Tang Hanbo is a Chinese citizen residing in Hong Kong. In March 2016, the Hong Kong Securities and Futures Commission (SFC) commenced an investigation into his trading of shares in Aluminum Corporation of China. During the course of the investigation, the SFC discovered that Tang Hanbo and his wife might have breached Hong Kong’s Securities and Futures Ordinance and the Code on Takeovers and Mergers in their trading of shares of two other Hong Kong–listed companies. At the same time, the China Securities Regulatory Commission (CSRC) also launched an investigation into Tang Hanbo and another individual for suspected market manipulation in relation to the trading of shares of a company listed in Shanghai.

In June 2016, the CSRC sent a letter to the SFC requesting assistance. After receiving the request, the SFC successfully applied to a magistrate for a search warrant. During the execution of the warrant, SFC investigators seized a laptop computer, mobile phones, and relevant documents from Tang Hanbo’s residence in Hong Kong.

When applying for the search warrant, the SFC informed the magistrate only that the warrant was sought for the purpose of investigating conduct that might contravene Hong Kong laws and regulatory codes. It did not disclose the existence of the CSRC’s investigation, nor did it mention the CSRC’s interest in Tang Hanbo or in the materials sought. However, during the execution of the search, SFC investigators attempted to arrange a telephone call between Tang Hanbo and the CSRC officers, and they also promptly reported to the CSRC the materials seized and the data found on the computers.

After the search, the CSRC sent several further requests for assistance to the SFC. The SFC subsequently provided the requested materials to the CSRC, including materials obtained during the search. On 10 March 2017, the CSRC convened a hearing pursuant to an earlier notice, during which it referred to the search and the materials seized by the SFC. The CSRC ultimately decided to impose penalties on Tang Hanbo and other involved parties, imposing fines and confiscation totaling RMB 1.2 billion (see http://www.csrc.gov.cn/pub/zjhpublic/G00306212/201703/t20170310_313477.htm).

A penalty of RMB 1.2 billion is undeniably enormous. However, it is curious that Tang Hanbo did not appear to challenge the CSRC’s decision. Instead, he applied to the Hong Kong High Court for judicial review of the legality of the search warrant issued by the magistrate to the SFC. Tang Hanbo argued that the SFC had failed to make full and frank disclosure to the court when applying for the warrant, in that it did not disclose that the purpose of the search was to assist the CSRC’s investigation. Tang Hanbo was apparently unaware that the SFC had already commenced its own investigation into him before receiving the CSRC’s request.

The SFC responded that, under Hong Kong law, it has the power to commence investigations in response to requests from overseas regulators and also has the authority to provide materials obtained through searches to such regulators. Therefore, it argued, there was no concealment from the court. The Hong Kong High Court ultimately accepted the SFC’s explanation and held that there was no need for the SFC to have disclosed the CSRC’s involvement.

Pursuant to section 186 of the Securities and Futures Ordinance, the SFC is empowered, in appropriate circumstances, to provide investigative assistance to regulatory authorities outside Hong Kong (such as the CSRC). The SFC frequently relies on this provision to assist overseas regulators in their investigations.

This case confirms that even where the SFC originally obtains materials for the purpose of its own investigation, it may subsequently transfer those materials to the CSRC.

With the continuous growth in trading volume under the Shanghai–Hong Kong Stock Connect and Shenzhen–Hong Kong Stock Connect schemes, cooperation between the SFC and the CSRC will continue to increase. In a press release issued in June 2017 (http://www.csrc.gov.cn/pub/newsite/jcj/gzdt/201708/t20170821_322442.html), the CSRC disclosed that since the launch of the Shanghai–Hong Kong Stock Connect in November 2014, it has conducted 365 cross-border enforcement cooperation actions with the SFC. The Tang Hanbo case further demonstrates the increasingly close cooperation between the SFC and the CSRC in mutual investigative assistance.