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HKSI Paper 1 practice questions

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Question 1Regulatory framework and structure of the Hong Kong securities and futures markets

Which body is responsible for investigating and prosecuting breaches of the Securities and Futures Ordinance (SFO) before the courts, while also regulating the securities and futures industry?

  1. The Financial Reporting Council
  2. The Hong Kong Monetary Authority
  3. The Securities and Futures Commission Correct answer.
  4. The Stock Exchange of Hong Kong Limited

Explanation

The SFC is the statutory regulator for the securities and futures markets and may investigate suspected breaches and bring prosecutions. The HKMA focuses on banking stability and the Exchange operates the market under SFC oversight.

Question 2Regulatory framework and structure of the Hong Kong securities and futures markets

Under the SFO, which of the following is a statutory objective of the Securities and Futures Commission?

  1. Approving the annual budget of the Hong Kong Monetary Authority
  2. Guaranteeing that investors do not suffer losses on listed securities
  3. Setting the level of interest rates in Hong Kong
  4. Maintaining and promoting the fairness, efficiency and transparency of the securities and futures industry Correct answer.

Explanation

The SFC's statutory objectives include promoting fairness, efficiency and transparency in the industry, reducing systemic risk and protecting investors. It does not guarantee investment returns, and monetary policy is not within its remit.

Question 3Regulatory framework and structure of the Hong Kong securities and futures markets

A licensed corporation's conduct is reviewed by the SFC. Which statement best describes the role of the Securities and Futures Appeals Tribunal (SFAT)?

  1. It supervises the SFC's own internal budget and staffing
  2. It hears appeals against specified SFC decisions, such as disciplinary sanctions and licence refusals Correct answer.
  3. It sets the rules for listing new securities on the Exchange
  4. It prosecutes SFO offences in the District Court on behalf of the SFC

Explanation

The SFAT is an independent statutory body that reviews specified decisions of the SFC, including licensing refusals and disciplinary action, upon application by the affected person. It does not prosecute offences or make listing rules.

Question 4Regulatory framework and structure of the Hong Kong securities and futures markets

Which of the following activities requires a licence or registration under the SFO when carried out as a business in Hong Kong?

  1. Preparing statutory audited financial statements for a manufacturer
  2. Advising a client on the merits of acquiring shares in a specific listed company Correct answer.
  3. Arranging a mortgage loan between a bank and a homebuyer
  4. Publishing general economic commentary in a newspaper

Explanation

Giving advice on the merits of a securities transaction for another person is a regulated activity (Type 4 advising on securities) requiring a licence. General commentary without specific advice, auditing and mortgage broking are not regulated activities under the SFO.

Question 5Regulatory framework and structure of the Hong Kong securities and futures markets

A firm proposes to conduct Type 9 asset management for a fund investing in securities. Which regulator is the primary licensing authority for this activity under the SFO?

  1. The Securities and Futures Commission Correct answer.
  2. The Insurance Authority
  3. The Hong Kong Monetary Authority
  4. The Companies Registry

Explanation

Asset management (Type 9) is a regulated activity licensed by the SFC. The HKMA registers banks for certain regulated activities, but the SFC remains the principal securities regulator and the licensing authority for non-bank intermediaries.

Question 6Regulatory framework and structure of the Hong Kong securities and futures markets

Which of the following best describes the status of the Hong Kong Exchanges and Clearing Limited (HKEX) in the regulatory structure?

  1. It is a government department that drafts the Securities and Futures Ordinance
  2. It is a statutory body that prosecutes market misconduct offences
  3. It is a listed company that operates the exchanges and clearing houses, regulated by the SFC Correct answer.
  4. It is an agency of the People's Bank of China supervising cross-border flows

Explanation

HKEX is a listed company that owns and operates the Stock Exchange, the Futures Exchange and the clearing houses, and it is subject to SFC supervision. It is not a government department and does not prosecute market misconduct.

Question 7Regulatory framework and structure of the Hong Kong securities and futures markets

Which of the following is the primary purpose of the Investor Compensation Fund established under the SFO?

