Hong Kong watchdog tells firms how to cooperate in raids as scrutiny of share sales grows

By Selena Li and Summer Zhen

HONG KONG, Sept 11 (Reuters) - Hong Kong's securities watchdog gave guidance to investment banks on how they should cooperate during a raid by regulators, two people with knowledge of an industry meeting said, adding this signals more scrutiny, particularly of booming share sales.

Securities and Futures Commission CEO Julia Leung and Kenneth Luk, senior director of its enforcement division, attended a meeting with investment bank executives on August 17, where Luk gave guidance on what staff should do, they said.

Luk instructed firms to train front-desk staff to deal with search warrants immediately, escort search teams into designated areas and set aside private rooms away from other visitors, according to the sources.

Representatives from around 10 brokers were also told to allow same-day access to employee emails and computer systems and to launch internal investigations if the raid is leaked to the media, they added.

The sources were not authorised to speak to media and declined to be identified. The guidance has not been reported previously.

The SFC said in a statement to Reuters that it has not issued any written directives that provide guidance on raids but that from time to time, it "also shares its expectations and actionable protocols with market practitioners to advance best practices in internal control and compliance."

It declined to comment on the August meeting.

FIRMS TOLD TO CHOOSE QUALITY ISSUERS

IPOs and other share sales have become a big focus for regulators this year, said the sources, adding that attendees of the meeting were told that banks and other advisers should "consider market capacity and choose quality issuers while exercising robust internal control."

There have been about eight raids of either brokerages or funds by Hong Kong regulators this year, according to the sources who characterised the number as a big uptick over previous years.

Reuters reporting shows that this includes China's largest brokerage firm Citic's Hong Kong arm 600030.SS, Guotai Junan, and the local units of CCB International and China Securities International 601066.SS.

The firms did not comment on the raids at the time of reporting.

Hong Kong is going through an unprecedented share sale boom, as swathes of Chinese AI, robotic and other tech firms seek funding.

At least 500 companies are planning to launch IPOs in Hong Kong, data shows, and that does not even include firms that have filed confidentially.

Total funds raised in Hong Kong via IPOs and secondary share placements jumped 76% to HK$651 billion ($83.5 billion) in the first eight months of 2026 from the same period a year earlier, according to stock exchange data.

SFC FOCUSING ON MISUSE OF IPO FUNDS, FAKE DEMAND

Since December, Hong Kong authorities have become more vocal about how pursuing deal volume can erode the gatekeeping role of sponsors.

SFC officials said at the meeting that the regulator's primary focus has shifted away from traditional financial fraud toward complex listing abuses that erode market integrity, according to the sources.

Priorities now focus on the misuse and diversion of share sale proceeds by management at companies, as well as the fabrication of demand during placements, they said.

For instance, issuers might offer implicit guaranteed returns, provide loans for share subscriptions, or use other commercial arrangements to supply funding to boost demand.

In a rare move, the SFC on Thursday suspended trading of eye treatment developer Cloudbreak Pharma 2592.HK, citing "serious concerns" that its IPO may have been "rigged to create an artificial impression of demand for Cloudbreak's shares", the watchdog said in a statement.

California-based Cloudbreak, which raised $80 million in its July listing, did not immediately respond to a request for comment.

Huatai International, which is backed by a Chinese state-owned firm, is among the latest brokers to have been raided, one of the people and two separate sources with knowledge of the search in August said.

The regulator is looking into whether there was insider trading with regard to certain clients' transactions involving online broker Futu's U.S.-listed shares, two of the sources said.

Huatai International declined to comment. Futu did not immediately respond to a request for comment.