FRP MASTER TEMPLATE
TABLE OF CONTENTS
1 FRP 2019/2020 Exam Answers............................................................................................................................................................................................................................ 1
1.1 Question 2: Investigation Letter (40 Minutes)............................................................................................................................................................................................... 1
1.2 Question 3: Insider Dealing........................................................................................................................................................................................................................... 5
1.3 Question 4(a): Connected and Notifiable Transactions.................................................................................................................................................................................. 6
1.3.1 Connected Transaction........................................................................................................................................................................................................................... 6
1.3.2 Notifiable Transaction............................................................................................................................................................................................................................ 7
1.4 Question 4(b): Disclosure of Inside Information........................................................................................................................................................................................... 8
1.4.1 Disclosure of Inside Information............................................................................................................................................................................................................ 8
1.4.2 True Rumours......................................................................................................................................................................................................................................... 9
1.1.1 Untrue Rumours...................................................................................................................................................................................................................................... 9
1.4.3 Responsibilities of Non-Executive Directors (NEDs)...........................................................................................................................................................................10
1.5 Question 4(c): KYC and Disclosure Requirements...................................................................................................................................................................................... 10
1.5.1 Know Your Client (KYC) Obligations................................................................................................................................................................................................. 10
1.5.2 Self-Reporting Obligations................................................................................................................................................................................................................... 11
1.5.3 Legal Professional Privilege................................................................................................................................................................................................................. 11
1.6 True or False Statements (18 Minutes)........................................................................................................................................................................................................ 11
2 Corporate Compliance of a Listed Issuer............................................................................................................................................................................................................ 13
2.1 Question 2: General Corporate Compliance................................................................................................................................................................................................ 13
2.1.1 Director’s Duty, Notifiable (Very Substantial Acquisition) and Connected Transactions....................................................................................................................13
2.1.2 Connected Transaction.......................................................................................................................................................................................................................... 15
2.1.3 SMLR: Disclosing False Information................................................................................................................................................................................................... 15
2.2 Question 3: Directors, INEDs and Committees........................................................................................................................................................................................... 16
2.2.1 Is the knowledge or experience of a director relevant in determining the standard of care he owes to the listed issuer? Please discuss from a regulatory perspective.
....................................................................................................................................................................................................................................................................... 16
2.2.2 What are the guidelines measuring the independence of a non-executive director?..............................................................................................................................16
, 2.2.3 What can a listed issuer do if the proposed INED fails to meet these guidelines?................................................................................................................................16
2.2.4 Is there any specific requirement in relation to the composition of the remuneration committee of a listed issuer?.............................................................................16
2.2.5 What is the role of the audit committee?............................................................................................................................................................................................... 17
2.3 Question 4: Disclosure of Interests by Substantial Shareholders................................................................................................................................................................. 17
3 Corporate Governance........................................................................................................................................................................................................................................ 17
3.1 Question 1: Corporate Governance Code Provisions................................................................................................................................................................................... 17
3.1.1 Should the Company follow the code provisions under the CG Code (Appendix 14 of the Listing Rules)? If the Company deviates from the code provisions, what
must be done to satisfy the requirements under Appendix 14?...................................................................................................................................................................... 17
3.1.2 The Chairman is of the view that non-executive directors should be held to a “different standard” from the executive directors as non-executive directors are “less
involved” in the running of the company. Is this view consistent with the CG Code?...................................................................................................................................17
3.1.3 The Chairman is of the view that board meetings are “waste of time” and suggests that there should only be an “annual board meeting” form now on....................17
3.1.4 In delegating management powers to the management team, is it necessary to highlight matters reserved for board approval?..........................................................18
3.1.5 The Company’s articles of association were amended a few weeks ago. Is it necessary to report this to the SEHK?...........................................................................18
3.1.6 The CEO has just been issued 100,000 shares of the Company. Is it a must to disclose?.....................................................................................................................18
4 Market Misconduct............................................................................................................................................................................................................................................. 18
4.1 Question 1: Market Misconduct Offences................................................................................................................................................................................................... 18
5 Handling Regulatory Investigations.................................................................................................................................................................................................................... 21
5.1 Question 1: Section 213 and 214 of the SFO............................................................................................................................................................................................... 21
5.2 Question 2: Regulatory Investigation........................................................................................................................................................................................................... 22
5.3 Question 3: Section 25A of the Organized and Serious Crimes Ordinance (Cap. 455)................................................................................................................................23
5.4 Question 4: Independent Commission Against Corruption..........................................................................................................................................................................23
5.5 Question 5: Commercial Crime Bureau and Dawn Raids............................................................................................................................................................................ 23
1 FRP 2019/2020 EXAM ANSWERS
1.1 QUESTION 2: INVESTIGATION LETTER (40 MINUTES)
Your law firm represents the Bank. The general counsel of the Bank, Mandy Wan, is
seeking your urgent advice on the following matters. Mandy is within the secrecy wall
(together with a small group of compliance personnel) and has been briefed about the SFC
investigation (with consent from the Securities and Futures Commission (SFC)). You need
to identify and respond to the regulatory issues.
