APAC Regulators Highlight Enforcement Trends

Over the past three years, regulators across the Asia Pacific region have moved towards a front-loaded regulatory approach, emphasizing early, targeted and systemic intervention to address risks and minimize harm from market misconduct and irregularities. That approach has proved crucial to dealing with today’s rapidly emerging and evolving threats, said representatives of the Australian Securities and Investments Commission (ASIC), Hong Kong's Securities & Futures Commission (SFC) and the Monetary Authority of Singapore (MAS) during a fireside chat on Enforcement Trends during last month's ASIFMA Compliance Week event.

Among their observations was that "ramp and dump" schemes have become much more prevalent over the past year. “Whereas we used to see pump and dumps, we now have ramp and dumps. The difference is that the curves are a lot less steep, with upwards manipulation of stocks done in a much more gradual way to stay under our radar surveillance,” explained Thomas Atkinson, Executive Director, Enforcement at the SFC.

“The normal pattern in these ramp and dumps is someone corners the stock, then using potentially hundreds of nominees, they gradually move the price upwards through wash trading techniques,” he added.

And of course, social media is playing a big role in the manipulation. “People have gone on dating sites, and they trick consumers into buying a particular stock at a certain time. So, when they’re ready to unload, there are a lot of people ready to buy it,” revealed Atkinson.

The SFC has responded proactively with asset freezes "to try to get them before they unload the stocks," said Atkinson. Although taking action before positions are unloaded is "very difficult,” he revealed that in the course of such actions, the SFC froze accounts to the tune of $900 million last year.

Other responses include "tooling up to be fit and ready to monitor the social media platforms in the most efficient way, including using artificial intelligence,” said Sharon Concisom, Executive Director, Market Enforcement at ASIC.  And the MAS's front-loaded approach to phishing activity includes shutting down certain websites, engaging with Google to block other sites, reaching out to large players to ask them to send warning messages to their customers, and liaising with financial intuitions to prevent access to offenders.

ASIC, the SFC and MAS also focus heavily on investor education to prevent scams. Recognizing that consumers often fall victim to get-rich-quick schemes advertised on Facebook and YouTube, the SFC has devised so-called "trap ads," which send people clicking on them to the SFC website, which informs them that such ads are a common scam tactic. "We got 22,000 hits through our trap ads as soon as we put them up," noted Atkinson. "There seems to be a lot of available victims for this sort of thing."

Increased retail investor participation during the Covid-19 pandemic has coincided with a spike in investment scams, which were up three-fold in the first half of 2021 over the same period last year, according to Beng Hwa Tan, Director, Head of Enforcement Department’s Market Conduct Investigations Division 1 at the MAS.

Online platforms are the major source of such scams. "We are seeing people pretending to be experienced traders giving stock views, all in a bid to entice people to trade and push up the share price before they dump it. And people are using social media platforms to cultivate friends before recommending them websites offering supposedly great investment returns. A lot of these investors initially think they are making money, until they realize they are unable to withdraw their profits," explained Tan.

Another trending regulatory issue is leakage or misuse of information passed on in the course of market soundings and wall crossings.

“We’re seeing people improperly giving out and receiving information. Sometimes they are not actively seeking it, but are being tipped off anyway and making trades. We’ve got a number of insider trading cases going on in this area,” noted Atkinson.

Atkinson added: “If you’re using scrips, you need to record who is using those scrips and have an audit trail around everything. If we see suspicious trading and I come to you and ask you what happened, if you have an imperfect picture, I may draw the wrong conclusions even if you haven’t done anything wrong. A lot of it revolves around third party transfers that are not documented properly. That’s where we’re seeing all the cases now.”

Concisom warned that it is incumbent on corporates “to take responsibility to manage confidentiality of their own market sensitive information. This is about proper processes and controls, and poor practices can have legal ramifications in terms of compliance, including with corporates’ continuous disclosure obligations. We will not hesitate to take action for leakage of information or selective briefing of analysts.”

Moreover, Concisom noted that “analysts should avoid seeking to elicit confidential market sensitive information from corporates. Where they do, it’s our expectation that they need to ensure that they understand how to manage it and avoid falling foul, including by disclosing or tipping the information to third parties.”

Among notable recent regulatory measures, ASIC released a new immunity policy in February 2021, providing protection from prosecution in return for information that results in successful action against market misconduct. "We are hoping this will put us in a position to deal with market misconduct more efficiently," said Concisom.

And in an effort to increase accountability, the MAS issued Guidelines on Individual Accountability and Conduct last September, which came into effect last month. "We have been focusing a lot on culture and conduct," explained Tan. "We want financial institutions to clearly identify senior managers for key business functions. We then make it clear they are responsible for the wrongdoing of employees and the business under their purview."