  1. To compensate investors who suffer losses from the default of a licensed intermediary in specified circumstances Correct answer.
  2. To reimburse investors for losses caused by falls in share prices
  3. To fund the operating expenses of the Securities and Futures Commission
  4. To guarantee the repayment of corporate bonds issued by listed companies

Explanation

The Investor Compensation Fund compensates investors for losses arising from the default of a licensed intermediary in relation to exchange-traded products, subject to monetary limits. It does not cover market losses or issuer defaults.

Question 8Regulatory framework and structure of the Hong Kong securities and futures markets

The Market Misconduct Tribunal (MMT) is established to handle which type of matter?

  1. Criminal prosecutions for theft of client assets by an individual
  2. Appeals against decisions of the Securities and Futures Appeals Tribunal
  3. Civil proceedings relating to market misconduct such as insider dealing and false trading Correct answer.
  4. Disputes between listed companies and their auditors over financial statements

Explanation

The MMT conducts civil proceedings into market misconduct such as insider dealing, false trading and price rigging, and may impose civil sanctions. Criminal cases go through the courts, and it is not an appeal body for the SFAT.

Question 9Regulatory framework and structure of the Hong Kong securities and futures markets

A licensed representative wishes to change the scope of activities she may perform from Type 1 dealing to also include Type 2 dealing in futures contracts. What is the appropriate regulatory step?

  1. Apply to the SFC to vary the licence to add the additional regulated activity Correct answer.
  2. Begin the additional activity immediately and notify the SFC within 12 months
  3. Rely on the existing licence because dealing is a single broad category
  4. Seek approval only from the Stock Exchange listing committee

Explanation

A licence is granted for specified regulated activities, so a person wishing to conduct an additional activity must apply to the SFC to vary the licence. Dealing in securities and dealing in futures are separate regulated activities.

Question 10Regulatory framework and structure of the Hong Kong securities and futures markets

Which of the following statements about the Securities and Futures Commission's funding is correct?

  1. It is funded entirely by the Government's general revenue
  2. It is funded by a levy on individual retail investors' salaries
  3. It is funded directly by the Hong Kong Exchanges and Clearing Limited
  4. It is funded by fees, charges and levies on the market, with the Government providing no recurrent subsidy Correct answer.

Explanation

The SFC is financed principally by fees, transaction levies and charges paid by market participants, and is not dependent on recurrent government funding. This preserves its financial independence as a regulator.

Question 11Regulatory framework and structure of the Hong Kong securities and futures markets

Which of the following is the role of the Financial Services and the Treasury Bureau (FSTB) in the regulatory framework?

  1. It formulates policy for the financial services sector and liaises with regulators on policy matters Correct answer.
  2. It adjudicates disciplinary cases against licensed corporations
  3. It operates the central clearing and settlement systems
  4. It directly licenses securities dealers and approves their responsible officers

Explanation

The FSTB is the government bureau responsible for financial services policy and for maintaining the regulatory framework, while operational licensing and discipline rest with the SFC. It does not operate clearing systems.

Question 12Regulatory framework and structure of the Hong Kong securities and futures markets

Which of the following statements about the relationship between the SFC and the Hong Kong Monetary Authority is correct?

  1. The HKMA has no role in the securities markets and never shares information with the SFC
  2. The SFC supervises banks' capital adequacy while the HKMA licenses fund managers
  3. The HKMA may overturn SFC disciplinary decisions by issuing a direction
  4. The two authorities coordinate and exchange information where regulated activities overlap, such as banks conducting securities business Correct answer.

Explanation

Where banks conduct securities activities, the HKMA and SFC coordinate supervision and share information under the SFO framework. Each retains its own statutory remit and neither can simply override the other's decisions.

Question 13Regulatory framework and structure of the Hong Kong securities and futures markets

A person who is not licensed carries on a business of dealing in securities in Hong Kong. Which statement best describes the regulatory consequence under the SFO?

  1. The conduct is lawful if the person is incorporated in Hong Kong
  2. The conduct is lawful if the person trades only through an Exchange participant
  3. The conduct may constitute an offence, and the SFC may investigate and prosecute Correct answer.
  4. The conduct is lawful provided all clients are professional investors

Explanation

Carrying on a regulated activity without a licence is an offence under the SFO, and the SFC may investigate and bring proceedings. Neither professional investor status nor incorporation removes the licensing requirement.