1
, You are the external counsel of Grand Profits Banking Limited, an international investment In the present case, the Bank has received a s.182 Investigation Letter containing 2 issues
bank (Bank) with a presence in Hong Kong. The Bank and a number of its senior staff under investigation, both relating to the market misconduct of insider dealing: the first being
members have been named “persons under investigation” under section 182(1) of the the criminal proceedings under s.291 of the SFO, and the second is civil proceedings under
Securities and Futures Ordinance (Cap 571) (SFO) in connection with dealings in the s.270 of the SFO.
securities of State-OF-The-App Limited (a listed company in Hong Kong) (SFC
At this stage, the Bank must determine whether it has the resources to handle this matter,
Investigation). An extract of the direction to investigate is provided to you below.
especially concerning whether it can meet the deadlines set by the SFC. If the SFC
SFC Letter: subsequently makes a s.183 request for information, the Bank must seek time extensions
as soon as possible if it cannot meet the relevant deadlines.
I am a delegate of the Securities and Future Commission (“the Commission”).
In response to this s.182 investigation, it is necessary that the Bank take the following
I have reasonable cause to believe that during or around May 2017:
measures:
(a) Offences of insider dealing may have been committed in respect of the dealing in
Statutory Secrecy
shares of State-of-The-App Limited, contrary to section 291 of the Ordinance; and/or
Statutory secrecy applies to SFC investigations as well as Stock Exchange disciplinary
(b) Persons may have engaged in insider dealing in respect of the dealing in the shares of
proceedings. As a s.182(1) Investigation Letter would clearly indicate, statutory secrecy
State of The App Limited, contrary to section 270 of the Ordinance.
applies to SFC investigations and the consequences of a breach of secrecy. The letter is
I direct: addressed to persons under investigation and persons assisting with the investigation. The
range of personnel is therefore broad, something the clients should be reminded of. In the
Laura Lam to investigate this matter and report to the Commission. present case, Mandy Wan and her team of compliance personnel are recognized as
Date: 2 March 2020 persons assisting in the investigation.
Jenny Jones Statutory Secrecy: Specified Persons
Director of Enforcement Under s.378(15) of the SFO, a specified person means the SFC, and any person who is or
was a member, employee, consultant, agent, adviser of the SFC, or any person who is or
was appointed under any of the relevant provisions, performing any function under any
relevant provisions, or assisting any other in the performance of any function under or
carrying into effect any of the relevant provisions. The person under investigation or
assisting with investigation must not communicate with any senior personnel or colleagues
or anyone who is not “inside the wall” of the SFC investigation. This means that Mandy Wan
and her team of compliance personnel must not communicate to anyone else, either in the
Bank or outside, about the SFC investigation, except when exceptions to statutory secrecy
apply or to those who are “inside the wall”. In the present case, as under s.378(2)(c),
seeking legal advice is one of those exceptions. Mandy Wan and her team of compliance
personnel therefore must be careful when sharing information and must only disclose
information to those “inside the wall” or if one of the s.378(2) exceptions apply.
ANSWER
Statutory Secrecy: Obligations
Scope of Investigation
Under s. 378(7) of the SFO, a person to whom that information is so disclosed to or any
Upon receiving a s.182 Investigation Letter, which contains the issue under investigation
other person obtaining or receiving the information, whether directly or indirectly, from that
(market misconduct or other breaches, and whether the recipient is being investigated or
person, shall not disclose the information to any other person unless exceptions apply. In
whether he is asked to assist in the investigation) the persons receiving the letter are bound
other words, if Mandy Wan and her team of compliance personnel communicate any
by statutory secrecy of s.378(1) of the SFO and may only disclose information if one of the
information regarding the SFC investigation, that recipient of this information is also under
exceptions under s.378(2) of the SFO applies. This is often accompanied by a s.183
the statutory secrecy obligations.
request for the disclosure of information to the investigator.
