Hong Kong’s SFC says no grounds to pursue action against HSBC for dividend cancellation

A couple of days after Hong Kong’s Secretary for Financial Services and the Treasury commented on the decision by HSBC Holdings plc to cancel its fourth interim dividend for 2019 and to suspend the payment of any further dividend until the end of 2020, the Securities and Futures Commission (SFC) has issued a statement on this matter too.

The SFC notes that it has received a large number of enquiries and complaints from the investing public and professional bodies in Hong Kong in relation to the cancellation and the suspension which raised a raft of issues. For instance, certain complaints alleged that HSBC had failed to safeguard shareholders’ interests and had caused substantial loss to shareholders in terms of stock value and dividend pay-out, and accordingly, shareholders should be compensated. Some complaints questioned whether HSBC had disclosed its discussions with the Bank of England in respect of the cancellation of the fourth interim dividend in a timely manner.

The SFC does not usually comment on individual cases. However, in light of the significant public interest in this matter, the regulator decided to issued a statement.

HSBC is listed in a number of jurisdictions, including a dual primary listing on the London Stock Exchange and on The Stock Exchange of Hong Kong Limited (SEHK). The SFC’s regulatory ambit extends to regulating HSBC as a listed company on the SEHK pursuant to the laws and regulations that the SFC administers, primarily the Securities and Futures Ordinance (SFO) and related subsidiary legislation.

Matters relating to the banking and prudential supervision of HSBC lie outside the SFC’s regulatory ambit, the Hong Kong regulator explains. The UK PRA is responsible for the regulation and supervision of banks, building societies, credit unions, insurers and major investment firms in the UK. It acts as the primary supervisor for a number of UK-headquartered international banking and insurance groups, including the HSBC group.

The SFC has communicated with HSBC and the PRA to establish the circumstances leading up to the cancellation and the suspension.

The SFC understands that the PRA’s request for the Cancellation and the Suspension, and HSBC’s agreement to such request, was made after carefully considering and balancing various factors, including that the PRA considered the need for early action to preserve the capital position of firms in the face of continuing economic uncertainty. Further, the PRA has the necessary statutory power to require HSBC to take capital preservation actions and it was clear that the PRA stood ready to exercise such powers should HSBC not agree to take the requested action.In particular, the PRA noted that a cessation of dividends to ensure adequate capital to support lending, in the case of HSBC, was likely to benefit the Hong Kong economy as well as the UK and the global economy.

According to the board of HSBC, HSBC’s long-term interests were best served by acceding to the PRA’s requests, and it would not have been in the best interests of HSBC’s shareholders or other stakeholders to refuse to agree to the PRA’s request.

The SFC has conducted a careful examination of all information available to it to date (including, but not limited to, the matters mentioned above), and assessed it against the threshold criteria for investigating matters under the SFO such as insider dealing, failure to disclose inside information, disclosure of false or misleading information and unfair prejudice to shareholders.

The Hong Kong regulator has concluded that there is at present no ground on which regulatory action should be pursued under the SFO in respect of the cancellation and the suspension.