Question 14Regulatory framework and structure of the Hong Kong securities and futures markets

Which of the following best describes the purpose of the SFC's Codes of Conduct for Persons Licensed by or Registered with the SFC?

  1. To set out minimum standards of business conduct expected of licensed and registered intermediaries Correct answer.
  2. To determine the listing eligibility of companies on the Exchange
  3. To replace the statutory provisions of the Securities and Futures Ordinance
  4. To prescribe the accounting standards used in financial statements

Explanation

The Codes of Conduct set minimum conduct standards for intermediaries, supplementing the SFO, and breach may be taken into account in disciplinary action. They do not replace statute, set accounting standards or decide listing eligibility.

Question 15Regulatory framework and structure of the Hong Kong securities and futures markets

Which of the following is a function of the Stock Exchange of Hong Kong Limited in the regulatory structure?

  1. Setting the capital requirements for licensed corporations
  2. Granting licences to securities dealers to conduct Type 1 regulated activity
  3. Operating the securities market and administering the listing rules Correct answer.
  4. Prosecuting insider dealing cases before the Market Misconduct Tribunal

Explanation

The Exchange operates the securities market and administers the listing rules, subject to SFC oversight as the frontline regulator of listed companies. It does not license dealers or set capital requirements.

Question 16Regulatory framework and structure of the Hong Kong securities and futures markets

Which of the following statements about the SFC's power to make rules under the SFO is correct?

  1. The SFC may only issue non-binding guidance and has no rule-making power
  2. The SFC may make subsidiary legislation on matters such as licensing and conduct, subject to the approval process set out in the SFO Correct answer.
  3. The SFC may amend the Securities and Futures Ordinance itself without reference to the Legislative Council
  4. The SFC's rules take effect only after approval by the Hong Kong Exchanges and Clearing Limited

Explanation

The SFO empowers the SFC to make subsidiary legislation on specified matters, with the applicable approval and vetting procedures. The SFC cannot amend the primary ordinance itself, and its rules do not require HKEX approval.

Question 17Regulatory framework and structure of the Hong Kong securities and futures markets

A bank registered with the HKMA conducts securities dealing for customers. Which statement best describes how the conduct rules apply?

  1. The bank is a registered institution and is subject to the SFC's conduct requirements for its securities activities, supervised in coordination with the HKMA Correct answer.
  2. The bank is exempt from all conduct requirements because it is a deposit-taking institution
  3. The bank must surrender its banking licence to conduct securities dealing
  4. The bank is subject only to the HKMA's banking rules and the SFC conduct codes do not apply

Explanation

A bank conducting regulated activities is a registered institution; the SFC's conduct requirements apply to those activities, and supervision is coordinated with the HKMA. The bank does not need to give up its banking licence.

Question 18Regulatory framework and structure of the Hong Kong securities and futures markets

Which of the following is the principal purpose of the Securities and Futures Ordinance's provisions on market misconduct?

  1. To regulate the level of brokerage commissions charged by dealers
  2. To protect the integrity and fairness of the market by prohibiting conduct such as insider dealing and false trading Correct answer.
  3. To guarantee a minimum return to investors who trade on the Exchange
  4. To set the minimum capital of listed companies

Explanation

The market misconduct provisions prohibit conduct that undermines market integrity, such as insider dealing, false trading and price rigging. They do not guarantee returns, fix commissions or set issuer capital.

Question 19Regulatory framework and structure of the Hong Kong securities and futures markets

Which of the following statements about the SFC's disciplinary powers over licensed corporations is correct?

  1. The SFC may impose sanctions such as public reprimands, fines and suspension or revocation of licences Correct answer.
  2. The SFC may only discipline individuals, not licensed corporations
  3. The SFC must obtain a court conviction before imposing any disciplinary sanction
  4. The SFC may only issue private warnings and cannot impose fines

Explanation

The SFC may impose a range of disciplinary sanctions on licensed corporations and individuals, including reprimands, fines and licence suspension or revocation, without needing a prior criminal conviction. It is not limited to private warnings.

Question 20Regulatory framework and structure of the Hong Kong securities and futures markets

A licensed corporation is considering whether a particular new product falls within a regulated activity. Which approach is most consistent with the regulatory framework?

