in October 2020.
What Happened?
The conduct in question occurred between February 2017 and July 2019.
The fund failed to make 155 notifications to the FCA and 153 disclosures to the public of its net short position in Premier Oil.
By July 2019, the fund had built a net short position equivalent to 16.85% of the issued share capital in Premier Oil, which was then held for a further 106 trading days before being notified to the FCA and disclosed to the public.
The FCA’s Mark Steward, Executive Director of Enforcement and Market Oversight, said:
“Failure to report disclosable short positions undermines the integrity and efficiency of financial markets... [the fund] repeatedly breached reporting rules and failed to provide important information to us and to the market. This fine reflects the seriousness of these breaches.”
Hong Kong’s SFC investigation, conducted after the FCA’s enforcement action, found that the fund:
“failed to implement adequate systems and controls in its compliance framework to monitor and ensure its short position in Premier Oil was properly reported to the FCA and disclosed to the public as required under the EU Regulation…
….[the fund] also failed to seek legal advice on its reporting obligations under the EU Regulation before it established a short position in Premier Oil even though [the fund] was investing in a new jurisdiction and unfamiliar with the EU market.”
The fund also failed to notify the SFC immediately upon becoming aware that it had materially breached the EU Regulation, and only did so after a delay of two months.
Conclusion
The decision by the SFC, on top of the FCA’s fine, makes it all too clear that regulators will not only seek hefty fines for failing to implement effective compliance systems for shareholding disclosure, they will also enforce personal sanctions on compliance officers.
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