Hong Kong’s Securities and Futures Commission handed out record fines of $170m last year, more than the previous four years combined, as it streamlined its focus on a smaller number of high-impact cases, according to a report by Freshfields Bruckhaus Deringer.

The increase in fines came even as Hong Kong stock market activity slowed amid a year of political unrest, and were mostly driven by lax due diligence issues on at least three sponsor-related initial public offerings, and a private banking case, the analysis showed. 

The report also found that the SFC has increasingly used its powers to intervene at an earlier stage of an IPO’s listing process, stepping in to scrutinise a record 46 IPO and post-IPO cases between June 2018 and June 2019, compared with 32 in the previous 12 months and just three the year before that. It also directly sought information or expressed concerns in 17 listings applications where there were potentially serious disclosure or public interest issues, according to the report.

Georgia Dawson, Freshfields’ Asia managing partner said: “Last year was certainly not a typical year for Hong Kong, with significant market disruption in the second half, and it is important to view SFC enforcement activity in that context. Total stock market turnover fell approximately 19% compared to the previous year, and we saw a corresponding reduction in certain types of regulatory activity, such as SFC trading enquiries into market transactions.”

She added: “At the same time, some things did not change: the regulator continued to focus on fewer but higher-impact cases, and on proactively addressing concerns before problems materialise. We do not expect this to change in the near-term.”

Freshfields said the SFC is likely to maintain its focus on IPO sponsors, with those that have a history of returned or rejected listing applications or non-compliance likely to face closer scrutiny. 

Corporate misconduct and fraud will likely be another high priority area, with enforcement activity against listed companies and their management set to continue, Freshfields said.

Against that backdrop of tougher enforcement, US top 100 law firm Steptoe last December opened its Hong Kong regulatory practice, headed by former Clifford Chance partner and white-collar crime specialist Wendy Wysong.