HONG KONG (Reuters) - To some, he’s a crusading champion of the “normal people” trampled when businesses go wrong. To others, he’s an overly aggressive bruiser making Hong Kong less attractive as a financial centre.
In his six years as head of enforcement at the former British colony’s Securities and Futures Commission (SFC), Mark Steward has won the agency’s first criminal convictions for insider dealing, strong-armed bank executives over the sale of Lehman mini-bonds and, most recently, forced a Chinese company to repay investors.
When he does come to move on - his contract is up in September, but he won’t comment on his plans - the 49-year-old Australian career enforcer will leave a legacy of having shaken up Asia’s financial capital.
“He’s been a consistent and vigorous defender of the Hong Kong regulatory regime. His appetite for enforcement has unsurprisingly ruffled various feathers in Hong Kong, but then his enforcement policy does what it says on the tin,” said Alan Ewins, a partner at law firm Allen & Overy.
Some who have dealt with him say he’s too intense, driven by a sense of obligation to small shareholders, with zero patience for rule breakers seeking to cut a deal. He’s said to have a quick temper, with one lawyer calling him “mercurial” - a label Steward dismisses.
The spotlight has been on Hong Kong’s securities regulator this year following major court victories, such as a landmark settlement last month that won investors the right to a refund of money they had put in to Chinese textile firm Hontex International 0946.HK, which was accused of exaggerating its earnings.
The Steward-led crackdown comes at a time when regulators in financial centres from New York to Tokyo are also getting tougher on insider trading, while others are under fire for being too soft on banks and companies flouting the rules.
But many bankers and those in the old-school, British-led legal community chafe at Steward’s hardball tactics and interpretation of the SFC’s powers. Steward makes no apology, and sees the sharp increase in prosecutions under his watch as simply part of the job.
“People are squealing, the right people are squealing and that’s exactly what should be happening,” he told Reuters in an interview on Wednesday at the SFC’s headquarters in Hong Kong’s Central District.
Steward arrived in Hong Kong, as an outsider entering Greater China’s booming business world, after spells working for the UK’s Financial Services Authority (FSA) and the Australian Securities and Investment Commission.
He found a robust system of financial regulation built on a firm British legal framework. Hong Kong’s corporate listing rules are among the strictest in the world, but the city’s watchdog and judicial system had a reputation for leniency when it came to punishing financial rule breakers. Insider trading had only become a criminal offence in 2003.
By 2008, Steward landed the SFC’s first insider trading criminal conviction. Close to three dozen more have followed.
Steward says he has merely used rules that were already in place in Hong Kong but had not previously been employed to help the victims of fraud or market misconduct. He doesn’t buy the line that he’s too aggressive, just uncompromising and serious about proper investor protection.
“I don’t think I‘m particularly tough. What we’re doing is putting the law in relation to these matters into action,” he said. “There’s a risk that if you focus on deterrent actions only, the people that suffer real harm miss out.”
STANDING UP FOR ‘NORMAL’ PEOPLE
Steward got into financial crime-fighting by chance. Bored with his legal degree in Melbourne, he took time off and found work as a corporate investigator - just before the 1987 stock market crash. He saw first-hand how business failure and mis-management affected people’s lives.
“It was a great time to understand businesses, and understand how they operate and how things can go wrong very quickly and easily,” he said. “And how the collapse of businesses and business networks can affect mums and dads, shareholders, creditors, normal people - the real economy.”
He returned to finish his law degree and moved into enforcement.
“The consequences of things going wrong for the market can be utterly devastating for families and for businesses, and I don’t think that degree of impact has been recognised by regulators as much as it should be,” he said.
Lawyers don’t dispute his intentions, but question whether he is sometimes too hard-line in cases where there’s not always malicious intent.
“He runs the SFC as if it was a prosecution agency, as if it’s the FBI and it’s out to get crooks. That’s fine if the world’s black and white, but life’s not always like that, a lot of cases are a lot more nuanced,” said one lawyer, who didn’t want to be named given the sensitivity of the matter.
For now, Hong Kong’s legal community is rattled by the SFC’s use of part of the city’s securities law - Section 213 - which was key to the Hontex case. The SFC used the law to freeze Hontex’s IPO proceedings once it suspected something was amiss, and was able to negotiate a settlement under which the company agreed to return around HK$1 billion ($129 million) of investors’ money.
The SFC is trying to use the same law to freeze money held by U.S.-based hedge fund Tiger Asia and ban it from dealing in the Hong Kong market, amid allegations of insider dealing. In February, Hong Kong’s Court of Appeal overturned a ruling that the SFC had overstepped its jurisdiction. The case goes to the Court of Final Appeal next year.
Steward sees Section 213 as giving investors the right to swift compensation rather than having to wait years for a trial to finish - or even start if the accused are overseas. It gives the SFC the power to freeze assets or bar people from trading in Hong Kong as soon as they suspect wrongdoing.
Steward, who earns HK$6.16 million ($794,300) a year according to public records, said the SFC has dozens more cases under way using Section 213. Lawyers opposed to the SFC’s approach say there is a risk that individuals and companies can be punished even if they have not been found guilty.
Steward is sensitive to some of the criticism he gets from the legal and financial community, but doesn’t see how enforcing existing laws to protect investors can be seen as overstepping.
“There are some members of the legal profession in Hong Kong who belong to a different era,” he said. “The harm to the market and the investing public, the consequences of misconduct, must be of as much interest and concern to regulators as the misconduct itself.”
Bankers’ biggest gripe with Steward came in the 2009 negotiations that resulted in them repaying retail investors most of the money they’d put into structured products linked to Lehman Brothers, which collapsed during the financial crisis. Steward threatened to remove banks’ securities licences unless they came to the negotiating table and hammered out a deal.
A WikiLeaks cable from the U.S. consulate in Hong Kong detailed how even the territory’s government saw the SFC as too demanding when it pushed for investors to get all their money back. Ultimately, most ended up with between 85 and 96 percent of their initial investment. The cable quoted Steward as saying the banks were “in denial”, but they “understand now they have to deal with the SFC.”
Steward defends his independence, unswayed by any part of the financial or political community. “No one can say they have got us in their pocket, literally or figuratively,” he said.
If he does move on towards the end of this year - and some guess he may join former SFC head Martin Wheatley who has a vacancy at the FSA in London - investors will hope for more of the same from his successor.
“I think it’s fair to say he has some rough edges and some people find him difficult to deal with, but he isn’t paid to be nice,” said David Webb, a Hong Kong-based corporate governance activist. “I’d rather he was a Rottweiler than a poodle.”
$1 = 7.7556 Hong Kong dollars Editing by Ian Geoghegan