SFC Circular Reinforces Statutory Expectations for Licensed Corporations During Inspections
The Securities and Futures Commission (SFC) has issued a circular reminding licensed corporations (LCs) of their statutory obligations and expected standards of conduct during SFC inspections conducted under section 180 of the Securities and Futures Ordinance (SFO).
The circular follows the SFC’s recent inspection observations that certain unsatisfactory practices and behaviours, often arising from misunderstandings of the SFO or lack of awareness, can undermine supervisory effectiveness and market integrity.
Why this matters
Upon licensing, LCs fall within the SFC’s supervisory scope and are expected to undergo inspections under section 180 of the SFO.
The SFC reiterates that firms should be prepared to retrieve relevant information and respond to inspection inquiries in a timely manner, supported by appropriate governance and record-keeping arrangements.
What the SFC observed
The Appendix to the circular highlights non-exhaustive examples of behaviours observed during inspections, including:
Attempting to postpone, delay, or reject inspection notices or interviews
Challenging inspection scope, review areas, or sample selection without valid legal basis;
Providing delayed, evasive, misleading, incomplete, or partial responses to inquiries;
Withholding information, or producing materials that are ambiguous, inaccurate, inconsistent, false, misleading, or even forged;
Arranging affairs to delay, disrupt, or obstruct inspection efforts; and
Displaying unprofessional or antagonistic conduct toward authorised persons or treating inquiries as an inconvenience.
Key statutory obligations and expected standards during inspections
1. Provide access to records/documents and answer related questions
Section 180 requires an LC to provide authorised persons access to relevant business records and documents, produce them within specified timeframes, and answer questions relating to the records, transactions or activities under review.
The Appendix also reminds firms that it may be a criminal offence to fail to comply without reasonable excuse, or to provide answers/documents that are false or misleading (including more serious circumstances involving intent to defraud).
Where LCs cite confidentiality or privacy concerns, the Appendix highlights that information requested for the SFC’s regulatory functions is generally authorised by law, and the SFO also imposes secrecy obligations (including on SFC staff) regarding inspection-related matters.
2. Maintain proper records and retrieve them without undue delay
The SFC expects records supporting regulated activities to be readily available at all times and retrievable without undue delay, regardless of organisational change or staff departure.
The Appendix references obligations under the Securities and Futures (Keeping of Records) Rules and expectations under internal control guidance to ensure records are accessible, auditable and convertible into written form.
3. Ensure responsible officers (ROs) are available and supervision is effective
ROs are expected to participate in the inspection process when requested.
The Appendix reiterates that an LC must not carry on regulated activities unless it has two ROs (with at least one being an executive director) and that LCs must have at least one RO available at all times to supervise regulated activities.
Importantly, the SFC emphasises that an inspection notification is an official notice, not merely appointment scheduling—RO/staff “unavailability” is generally not a reasonable excuse, and the SFC may proceed with the inspection.
4. Remain fit and proper and cooperate
The Appendix links inspection conduct to broader “fit and proper” expectations, noting that failures to comply with section 180 and/or relevant regulatory requirements may constitute misconduct and adversely affect fitness and properness.
5. Manage external representatives
If external consultants or legal representatives are engaged to support inspection responses, the LC remains fully responsible and accountable for their conduct and for the information and representations provided to the SFC.
Consequences of failure to cooperate or non-compliance
The SFC states it takes potential breaches of section 180 seriously and may take regulatory action where attempts impede inspections or prevent the SFC from ascertaining compliance.
Actions may include supervisory interventions (e.g., imposing licensing conditions or restricting business), fitness and properness evaluations, referral to other regulators, criminal proceedings, and disciplinary action (including suspension/revocation, pecuniary penalties and reprimands).
The SFC also highlights accountability expectations for the Manager-In-Charge (MIC) of Overall Management Oversight, supported by the MIC of Compliance, to ensure full cooperation during inspections.
How Ocorian can help
SFC inspections can place significant demands on time, records and staff availability. Whether you are currently responding to an inspection or looking to strengthen readiness ahead of a future visit, we can provide practical support.
The SFC conducts routine on-site inspections of LCs and relevant financial institutions to understand business operations and assess compliance with applicable laws and regulatory requirements.
Preparing for an SFC inspection
We can run mock inspections that reflect a routine inspection approach to help identify gaps and clarify practical actions. This can include:
Documentation reviews – assessing whether policies, procedures and records align with relevant regulatory requirements and are inspection-ready.
Mock interviews – structured sessions with key personnel, with feedback on responses, supporting evidence and areas to strengthen.
Assistance during an inspection
We can support firms at different points during a live inspection, including:
helping interpret and scope information requests and questions;
reviewing draft responses and supporting documentation for completeness, consistency and clarity; and
assisting with coordination and tracking to help manage timelines and deliverables.
Whether you require a full-scope mock inspection, a focused review of specific risk areas, or targeted mock interview sessions, please contact our team to discuss the most appropriate approach.
Related Items
View all
