(i) HKEX censures Orient Securities International Holdings Limited, imposes a Director unsuitability statement on named former executive director and independent directors (INEDs); imposes a Prejudice to investors’ interest statement to named former INED. The relevant INEDs are former members of its audit committee (Announcement; Statement of disciplinary action)

Background: this is a GEM board case on serious failures of the board to appropriately manage and supervise the company’s money lending business. Such failure to act and safeguard company assets led to significant impairment losses. The defendants settled the case with HKEX.

Our focus is on general lessons for directors and audit committee (AC) members, beyond the context of a money lender business.

Between 2015-22, the company granted and extended loans ($378 million) to individual clients. It only conducted high-level due diligence before granting the loans and failed to ensure that loan collateral (properties in the PRC) was properly registered for enforcement in case of default.

Auditor had alerted AC about the non-registration of the collateral as early as 2018 and advised them to communicate with the company’s management. It also reminded AC on increasing defaults. However, AC members did not take any initiative to respond to such warnings and/or facilitate communication between the auditor and the board.

What you should watch out for 

HKEX key message

• The board collectively and individually bears responsibility for the management and operations of an issuer. This requires each director to take an active interest in its affairs, obtain a general understanding of its business and follow up anything untoward that comes to  attention

• Where red flags have been identified, it is the duty of all directors to make tangible efforts to investigate, and follow up on whether, and how, the red flags have been addressed

Findings on AC

• AC was expected to assist the board in fulfilling its responsibilities through an independent review and oversight of the loans, yet its members did not discharge this obligation

(ii)  SFC’s publication (Enforcement Reporter) highlighted fighting scams in the digital age.   

Its focus is principally on scams involving individuals and retail investors, hence outside our scope.

Overview:  in 2024, HK Police recorded an alarming fourfold increase in deception cases in 5 years. Scammers exploit instant messaging, social media, phone calls, and SMS to target HK residents. Deepfake and AI technologies are increasingly used to impersonate government officials and public figures convincingly. Emerging trends include transactions and fund movements facilitated by digital platforms and decentralised ledger technology, cross border scams.  It is therefore critical for regulators to collaborate with technology firms.

SFC highlighted various tools (e.g. its ”Social Media Monitoring System”, “Alert Lists”, education efforts) and enforcement cases against unlawful Finfluencers. The “Anti-scam consumer protection charter 3.0” (collaboration with HK Monetary Authority, Insurance Authority, MFP Authority, technology/communications companies) was referenced.