2
TABLE OF CONTENTS
1 FRP 2019/2020 Exam Answers............................................................................................................................................................................................................................ 1
1.1 Question 2: Investigation Letter (40 Minutes)............................................................................................................................................................................................... 1
1.2 Question 3: Insider Dealing........................................................................................................................................................................................................................... 5
1.3 Question 4(a): Connected and Notifiable Transactions.................................................................................................................................................................................. 6
1.3.1 Connected Transaction........................................................................................................................................................................................................................... 6
1.3.2 Notifiable Transaction............................................................................................................................................................................................................................ 7
1.4 Question 4(b): Disclosure of Inside Information........................................................................................................................................................................................... 8
1.4.1 Disclosure of Inside Information............................................................................................................................................................................................................ 8
1.4.2 True Rumours......................................................................................................................................................................................................................................... 9
1.1.1 Untrue Rumours...................................................................................................................................................................................................................................... 9
1.4.3 Responsibilities of Non-Executive Directors (NEDs)...........................................................................................................................................................................10
1.5 Question 4(c): KYC and Disclosure Requirements...................................................................................................................................................................................... 10
1.5.1 Know Your Client (KYC) Obligations................................................................................................................................................................................................. 10
1.5.2 Self-Reporting Obligations................................................................................................................................................................................................................... 11
1.5.3 Legal Professional Privilege................................................................................................................................................................................................................. 11
1.6 True or False Statements (18 Minutes)........................................................................................................................................................................................................ 11
2 Corporate Compliance of a Listed Issuer............................................................................................................................................................................................................ 13
2.1 Question 2: General Corporate Compliance................................................................................................................................................................................................ 13
2.1.1 Director’s Duty, Notifiable (Very Substantial Acquisition) and Connected Transactions....................................................................................................................13
2.1.2 Connected Transaction.......................................................................................................................................................................................................................... 15
2.1.3 SMLR: Disclosing False Information................................................................................................................................................................................................... 15
2.2 Question 3: Directors, INEDs and Committees........................................................................................................................................................................................... 16
2.2.1 Is the knowledge or experience of a director relevant in determining the standard of care he owes to the listed issuer? Please discuss from a regulatory perspective.
....................................................................................................................................................................................................................................................................... 16
2.2.2 What are the guidelines measuring the independence of a non-executive director?..............................................................................................................................16
, 2.2.3 What can a listed issuer do if the proposed INED fails to meet these guidelines?................................................................................................................................16
2.2.4 Is there any specific requirement in relation to the composition of the remuneration committee of a listed issuer?.............................................................................16
2.2.5 What is the role of the audit committee?............................................................................................................................................................................................... 17
2.3 Question 4: Disclosure of Interests by Substantial Shareholders................................................................................................................................................................. 17
3 Corporate Governance........................................................................................................................................................................................................................................ 17
3.1 Question 1: Corporate Governance Code Provisions................................................................................................................................................................................... 17
3.1.1 Should the Company follow the code provisions under the CG Code (Appendix 14 of the Listing Rules)? If the Company deviates from the code provisions, what
must be done to satisfy the requirements under Appendix 14?...................................................................................................................................................................... 17
3.1.2 The Chairman is of the view that non-executive directors should be held to a “different standard” from the executive directors as non-executive directors are “less
involved” in the running of the company. Is this view consistent with the CG Code?...................................................................................................................................17
3.1.3 The Chairman is of the view that board meetings are “waste of time” and suggests that there should only be an “annual board meeting” form now on....................17
3.1.4 In delegating management powers to the management team, is it necessary to highlight matters reserved for board approval?..........................................................18
3.1.5 The Company’s articles of association were amended a few weeks ago. Is it necessary to report this to the SEHK?...........................................................................18
3.1.6 The CEO has just been issued 100,000 shares of the Company. Is it a must to disclose?.....................................................................................................................18
4 Market Misconduct............................................................................................................................................................................................................................................. 18
4.1 Question 1: Market Misconduct Offences................................................................................................................................................................................................... 18
5 Handling Regulatory Investigations.................................................................................................................................................................................................................... 21
5.1 Question 1: Section 213 and 214 of the SFO............................................................................................................................................................................................... 21
5.2 Question 2: Regulatory Investigation........................................................................................................................................................................................................... 22
5.3 Question 3: Section 25A of the Organized and Serious Crimes Ordinance (Cap. 455)................................................................................................................................23
5.4 Question 4: Independent Commission Against Corruption..........................................................................................................................................................................23
5.5 Question 5: Commercial Crime Bureau and Dawn Raids............................................................................................................................................................................ 23
1 FRP 2019/2020 EXAM ANSWERS
1.1 QUESTION 2: INVESTIGATION LETTER (40 MINUTES)
Your law firm represents the Bank. The general counsel of the Bank, Mandy Wan, is
seeking your urgent advice on the following matters. Mandy is within the secrecy wall
(together with a small group of compliance personnel) and has been briefed about the SFC
investigation (with consent from the Securities and Futures Commission (SFC)). You need
to identify and respond to the regulatory issues.
