HK SFC reprimands and fines Schroder Investment Management $1.8 million
An SFC investigation found that from August 2005 to January 2013, Schroder failed to disclose to the Stock Exchange of Hong Kong Limited (SEHK) and the relevant listed companies all notifiable interests in Hong Kong listed shares held in client portfolios and managed by Schroders plc and certain of its subsidiaries (Schroder Entities) where they did not have or were unable to exercise proxy voting rights. Schroder is responsible for preparing and filing the notices disclosing all notifiable interests in Hong Kong listed shares for the Schroder Entities to SEHK and the relevant listed companies (Notes 2, 3, 4 & 5).
Although legal advice obtained by Schroder advised that an “interest” in shares was broadly defined and was not confined to the exercise of a voting right, Schroder failed to properly follow the advice.
According to Schroder, it discovered the disclosure failures in November 2012 when it was preparing to implement a new global system for the monitoring and reporting of disclosable interests in shares. In February and March 2013, Schroder filed a total of 236 substantial shareholders notices to the SEHK to correct the disclosure notices filed for the Schroder Entities from July 2010 to January 2013.
In deciding the penalty, the SFC took into account the duration and extent of Schroder’s disclosure failings, Schroder’s self-report to the SFC upon discovery of its disclosure failings, Schroder’s co-operation with the SFC’s investigation and disciplinary process and that it has taken steps to improve its global system for monitoring and disclosing shares in Hong Kong listed companies and its clean disciplinary record.
Schroder is a licensed corporation under the Securities and Futures Ordinance (SFO) to carry on Type 1 (dealing in securities), Type 4 (advising in securities) and Type 9 (asset management) regulated activities.
Schroders plc is a company incorporated in England and Wales which carries on asset management business together with its subsidiaries on a global basis. The Schroder Entities invest directly in Hong Kong listed shares for their clients.
Part XV of the SFO sets out the requirements for the disclosure of interests in the securities of listed corporations. A person who acquires an interest in or ceases to be interested in shares in the relevant share capital of a listed corporation, or where a change occurs affecting a person’s existing interest in shares in a listed corporation’s share capital in specified circumstances, comes under a duty of disclosure. The specified circumstances are those where the person first acquires a notifiable interest, ceases to have a notifiable interest, has a notifiable interest but the percentage levels of his interest have changed or he has a notifiable interest but the nature of his interest has changed. The notifiable percentage level for notifiable interests is 5% and the specified percentage level for changes to notifiable interests is 1%. Notification should be given to the SEHK and the listed corporation concerned of the interests which he has, or ceases to have, in the shares of the listed corporation within three business days after the day on which the relevant event occurs.
General Principle 7 of the Code of Conduct for Persons Licensed by or Registered with the SFC (Code of Conduct) provides that a licensed corporation should comply with all regulatory requirements applicable to the conduct of its business activities so as to promote the best interests of clients and the integrity of the market.
Paragraph 12.1 of the Code of Conduct provides that a licensed corporation should comply with, and implement and maintain measures appropriate to ensuring compliance with, the law and relevant regulatory requirements.