Just to show that regulatory compliance in the financial services sector isn’t just limited to the West, an interesting story came out of Hong Kong this week. Poor ol’ Lo Kam Chung was fined and ordered to complete community service for giving unlicensed securities advice. Chung had set up a private discussion group in Facebook and charged subscribers $200-$300 a month to read about his securities advice. Problem is that he was never licensed with the Securities and Futures Commission (SFC) to do so. If there’s a bright side to this story, it’s that none of the subscribers followed his advice and didn’t lose any money.
This anecdote raises several issues. First, the ease with which Chung was able to set up a platform on which to dispense advice was unequivocal. That’s what happens with social media. Joining social networks is generally free, easy to sign up, and addictive. The successful social networks are those that are intuitive, easy to use, and feature-rich. Facebook is the poster child of such a network, and Chung used it to his advantage.
Secondly, the fact that the SFC stepped in and levied a relatively harsh penalty ($20,000 fine and 80 hours of community service to be completed within a year) speaks volumes about how seriously the SFC considered the Chung matter. Social is a global phenomenon, and I’m sure that the SFC was keen to set an example, much like what FINRA did in the Jenny Ta case this past January. A regulatory body without any enforcement powers is essentially a paper tiger.
Thirdly, the SFC made it very clear that the doling out of securities advice must be licensed, IRRESPECTIVE OF THE MEDIUM. That’s a not-so-subtle callout that social media communications will be policed just like any other form of communication. So, no matter if it’s the US, Canada, the UK, or Hong Kong, the regulatory bodies all share the same view that the content itself is determinative, not the communication channel.
So, don’t be a charlatan, doing your best “armchair Warren Buffett” impression, especially for money. Leave that to the “experts” and let them take the heat when things go south. Do the names Nick Leeson and Jerome Kerviel ring a bell?