  1. Analyse the activity against the statutory definition of regulated activities and seek SFC guidance where uncertain Correct answer.
  2. Rely on a competitor's practice as conclusive evidence that no licence is needed
  3. Assume that SFC approval of the product is unnecessary because the firm is already licensed
  4. Proceed on the basis that any product sold to retail clients is unregulated

Explanation

Whether an activity is regulated depends on the statutory definitions in the SFO and its subsidiary legislation, and firms should analyse the activity and seek guidance where unclear. Being licensed for one activity does not automatically cover another, and competitor practice is not authoritative.

Question 21Regulatory framework and structure of the Hong Kong securities and futures markets

Which of the following best describes the role of the SFC's Investor Education Centre in the regulatory framework?

  1. It sets the transaction levy paid to the SFC
  2. It investigates complaints against licensed corporations and imposes fines
  3. It provides investor education to improve financial literacy and informed investing Correct answer.
  4. It licenses robo-advisers to conduct Type 4 regulated activity

Explanation

The Investor Education Centre focuses on investor education and financial literacy, helping investors make informed decisions. It does not investigate firms, license advisers or set levies.

Question 22Regulatory framework and structure of the Hong Kong securities and futures markets

Which of the following statements about the territorial scope of the SFO licensing regime is correct?

  1. The SFO applies only to companies incorporated in Hong Kong
  2. Only persons physically present in Hong Kong at the time of the transaction are caught
  3. The SFC may take action where a person carries on a regulated activity in Hong Kong or actively markets to Hong Kong investors, even from offshore Correct answer.
  4. A person outside Hong Kong can never be subject to the SFO regardless of activities directed at Hong Kong

Explanation

The licensing regime can reach offshore persons who carry on a regulated activity in Hong Kong or actively market to the Hong Kong public. Physical presence at the moment of a transaction and place of incorporation are not the sole tests.

Question 23Regulatory framework and structure of the Hong Kong securities and futures markets

Which of the following is a key difference between the SFC and the Market Misconduct Tribunal in handling insider dealing?

  1. Only the MMT may impose criminal penalties such as imprisonment
  2. The MMT licenses dealers while the SFC hears appeals
  3. The SFC has no role in insider dealing matters
  4. The SFC may institute civil proceedings before the MMT, while criminal insider dealing cases are prosecuted in the courts Correct answer.

Explanation

The SFC may commence civil proceedings before the MMT, and separately criminal insider dealing may be prosecuted in the courts. The MMT does not impose imprisonment, and licensing is not its function.

Question 24Regulatory framework and structure of the Hong Kong securities and futures markets

Which of the following statements about the SFC's power to require information from licensed corporations is correct?

  1. The SFC may only request information with the consent of the HKMA in all cases
  2. The SFC may only inspect records following a court order in every case
  3. The SFC may require production of records and explanations relevant to its functions, and obstruction may be an offence Correct answer.
  4. The SFC may not require information from firms that are also listed companies

Explanation

The SFO gives the SFC powers to require the production of records and explanations relevant to its regulatory functions, and failure to comply or obstruction may be an offence. A court order is not required in every case, and listed status does not remove the power.

Question 25Securities and Futures Commission and other regulators: roles, powers and enforcement

Under the Securities and Futures Ordinance, which body is the principal statutory regulator of the securities and futures markets in Hong Kong?

  1. The Insurance Authority
  2. The Hong Kong Monetary Authority
  3. The Securities and Futures Commission Correct answer.
  4. The Hong Kong Exchanges and Clearing Limited

Explanation

The Securities and Futures Ordinance establishes the Securities and Futures Commission as the statutory regulator responsible for supervising the securities and futures markets and the conduct of intermediaries. The other bodies each have distinct mandates over banking, market operation, or insurance rather than general securities market regulation.

Question 26Securities and Futures Commission and other regulators: roles, powers and enforcement

Which of the following best describes the Securities and Futures Commission's relationship with the Hong Kong Monetary Authority in supervising banks that conduct regulated activities?

