Introduction

The Securities and Futures Commission (“SFC”) published its Enforcement Reporter (Issue No. 7) in March 2026 (“the Report”), underscoring the regulator’s intensified enforcement against misconduct that crosses the line into commercial crime – including misappropriation of client assets, fabrication of documents, false financial reporting, and systemic due diligence failures that enable fraudulent listings. The Report sends a clear message: senior management and gatekeepers who facilitate or turn a blind eye to dishonest conduct will face lifetime bans, substantial fines, and revocation of licences. This newsletter highlights key cases and themes from the Report with a focus on conduct that constitutes or creates material risk of commercial crime, and offers practical takeaways for law firms, regulated institutions and their officers.

Management misconduct and senior management accountability

The Report illustrates two cases involving asset managers where client funds were misused and regulatory filings falsified.

In the case of Agg. Asset Management Limited (“Agg”), the SFC investigated former responsible officers for misconduct that included misappropriating investor subscriptions, allowing the sole director to withdraw part of Fund B’s proceeds for his own benefit and artificially inflating Fund A’s net asset value through specially constructed debentures. Agg also submitted false monthly financial returns to hide its failure to maintain the required liquid capital. The SFC banned the sole director for life and fined him HK$1.7 million, suspended another responsible officer for 12 months, and restricted the firm from carrying on regulated activities.

A more serious case involved Nerico Brothers Limited (“NBL”) and Amber Hill Capital Limited (“AHCL”), which orchestrated a scheme of misappropriation and document fabrication. NBL misused over US$68 million of a client’s funds for its own trading and then facilitated the misappropriation of a further US$154 million by transferring it to an AHCL‑managed sub‑fund under the pretence of fictitious “liquidity provider units”. To cover up the fraud, both firms provided contradictory fabricated documents to the SFC, and AHCL also fabricated audit reports and misled auditors about non‑existent broker accounts, overstating cash positions by up to US$451 million. The SFC revoked both firms’ licences and imposed lifetime bans on their directing minds, citing substantial client losses and damage to market integrity.

These cases indicate that senior management will be held personally accountable. Lifetime bans and suspensions are being imposed not only on those who mastermind misconduct, but also on responsible officers who fail to discharge their oversight duties. The SFC is making plain that passive complicity or neglect of supervisory responsibilities will no longer be tolerated.

Sponsor due diligence failures as gateways to fraud

When sponsors fail to probe red flags and rely blindly on management representations, they risk becoming unwitting enablers of fraudulent listings. The Report examines two cases where sponsor due diligence fell materially short.

In the first case, RaffAello Capital Limited, acting as sole sponsor for a GEM listing applicant, overlooked clear indicators of fabricated retail sales, including suspicious consecutive cash transactions, bulk credit card purchases by linked individuals, and invoices treated as revenue and failed to apply professional scepticism or independent verification. The SFC and the Securities and Futures Appeals Tribunal affirmed a HK$4 million fine and a two‑year industry re-entry ban on the sponsor principal.

The second case involved Changjiang Corporate Finance (HK) Limited (“CJCF”), which over 27 months and across six listing applications demonstrated “serious and extensive” systemic failures. CJCF repeatedly failed to perform reasonable due diligence on core business risks, accepted management representations without independent verification, omitted key disclosures from prospectuses, misapplied the Listing Rules, and left no proper audit trails to evidence compliance. The SFC fined CJCF HK$20 million, partially suspended its licence from new sponsor work for one year, and banned a former responsible officer for seven years.

These cases highlight that sponsor gatekeepers must exercise genuine professional scepticism – ignoring red flags or relying on management representations without independent verification will result in substantial fines, licence suspensions, and personal bans. The SFC is sending a clear deterrent message that both firms and individuals will be held accountable for due diligence failures that compromise market integrity.

Cross‑regulator enforcement collaboration

The Report highlights the SFC’s partnership with the Hong Kong Monetary Authority (“HKMA”) in tackling compliance lapses that may also expose clients to financial crime risks. Two cases illustrate this collaboration.

EFG Bank AG was fined HK$10.85 million in December 2025 for inadequate product due diligence on 322 bonds, missing records for 141 bonds, and delayed reporting of suspected issues. The case originated from an HKMA referral. Similarly, Hang Seng Bank Limited was fined HK$66.4 million in January 2025 for systemic failures over nine years, including excessive trading of collective investment schemes eroding client returns, unsuitable derivatives sales to 121 clients, and improperly charged fees of HK$22.4 million.

While these cases involve compliance deficiencies, they serve as reminders that weak internal controls can create environments where fraud or misappropriation may go undetected, and that cross‑regulator intelligence‑sharing increases the likelihood of detection.

Proactive enforcement and strategic collaboration

Beyond the specific cases in the Report, the SFC’s broader enforcement strategy remains highly proactive and visible. In a more recent address at the APEC workshop on “Promoting Integrity for Economic Prosperity”, SFC Chairman Dr Kelvin Wong (“the Chairman”) reinforced that the SFC pursues a strategy of proactive, high‑profile enforcement against market manipulation, insider dealing, and financial scams (“the Speech”). He highlighted the SFC’s recent track record, which includes executing worldwide injunction orders to freeze assets in cross‑border manipulation cases, securing severe jail sentences for the operators of social media “ramp‑and‑dump” schemes, achieving Hong Kong’s first landmark criminal conviction for illegal short selling, and executing sophisticated joint operations with the ICAC to dismantle corrupt networks of senior executives within licensed corporations. This deliberate focus on high‑impact cases sends swift and undeniable deterrence, restoring public confidence while defining the clear boundaries of acceptable conduct in our markets.

Takeaways

The Report, considered alongside the Chairman’s Speech, demonstrates that the SFC will continue to pursue a strategy of highly proactive, visible enforcement against commercial crime, deliberately prioritising high‑impact cases that deliver swift deterrence. In light of these developments, law firms should ensure their advisory practices are current with the latest enforcement trends and assist clients in strengthening compliance frameworks. For regulated institutions, they should proactively review internal controls, particularly around client asset safeguarding, financial reporting accuracy, conflict management, and due diligence protocols to mitigate exposure to commercial crime risks.

To conclude with the words of the Chairman in the Speech: “Integrity is never a bureaucratic burden – it is a premium competitive advantage that drives sustainable, high‑quality economic growth.”