Special Feature
What to Do If the Regulators Come Knocking?
What to Do If the Regulators Come Knocking?<br/>規管機構找上門時該怎麼辦?

Regulatory investigations in Hong Kong can cover any enquiries, interviews or raids that are conducted by the regulators and enforcement authorities including the Hong Kong Stock Exchange, the Securities and Futures Commission (SFC), the Hong Kong Monetary Authority, the Hong Kong Police Force and the Independent Commission Against Corruption (ICAC). 

The scope of the investigation ranges from corporate fraud, non-compliance with the Listing Rules, market misconduct in the securities market and violation of the laws relating to anticorruption and anti-money laundering.

Below are 10 vital things you should bear in mind if a regulator comes knocking on your door.


(1) Instruct legal advisors

It is not ideal for any company or person to handle a regulatory investigation in the absence of legal advice. Lawyers experienced in handling regulatory investigations should be engaged at the onset so that a company or person subject to investigation is fully apprised of their rights and obligations right from the beginning of the investigation.


(2) Claim of Legal Professional Privilege (LPP)

Regulators cannot compel disclosure of documents which are subject to the claim of LPP. Lawyers can help in determining what documents are privileged and claim LPP over the same. In some circumstances, if you want to demonstrate that you are cooperative, you may seek legal advice as to whether you should disclose privileged documents to regulators on a “limited waiver” basis, which means that the documents will be provided to the regulators solely for the purposes of their investigation and the regulators cannot transfer or disclose the documents to other third parties for any other derivative purposes.


(3) No right to silence

The Securities and Futures Ordinance expressly requires any person who is subject to or assisting in an investigation to answer any questions raised by the regulator in the interviews and/or to produce any documents as specified by the regulator. Refusal to answer questions or produce documents is a criminal offence.


(4) Declaration of rights against self-incrimination

As mentioned above, there is no right to silence under the SFO. However, there is statutory protection for any person who makes a claim to the privilege against self-incrimination when providing answers and/or documents to regulators. The answers and/or documents produced under such claim will then not become admissible in evidence against the person in criminal proceedings.


(5) Secrecy

A person assisting in or subject to an investigation is subject to secrecy obligations. Any disclosure of the investigation details without the consent of the regulator is a criminal offence. There are limited exceptions where the regulator’s consent can be assumed, e.g. disclosure of the fact that a person is bound by the secrecy obligation.


(6) Powers to search

A regulator may obtain a search warrant issued by a magistrate to enter and search premises. However, there are certain circumstances where the enforcement authorities can enter and search the premises without a warrant. For example, the Police and the ICAC can enter into premises without a warrant if they believe that the person to be arrested is inside the premises.


(7) Search warrant

If the regulators and enforcement authorities appear with a search warrant, you (or more preferably, your lawyers) should check the search warrant to ensure that: 

(i)     it is issued no more than seven days prior to the search; 

(ii)     there is a proper description of the nature of the alleged offence (because a search warrant may be defective if the description of the alleged offence is framed too broadly);

(iii)     the location of the search is correct; and 

(iv)     the persons entering into the premises and undertaking the search are those authorized persons under the warrant.


(8) Agreement on protocol for the search

In the event of a raid conducted by a regulator on your premises, you (or more preferably, your lawyers) should try to agree on a “search protocol” with the regulator. Under the protocol, the regulators may be willing to disclose the classes of documents which they are specifically looking for, and you can then indicate where those relevant documents are stored in order to facilitate the search, which will also help to minimize any intervention in the normal operation of your company’s business.


(9) Electronic devices

In a recent judicial review application brought against the SFC, the Hong Kong Court confirmed that the SFC has the power to seize electronic devices such as computers and mobile phones during searches on premises and to retain them. In addition, the SFC may issue a notice to require the provision of log-in names and passwords to email accounts and digital devices. Accordingly, it is recommended that you should take measures to revamp your company’s policies relating to electronic data, e.g. strengthening the electronic data backup system to minimize disruption to normal operations in the event your electronic devices are seized.


(10) Think twice before voluntarily answering questions or giving statements

It is common for regulators to ask the staff members of a company questions during a raid. If the questions are solely for the purpose of furthering the proper and effective conduct of the search, it is advisable that the staff members should answer the questions or otherwise the refusal may be viewed as a disruption to the search, which may amount to a criminal offence. However, if the regulators ask substantive questions about the content of the investigation, you should think twice before voluntarily offering any information. Instead, you or your legal advisors should inform the regulators that they should issue the requisite notice pursuant to the SFO so that any person answering their questions and/or producing any documents to them may properly make a claim to the privilege against self-incrimination.


Valarie Fung, Partner, and Catherine Leung, Associate, Yang Chan & Jamison