  1. The HKMA alone licenses banks to conduct all regulated activities without any SFC involvement
  2. The SFC and HKMA coordinate, with the SFC regulating conduct of regulated activities and the HKMA supervising banking stability Correct answer.
  3. The SFC has no role over banks because banking supervision excludes securities activity
  4. The SFC delegates all securities supervision of banks to the Insurance Authority

Explanation

Banks that conduct regulated activities fall within the SFC's conduct regime while the HKMA remains the banking supervisor, so the two authorities coordinate under a memorandum of understanding. The SFC focuses on conduct and investor protection, and the HKMA on prudential and banking stability matters.

Question 27Securities and Futures Commission and other regulators: roles, powers and enforcement

A licensed corporation wishes to challenge a disciplinary decision of the Securities and Futures Commission. To which body does an appeal against that decision ordinarily lie?

  1. The Court of First Instance directly by way of judicial review only
  2. The Securities and Futures Appeals Tribunal Correct answer.
  3. The Takeovers and Mergers Panel
  4. The Market Misconduct Tribunal

Explanation

The Securities and Futures Appeals Tribunal is the statutory body established to review specified decisions of the SFC, including disciplinary sanctions, and it may affirm, vary, or set aside the decision. Judicial review remains available but is not the ordinary first route for these decisions, and the other bodies have different functions.

Question 28Securities and Futures Commission and other regulators: roles, powers and enforcement

Which of the following is a core statutory objective of the Securities and Futures Commission?

  1. Reducing the number of licensed intermediaries to strengthen the market
  2. Setting the interest rate policy of the Hong Kong dollar
  3. Promoting the development of the securities and futures markets while protecting investors Correct answer.
  4. Guaranteeing profits for retail investors in listed securities

Explanation

The SFC's statutory objectives include facilitating market development, protecting investors, reducing systemic risk, and promoting market transparency and fairness. It does not guarantee investment returns, restrict competition among licensees, or set monetary policy.

Question 29Securities and Futures Commission and other regulators: roles, powers and enforcement

The Market Misconduct Tribunal is best described as which of the following?

  1. A criminal court that imposes imprisonment for insider dealing
  2. An advisory committee that drafts the Listing Rules
  3. A division of the SFC that issues licences to intermediaries
  4. A statutory tribunal that determines whether market misconduct has occurred and may impose civil sanctions Correct answer.

Explanation

The Market Misconduct Tribunal is a civil tribunal that hears allegations of market misconduct such as insider dealing and market manipulation referred by the SFC, and it may make orders including disqualification and cold shoulder orders. It does not impose imprisonment, and it is separate from the SFC's licensing function.

Question 30Securities and Futures Commission and other regulators: roles, powers and enforcement

A person who is not licensed or registered carries on a business of dealing in securities in Hong Kong. Which statement best reflects the SFC's enforcement position?

  1. The activity requires only notification to the HKMA before it may begin
  2. The activity is lawful if the person deals only with professional investors
  3. The activity is lawful provided no client complains about losses
  4. The activity may constitute an offence under the Securities and Futures Ordinance, exposing the person to prosecution and sanctions Correct answer.

Explanation

Carrying on a regulated activity without the required licence or registration is an offence under the Securities and Futures Ordinance, and the SFC may investigate and prosecute. Dealing with professional investors does not remove the licensing requirement where the person is carrying on a business of the regulated activity.

Question 31Securities and Futures Commission and other regulators: roles, powers and enforcement

Which of the following powers does the Securities and Futures Commission hold when investigating suspected breaches of the Securities and Futures Ordinance?

  1. Power to overrule judgments of the Court of Appeal
  2. Power to require production of records and to compel attendance to answer questions Correct answer.
  3. Power to impose criminal imprisonment directly on a suspect
  4. Power to amend the Basic Law to facilitate investigations

Explanation

The SFC has statutory investigation powers, including requiring the production of records and documents and compelling persons to attend and answer questions. It cannot itself impose imprisonment, which is a matter for the courts, and it cannot alter legislation or overrule appellate judgments.

Question 32Securities and Futures Commission and other regulators: roles, powers and enforcement

The Takeovers and Mergers Panel and the Takeovers Executive operate under which framework?

