The Hong Kong-based offshore arms of Chinese investment banks Citic Securities and Guotai Haitong are increasing their legal and compliance headcount, sources said, after an insider trading probe by authorities hit the two firms.
Citic CLSA and Guotai Junan International have launched separate efforts to hire a handful of legal and compliance executives over the past two weeks, said three sources with knowledge of the matter.
Earlier this month, the Hong Kong offices of Citic CLSA and Guotai Junan International were raided and staff questioned, as local authorities investigated suspected insider trading in share placements.
The plans to boost compliance headcount by the two firms show the scramble by investment banks in Hong Kong to bolster their critical business operations amid growing regulatory scrutiny of fundraising activities in the city.
Hong Kong was the world’s top listing venue last year, with equity fundraising surging 164% to $103 billion, according to stock exchange data. The increase was driven primarily by a sharp rebound in equity offerings by Chinese firms.
The recent regulatory crackdown on investment banks in Hong Kong is expected to put more pressure on IPO sponsors and share placement agents to sharpen their focus on due diligence and tighten internal controls.
All of the three sources declined to be named as they were not authorised to speak to the media.
Citic CLSA declined to comment. Guotai Junan International did not respond to a Reuters request for comment.
BEEFING UP COMPLIANCE HEADCOUNT
Citic CLSA is adding at least three legal and compliance staffers, with two of them expected to cover regulatory matters and another focused on the investment banking division, two of the sources said.
Guotai Junan International has launched a process to hire a senior compliance manager to replace its former compliance head who left the bank a month before Hong Kong authorities raided the firm, according to two of the sources.
The senior compliance manager will be tasked with handling queries from internal and external stakeholders, including regulators and law enforcement agencies, the sources added.
Guotai Junan also plans to expand its legal and compliance team and details are being worked on, one of the sources said.
Without naming any firms, Hong Kong authorities on March 12 said they had launched an insider trading probe into two brokerages and a hedge fund. They arrested eight people in their biggest crackdown on the financial industry in recent years.
Those arrested included senior executives, Hong Kong‘s Securities and Futures Commission and the Independent Commission Against Corruption said in a statement on the case, which involved share placements.
Citic Securities, in a filing to the Shanghai Stock Exchange at the time, confirmed that its Hong Kong subsidiary – without naming it – was investigated with some documents being taken and one staff member questioned.
Besides beefing up its compliance headcount, Citic CLSA has since the raid launched an internal audit of its banking team, according to two of the sources, as it seeks to identify whether there are more staff members involved in the case.
One of Citic CLSA’s top bankers in its equities capital market division, which serves as the main interface between companies looking to raise funds and investors, was questioned by the authorities in the investigation, the two sources said.
Samuel Pan, the head of Guotai Junan International’s equity capital market division, was taken away for questioning by Hong Kong authorities, two of the sources said. Pan did not respond to Reuters phone calls and written correspondence seeking comment.
Reuters