1
, You are the external counsel of Grand Profits Banking Limited, an international investment In the present case, the Bank has received a s.182 Investigation Letter containing 2 issues
bank (Bank) with a presence in Hong Kong. The Bank and a number of its senior staff under investigation, both relating to the market misconduct of insider dealing: the first being
members have been named “persons under investigation” under section 182(1) of the the criminal proceedings under s.291 of the SFO, and the second is civil proceedings under
Securities and Futures Ordinance (Cap 571) (SFO) in connection with dealings in the s.270 of the SFO.
securities of State-OF-The-App Limited (a listed company in Hong Kong) (SFC
At this stage, the Bank must determine whether it has the resources to handle this matter,
Investigation). An extract of the direction to investigate is provided to you below.
especially concerning whether it can meet the deadlines set by the SFC. If the SFC
SFC Letter: subsequently makes a s.183 request for information, the Bank must seek time extensions
as soon as possible if it cannot meet the relevant deadlines.
I am a delegate of the Securities and Future Commission (“the Commission”).
In response to this s.182 investigation, it is necessary that the Bank take the following
I have reasonable cause to believe that during or around May 2017:
measures:
(a) Offences of insider dealing may have been committed in respect of the dealing in
Statutory Secrecy
shares of State-of-The-App Limited, contrary to section 291 of the Ordinance; and/or
Statutory secrecy applies to SFC investigations as well as Stock Exchange disciplinary
(b) Persons may have engaged in insider dealing in respect of the dealing in the shares of
proceedings. As a s.182(1) Investigation Letter would clearly indicate, statutory secrecy
State of The App Limited, contrary to section 270 of the Ordinance.
applies to SFC investigations and the consequences of a breach of secrecy. The letter is
I direct: addressed to persons under investigation and persons assisting with the investigation. The
range of personnel is therefore broad, something the clients should be reminded of. In the
Laura Lam to investigate this matter and report to the Commission. present case, Mandy Wan and her team of compliance personnel are recognized as
Date: 2 March 2020 persons assisting in the investigation.
Jenny Jones Statutory Secrecy: Specified Persons
Director of Enforcement Under s.378(15) of the SFO, a specified person means the SFC, and any person who is or
was a member, employee, consultant, agent, adviser of the SFC, or any person who is or
was appointed under any of the relevant provisions, performing any function under any
relevant provisions, or assisting any other in the performance of any function under or
carrying into effect any of the relevant provisions. The person under investigation or
assisting with investigation must not communicate with any senior personnel or colleagues
or anyone who is not “inside the wall” of the SFC investigation. This means that Mandy Wan
and her team of compliance personnel must not communicate to anyone else, either in the
Bank or outside, about the SFC investigation, except when exceptions to statutory secrecy
apply or to those who are “inside the wall”. In the present case, as under s.378(2)(c),
seeking legal advice is one of those exceptions. Mandy Wan and her team of compliance
personnel therefore must be careful when sharing information and must only disclose
information to those “inside the wall” or if one of the s.378(2) exceptions apply.
ANSWER
Statutory Secrecy: Obligations
Scope of Investigation
Under s. 378(7) of the SFO, a person to whom that information is so disclosed to or any
Upon receiving a s.182 Investigation Letter, which contains the issue under investigation
other person obtaining or receiving the information, whether directly or indirectly, from that
(market misconduct or other breaches, and whether the recipient is being investigated or
person, shall not disclose the information to any other person unless exceptions apply. In
whether he is asked to assist in the investigation) the persons receiving the letter are bound
other words, if Mandy Wan and her team of compliance personnel communicate any
by statutory secrecy of s.378(1) of the SFO and may only disclose information if one of the
information regarding the SFC investigation, that recipient of this information is also under
exceptions under s.378(2) of the SFO applies. This is often accompanied by a s.183
the statutory secrecy obligations.
request for the disclosure of information to the investigator.
2