  1. The Insurance Ordinance
  2. The Securities and Futures Ordinance licensing regime for intermediaries
  3. The Listing Rules administered solely by the Listing Committee
  4. The Codes on Takeovers and Mergers and Share Buy-backs administered with SFC oversight Correct answer.

Explanation

Takeover and merger activity in Hong Kong is governed by the Codes on Takeovers and Mergers and Share Buy-backs, administered by the Takeovers Executive with the Takeovers and Mergers Panel, under the SFC's overall oversight. These are not licensing provisions, Listing Rules, or insurance rules.

Question 33Securities and Futures Commission and other regulators: roles, powers and enforcement

Which statement accurately describes the SFC's power to impose disciplinary sanctions on a licensed corporation?

  1. The SFC may impose fines, suspend or revoke licences, and issue public reprimands Correct answer.
  2. The SFC may impose sanctions only after a criminal conviction in court
  3. The SFC may only issue private warnings and has no power to fine
  4. The SFC may only sanction individuals and never corporate licensees

Explanation

The SFC may impose a range of disciplinary sanctions on licensed corporations and individuals, including public or private reprimands, fines, suspension, and revocation of licences. These sanctions follow its own disciplinary process and do not require a prior criminal conviction.

Question 34Securities and Futures Commission and other regulators: roles, powers and enforcement

A licensed representative suspects that a client's instruction would involve market manipulation. Under the regulatory framework, what is the most appropriate course of action?

  1. Refer the client to an unlicensed third party to execute the trade
  2. Execute the instruction and report it to the SFC only if the client later objects
  3. Execute the instruction because client instructions always override regulatory concerns
  4. Refuse to act on the instruction and escalate the concern through the firm's compliance function Correct answer.

Explanation

A licensed person must not facilitate market misconduct and should refuse to act on improper instructions, escalating the matter to compliance so that reporting obligations can be considered. Referring the client to an unlicensed party would itself breach licensing requirements.

Question 35Securities and Futures Commission and other regulators: roles, powers and enforcement

Which of the following statements about the SFC's funding and accountability is correct?

  1. The SFC is a department of the HKMA and has no separate governing board
  2. The SFC is funded by the Insurance Authority
  3. The SFC is funded entirely by the Exchange and reports only to HKEX
  4. The SFC is funded largely by fees and levies and reports to the Financial Secretary and through the Financial Secretary to the legislature Correct answer.

Explanation

The SFC is a statutory body financed mainly by transaction levies, fees, and charges, and it is accountable to the Financial Secretary, who reports to the legislature. It is not part of HKEX, the HKMA, or the Insurance Authority and has its own governing board.

Question 36Securities and Futures Commission and other regulators: roles, powers and enforcement

The Investor Compensation Fund is intended to do which of the following?

  1. Guarantee the capital value of all listed securities
  2. Compensate investors for losses arising from the default of a licensed intermediary in specified circumstances Correct answer.
  3. Reimburse investors for losses caused by issuer business failure
  4. Compensate investors for losses caused by poor investment choices

Explanation

The Investor Compensation Fund provides compensation to investors who suffer losses due to the default of a licensed intermediary in connection with exchange-traded products, within specified limits and conditions. It does not cover poor investment decisions, market losses, or issuer insolvency.

Question 37Securities and Futures Commission and other regulators: roles, powers and enforcement

Which body is responsible for regulating the banking sector and the stability of the monetary system in Hong Kong?

  1. The Competition Commission
  2. The Securities and Futures Commission
  3. The Hong Kong Monetary Authority Correct answer.
  4. The Financial Reporting Council

Explanation

The Hong Kong Monetary Authority is responsible for banking supervision, monetary stability, and management of the Exchange Fund. The other bodies deal with securities regulation, financial reporting oversight, and competition matters respectively.

Question 38Securities and Futures Commission and other regulators: roles, powers and enforcement

Which of the following statements about the SFC's power to make rules under the Securities and Futures Ordinance is correct?

  1. The SFC has no rule-making power and may only issue press releases
  2. The SFC may make rules only with the unanimous consent of all licensed corporations
  3. The SFC may make rules that override the Securities and Futures Ordinance
  4. The SFC may make subsidiary legislation and codes and guidelines, subject to applicable procedural and legislative oversight requirements Correct answer.

