Handling SFC Interviews in SFC Enforcement Action

The Securities and Futures Commission (“SFC”) has a range of powers available to it to investigate possible wrongdoing in the Hong Kong securities and futures markets. One of these powers is the power to require a person to attend an SFC interview, or, in technical terms, the power to require the person to attend before an SFC investigator and answer any question relevant to an SFC investigation.

Jurisdiction for SFC Interview

The SFC’s power to require a person to attend an interview is an SFC enforcement power that arises under the Securities and Futures Ordinance, s. 183. This section applies where the SFC has commenced an investigation under the Securities and Futures Ordinance, s. 182.

Who Can be Subject to an SFC Interview?

The SFC can compel the following persons to attend an SFC interview:

• Person Under Investigation - Any person who is the subject of an SFC investigation;
• Person in Possession of Record Relevant to SFC Investigation - Any person whom the SFC has reasonable cause to believe has in his possession any record or document which contains, or which is likely to contain, information relevant to an SFC investigation;
• Person in Possession of Information Relevant to SFC Investigation - Any person whom the SFC has reasonable cause to believe otherwise has information relevant to an SFC investigation.

Territorial Limits on SFC Interview

Because the Securities and Futures Ordinance does not provide for extra-territorial effect, it is unlikely that the SFC interview power would apply to a person who is located outside of Hong Kong. However, the SFC has in place arrangements with regulators in a number of jurisdictions around the world which enable the SFC to request the assistance of those regulators to interview persons in those jurisdictions in furtherance of an SFC enforcement action. Where the SFC requests such assistance, the interviews would take place under the laws of those jurisdictions rather than under the Securities and Futures Ordinance.

Time and Place for SFC Interview

When the SFC enforcement team exercises its powers to require a person to attend an SFC interview, it will specify the time and place for the interview. Unless the SFC is in the midst of executing a search warrant, the place for the SFC interview will almost invariably be the offices of the SFC.

Reasonable Excuse for Failing to Attend SFC Interview

Under the Securities and Futures Ordinance, it is an offence for a person to fail to attend an SFC interview. However, this offence is subject to a statutory “reasonable excuse” defence, meaning that a person who fails to attend an SFC interview will not commit an offence if he has a reasonable excuse.

The law does not define a reasonable excuse but it is difficult to qualify an excuse as a reasonable excuse where there is no physical limitation or inability to comply. Thus, for example, if the SFC enforcement team issues a notice of an SFC interview to a person but the person does not receive the notice, the person would likely have a reasonable excuse. Similarly, if the SFC enforcement team issues a notice of an SFC interview to a person and the person is too ill to attend, the person would likely have a reasonable excuse.

Statutory Secrecy Applies to SFC Interviews

The Securities and Futures Ordinance prohibits a person to whom the SFC discloses information as part of an SFC enforcement action from disclosing such information except to a lawyer for the purpose of seeking legal advice or in other prescribed circumstances.This prohibition is known as the statutory secrecy obligation.

The statutory secrecy obligation means that a person who receives an SFC investigation notice and a request to attend an SFC interview is generally prohibited from disclosing the existence of the SFC enforcement action which is described in the SFC investigation notice and any information set out in such notice. It also means that a person who attends an SFC interview is generally prohibited from disclosing what questions the SFC enforcement team asked during the SFC interview and what information or documents the SFC enforcement team may have disclosed as part of the SFC interview.

Duty to Answer Questions in SFC Interviews

A person who is subject to an SFC interview must answer every question posed by the SFC investigator truthfully as long as the question is relevant to the matters under investigation. Under the Securities and Futures Ordinance, it is an offence for a person to fail to answer a question when required to do so unless the person has a “reasonable excuse”.

As noted above, the law does not define a reasonable excuse clearly. However, it is clear that if a person does not have knowledge of the information required to answer a question put to him in an SFC interview, then the person would have a reasonable excuse.

Right to Silence in SFC Interviews

Normally, under Hong Kong criminal law, a person has a privilege against self-incrimination, which is known as the right to silence. The right to silence means that a person has no obligation to answer any question where the answer to the question may tend to incriminate the person.

