Regulatory Framework: SFC, SEHK, HKFE and Other Regulators
This domain tests the statutory architecture: who makes the rules, who enforces them, and where the boundaries lie between the SFC, the exchanges, the HKMA and other bodies a candidate meets on the job.
The SFC
The Securities and Futures Commission is a statutory body under the Securities and Futures Ordinance (Cap. 571), not a government department, funded mainly by transaction levies and fees. Its functions under section 4 include regulating and supervising markets, licensing intermediaries, investigating breaches and disciplining licensees. Section 194 powers include reprimands, suspension or revocation of licence or registration, prohibition orders, and fines of up to HK$10 million or three times the profit gained or loss avoided, whichever is greater. The SFC also houses the Takeovers Executive, refers market misconduct to the Market Misconduct Tribunal, and administers the Investor Compensation Fund, which compensates up to HK$500,000 per investor.
SEHK and HKFE
Both are recognised exchange companies. SEHK is the front-line regulator of listed companies: it administers the Main Board and GEM Listing Rules through the Listing Committee and may censure issuers and directors. Its listing decisions sit under SFC oversight, and the dual-filing regime lets the SFC act on false or misleading listing documents. HKFE sets contract specifications and, through HKCC, margin policy.
HKMA and other bodies
The HKMA is the banking regulator and front-line supervisor of registered institutions conducting securities business, working under a memorandum with the SFC; the SFC remains the conduct regulator and may discipline RIs and their staff directly. The Insurance Authority regulates insurers and insurance-linked securities; the MPFA regulates MPF trustees; the AFRC oversees auditors of public interest entities; the JFIU receives suspicious transaction reports.
Worked example
A retail bank sells an SFC-authorised fund. The product itself must be authorised by the SFC under section 104 SFO. Prudential and day-to-day supervision of the bank is the HKMA's, as front-line supervisor of the registered institution. Conduct standards come from the SFC Code of Conduct, applied by the HKMA under the memorandum. Disciplinary power over the bank's licensed staff rests with the SFC. Candidates lose marks by assuming the HKMA licenses securities firms - licensing of corporations and individuals is an SFC function.
Traps
- Thinking the HKMA licenses brokers; it supervises banks.
- Treating a Market Misconduct Tribunal finding as a criminal conviction - it is civil market misconduct, though separate criminal prosecution is possible.
- Assuming SEHK can revoke an SFC licence.
- Overlooking the "three times profit gained or loss avoided" limb of the fine formula.