Explanation

The SFC may make subsidiary legislation and issue codes and guidelines to implement the Securities and Futures Ordinance, subject to required consultation and legislative oversight processes. It cannot override the Ordinance itself or require the consent of licensees to make rules.

Question 39Securities and Futures Commission and other regulators: roles, powers and enforcement

A person is convicted in court of insider dealing under the Securities and Futures Ordinance. Which statement best describes the possible consequences?

  1. The person may face imprisonment, fines, and disqualification orders, and the SFC may also take related regulatory action Correct answer.
  2. The person may only be ordered to pay the SFC's investigation costs
  3. The person is automatically barred from any future employment in Hong Kong
  4. The person may only be issued a private warning by the SFC

Explanation

Insider dealing is a criminal offence under the Ordinance, and a court may impose imprisonment, fines, and disqualification, while the SFC may also take regulatory action such as licence revocation. The consequences are not limited to costs or a private warning, and a conviction does not automatically bar all employment.

Question 40Securities and Futures Commission and other regulators: roles, powers and enforcement

Which of the following best describes the role of the Financial Reporting Council?

  1. It oversees the accounting profession and investigates financial reporting irregularities of listed entities Correct answer.
  2. It administers the Codes on Takeovers and Mergers
  3. It sets monetary policy for the Hong Kong dollar
  4. It licenses securities intermediaries and sets capital requirements

Explanation

The Financial Reporting Council oversees the accounting profession and investigates financial reporting irregularities, particularly of listed entities, under its statutory regime. Licensing, takeovers, and monetary policy are handled by other bodies.

Question 41Securities and Futures Commission and other regulators: roles, powers and enforcement

The SFC publishes codes of conduct for licensed persons. What is the legal status of these codes?

  1. They apply only to banks and not to licensed corporations
  2. They have the force of criminal law and breaches are automatically imprisonable
  3. They are merely advisory and have no bearing on disciplinary proceedings
  4. They set expected standards, and a breach may be taken into account in assessing whether a person is fit and proper and in disciplinary action Correct answer.

Explanation

Codes of conduct issued by the SFC set out expected standards of conduct, and breaches may be considered in disciplinary proceedings and in assessing fitness and propriety. They are not mere advice, they do not create automatic criminal liability, and they apply to licensed corporations and individuals generally.

Question 42Securities and Futures Commission and other regulators: roles, powers and enforcement

Which statement correctly describes the SFC's approach to cooperation with Mainland and overseas regulators?

  1. The SFC may only cooperate with regulators that share the same legal system
  2. The SFC may enter into memoranda of understanding and share information with other regulators subject to legal safeguards Correct answer.
  3. The SFC must obtain client consent before sharing any information with another regulator
  4. The SFC may never share any information with any other authority

Explanation

The SFC enters into memoranda of understanding and cooperates with Mainland and overseas regulators, sharing information subject to statutory safeguards and confidentiality protections. It is not prohibited from sharing information, is not limited to similar legal systems, and does not require client consent for every regulatory exchange.

Question 43Securities and Futures Commission and other regulators: roles, powers and enforcement

A licensed corporation's responsible officer resigns. What is the most accurate statement about the SFC's regulatory expectations?

  1. The corporation may continue indefinitely without any responsible officer
  2. The resignation is a private employment matter that need not be disclosed to the SFC
  3. The corporation should notify the SFC and ensure it continues to meet the requirement for at least two responsible officers Correct answer.
  4. The corporation must immediately cease all business permanently

Explanation

A licensed corporation must maintain at least two responsible officers, at least one of whom is available at all times, and it must notify the SFC of changes. If the requirement cannot be met, the corporation should address this promptly with the SFC rather than continuing indefinitely or ceasing business permanently.

Question 44Securities and Futures Commission and other regulators: roles, powers and enforcement

Which of the following statements about the SFC's power to obtain court orders is correct?

  1. The SFC may only obtain court orders in criminal matters
  2. The SFC may issue court orders itself without any judicial involvement
  3. The SFC may apply to the court for injunctions and other orders to restrain conduct that contravenes the Securities and Futures Ordinance Correct answer.
  4. The SFC has no access to the courts and must rely solely on administrative sanctions

Explanation

The SFC may apply to the court for injunctions and other orders, including in respect of conduct that contravenes the Ordinance, and it may also bring criminal proceedings. It cannot issue court orders itself, and its access to the courts is not limited to criminal matters.