The Securities and Futures Ordinance overrides the right to silence. A person who is subject to an SFC interview has no right to refuse to answer a question on the basis that the answer may tend to incriminate him. However, if the person makes a claim, the answer to the question cannot be used against the person in criminal proceedings (other than for perjury and like offences).

Self-Incrimination Privilege Applies Only to Criminal Proceedings

This right is important but limited. It is limited because SFC enforcement action may proceed on a civil rather than a criminal basis. For example, following an SFC interview, if the person who is subject to the interview is SFC licensed, the SFC may pursue disciplinary proceedings. Similarly, for example, if the person is suspected of engaging in market misconduct, the SFC may institute proceedings before the Market Misconduct Tribunal.

Self-Incrimination Privilege Provides No Derivative Use Immunity

Equally, the right of a person to make a claim and to prevent an answer to a question in an SFC interview from being used against him in criminal proceedings is limited because any information derived from the answer can be used against him in criminal proceedings.

Handling an SFC Interview

How an SFC interview is handled is vitally important both because it creates a permanent record and because it provides an opportunity to influence the course of an SFC enforcement action. As a result, a person receiving an SFC investigation notice requiring him to attend an SFC interview should seek competent legal advice, even if the person is not specified to be a person under investigation.

SFC Interview Creates Permanent Record

Because an SFC interview creates a permanent record, any admission of any fact given during an SFC interview will be difficult to retract at a later stage without potentially undermining credibility.

SFC Interview Provides Opportunity to Stop SFC Enforcement Action

An SFC interview is an opportunity for the person being interviewed to put forward their version of events. As such, it is an opportunity to persuade the SFC enforcement team that he or she has not breached applicable securities laws and regulations, including the Securities and Futures Ordinance, or, if he or she has so breached such laws or regulations, that the breach does not merit prosecution.

Role of Legal Counsel in SFC Interview

A person who receives an SFC investigation notice requiring him to attend an SFC interview should retain legal counsel who is well versed not only in SFC enforcement action but also in the full range of laws and regulations under the Securities and Futures Ordinance.

Counsel’s Role Before the SFC Interview

Even before the SFC interview, legal counsel should be able to achieve the following objectives:

• Identify Specific Conduct Subject of the SFC investigation - Though the SFC investigation notice will indicate the focus of the investigation at a high level, often, the notice will not provide sufficient details to identify the specific conduct which may implicate the person being asked to attend the SFC interview.
• Identify Exculpatory Facts - Persons who are asked to attend SFC interviews often lack comprehensive knowledge of the regulatory requirements and may not understand the SFC enforcement process. As a result, they often fail to appreciate that certain facts may assist in exculpating them from liability or mitigating any liability.
• Prepare a Compliant Story – Based on the foregoing, persons attending an SFC interview should have a story as to the events which are the subject of the SFC enforcement action. The story must not only be truthful but it must highlight exculpatory facts and sidestep or downplay potential areas of non-compliance. The story should be well supported by any documentary evidence and should leave the SFC enforcement team with the impression that the person or their organization is compliant and well meaning.

Counsel’s Role During the SFC Interview

During an SFC interview, legal counsel should ensure that the SFC enforcement team conducting the interview respects the rights of the person being interviewed and the person being interviewed is able to assert any rights which he or she may wish to assert. For example, legal counsel should ensure that the person being interviewed is not forced to answer questions where he or she lacks knowledge.

The person who is subject to the SFC interview may consult with legal counsel during the interview. This is important where, for example, the SFC line of questioning enters an area which had not been explored in advance with legal counsel. Equally, this is important to ensure that relevant exculpatory facts are fully ventilated.

Selecting Legal Counsel for an SFC Interview

It will be evident from the foregoing that the choice of counsel may have a significant impact on how the SFC interview proceeds and in turn, whether further SFC enforcement action will follow. Moreover, if SFC enforcement action does follow on, the choice of counsel may have a significant impact on the quality of the permanent record which emerges from the SFC interview and thus, may determine the lines of defence available against prosecution.

In light of the foregoing, it is important to select legal counsel who is not only well versed in SFC enforcement procedures and SFC interviews in particular but also who has wide and deep ranging familiarity with Hong Kong regulatory requirements and securities and futures market practices.

Following an SFC Interview

Once an SFC interview has concluded, the person who was interviewed should obtain a copy of the interview record.