Rulefinder Marketing Restrictions analyses the law and regulation applicable to the cross-border distribution of a wide range of financial products and services relevant to both the sell-side and the buy-side. We track various scenarios where restrictions might apply, as well as available exemptions or tolerated practices for over 70 jurisdictions. One of the areas clients often ask us about is what are the potential consequences if there is a breach of applicable laws or regulations.
We ask local counsel in each jurisdiction to set out the possible legal consequences of a breach. This includes asking whether the consequences include criminal sanctions, civil claims and/or other sanctions (e.g. fines, loss of licence or public censure) and what the maximum penalties could be. We also ask whether a transaction can be declared void or voidable where there has been a breach. This is something we know firms are keen to establish as for many the risk that an investor may be able to back out of a transaction (rescind) is one that firms are keen to take steps to mitigate. We ask the same questions to counsel in each jurisdiction to provide a consistent database of analysis for firms operating globally.
In addition to asking what the official potential sanctions could be, we ask counsel to provide any recent examples of enforcement actions taken by the regulators or courts in their jurisdiction, as well as asking for commentary on the attitude of the regulators and any accepted or tolerated market practices that might apply. We thought it might be helpful to set out a flavour of some of the information we have obtained from local counsel in three jurisdictions:
1. In Hong Kong SAR, China, counsel:
- have provided aosphere with links to a number of published enforcement actions relating to individuals and entities holding themselves out as carrying on a regulated activity without being appropriately licensed. This includes a 2017 case which involved the first SFC criminal conviction against an unlicensed entity for actively marketing in Hong Kong regulated activities carried out outside Hong Kong; and
- note that, generally speaking, since the financial crisis in 2008, the SFC has become more vigilant in monitoring the activities of market participants and has taken a more aggressive and robust attitude towards investigation and enforcement of misconduct and breaches.
2. In the Dubai International Finance Centre memoranda, counsel have provided examples of both court and regulator enforcement actions on entities conducting financial services without the correct licences. In terms of regulator attitude, counsel note that:
- the Dubai regulator is generally pro-active in enforcing laws and regulations;
- there are several examples of the regulator pursuing remedial action and enforcement sanctions against companies and their directors/senior management; and
- the “tolerated practice” regime which has historically been followed in onshore UAE is not followed in the Dubai International Finance Centre.
3. In the People’s Republic of China (PRC) memoranda, counsel have flagged that:
- They are not aware of any public record of litigation lodged or regulatory sanction imposed for violation of the licensing requirement/selling restriction by an offshore firm.
- However, they have noted the potential for reputational and franchise risk as a consequence of any such breach and the possibility that any actions in breach of the restrictions may negatively impact on any future licensing application in the PRC.
Subscribers to the full service can access this information for each jurisdiction in the full Memoranda which is negotiated with local counsel.