Question 45Securities and Futures Commission and other regulators: roles, powers and enforcement

Which of the following is a recognised function of the SFC in relation to listed companies?

  1. Regulating the conduct of listed companies and their directors in relation to disclosure and market conduct, while HKEX administers the Listing Rules Correct answer.
  2. Setting the dividends payable by listed companies
  3. Guaranteeing the accuracy of financial statements issued by listed companies
  4. Approving every prospectus only after the Exchange has listed the shares

Explanation

The SFC regulates market conduct and disclosure by listed companies and their directors under the Securities and Futures Ordinance, while HKEX administers the Listing Rules. The SFC does not set dividends or guarantee the accuracy of financial statements, though it may take action against false or misleading disclosure.

Question 46Securities and Futures Commission and other regulators: roles, powers and enforcement

The SFC's requirement that licensed persons be "fit and proper" is assessed by reference to which of the following?

  1. Factors including financial soundness, competence, and integrity, and past regulatory compliance Correct answer.
  2. Only whether the person has ever been bankrupt
  3. Only the person's educational qualifications
  4. Only the person's length of service in the industry

Explanation

Fitness and propriety is assessed holistically, taking into account integrity, competence, financial soundness, and past compliance with regulatory requirements. It is not determined solely by qualifications, length of service, or bankruptcy history.

Question 47Securities and Futures Commission and other regulators: roles, powers and enforcement

Which statement best describes the SFC's relationship with the Independent Commission Against Corruption in enforcement matters?

  1. The SFC and ICAC may cooperate and refer matters where corruption or related offences arise alongside securities misconduct Correct answer.
  2. The ICAC and SFC have entirely overlapping mandates and cannot cooperate
  3. The SFC must refer every licensing application to the ICAC for approval
  4. The ICAC supervises the SFC's budget and disciplinary decisions

Explanation

The SFC and the ICAC cooperate and may refer matters to one another where securities misconduct overlaps with corruption or related offences, while each retains its own statutory mandate. The ICAC does not approve licensing applications or supervise the SFC.

Question 48Securities and Futures Commission and other regulators: roles, powers and enforcement

A licensed corporation discovers that one of its account executives has been executing trades for a client without recording them. Which regulatory concern is most directly engaged?

  1. The Competition Ordinance, because the client obtained an advantage
  2. The Takeovers Code, because unrecorded trades affect takeover thresholds
  3. The SFC's record-keeping and conduct requirements, potentially indicating a breach of the code of conduct Correct answer.
  4. The Insurance Ordinance, because client assets are involved

Explanation

Failure to record client orders engages the SFC's record-keeping and conduct requirements, which are designed to ensure audit trails and client protection, and may indicate a breach of the code of conduct. The Takeovers Code, Insurance Ordinance, and Competition Ordinance do not address trade recording by intermediaries.

Question 49Licensing and registration of intermediaries and individual representatives

Under the Securities and Futures Ordinance, which body is responsible for licensing corporations and individuals that carry on a regulated activity in Hong Kong?

  1. The Stock Exchange of Hong Kong Limited
  2. The Securities and Futures Commission Correct answer.
  3. The Hong Kong Monetary Authority
  4. The Financial Reporting Council

Explanation

The Securities and Futures Commission (SFC) is the statutory regulator that grants licences and registrations to intermediaries and individual representatives under the Securities and Futures Ordinance. The other bodies have different or narrower roles in the regulatory framework.

Question 50Licensing and registration of intermediaries and individual representatives

Which of the following activities is a regulated activity under the Securities and Futures Ordinance?

  1. Operating a money lending business
  2. Providing credit ratings to the public
  3. Advising on corporate finance matters Correct answer.
  4. Selling insurance-linked policies

Explanation

Advising on corporate finance is listed as a regulated activity in the SFO, so a person carrying it on must be licensed or registered. Insurance sales, credit rating and money lending are governed by other regimes and are not regulated activities under the SFO.