Updates
HK SFC Issues Restriction Notice to Kingston Securities Limited to Freeze Client’s Account during Corporate Misconduct Investigation
On 6 September 2024, Hong Kong’s Securities and Futures Commission (HK SFC) issued a restriction notice to Kingston Securities Limited, directing the firm to freeze certain assets held in a client account belonging to a board member of a listed corporation. The individual is suspected of corporate misconduct and a breach of director’s duties.
The restriction notice, issued under sections 204 and 205 of Hong Kong’s Securities and Futures Ordinance (HK SFO), prohibits Kingston from disposing of or processing the specified assets without the prior written consent of HK SFC. Additionally, Kingston must notify HK SFC if it receives any instructions related to the restricted assets. Sections 204 and 205 of the HK SFO empower the SFC to restrict asset dealings to ensure that funds remain available for potential legal actions or court orders, safeguarding the public and investors. This restriction notice also requires Kingston to report any attempts to deal with the frozen assets.
Section 204: Restriction of Business
Under section 204 of the HK SFO, HK SFC is empowered to issue a notice in writing to a licensed corporation, prohibiting or requiring certain business activities. The HK SFC may limit the corporation’s ability to engage in specific transactions, solicit business from particular clients, or carry on business in a specified manner. These restrictions may apply to activities connected with the regulated business for which the corporation is licensed.
Section 205: Restriction on Dealing with Property
Section 205 grants HK SFC the authority to restrict a licensed corporation from disposing of or dealing with any relevant property. This includes property held by the corporation on behalf of its clients or property HK SFC reasonably believes to be owned or controlled by the corporation.
Section 207: Imposition of Prohibition or Requirement
Section 207 allows HK SFC to impose prohibitions or requirements under sections 204 or 205 if it believes that a licensed corporation’s assets or business practices may be detrimental to the interests of its clients or creditors. HK SFC may also act if the corporation is deemed unfit to be licensed, has provided false or misleading information, or if such measures are in the public interest.
While Kingston is not under investigation and has fully cooperated with HK SFC, the restriction notice ensures that the assets in question are preserved. This step is considered necessary by the SFC to safeguard funds for potential legal proceedings that may be initiated by the SFC and is deemed in the public interest to protect investors.
The notice applies only to the specified account and does not impact Kingston’s operations or its other clients. Kingston, a licensed corporation under the HK SFO, engages in Type 1 regulated activity, which includes dealing in securities. Type 1 activity involves buying, selling, and trading securities on behalf of clients, and firms licensed for this activity are subject to stringent regulatory oversight to ensure market integrity and investor protection.