SFC restriction notices
Received an SFC restriction notice?
A restriction notice is a written notice served by the SFC under sections 204 and 205 of the Securities and Futures Ordinance (Cap. 571). It may restrict the business a licensed corporation may carry on and/or how it may deal with client relevant property, and in many cases it freezes assets in specified client accounts. It takes effect on service.
A restriction notice does not, by itself, mean that the SFC has found misconduct by the firm; in many cases it concerns specified client accounts.
Liva Law advises licensed corporations and affected clients on the scope of a restriction notice, operational compliance, SFC consent requests, section 208 applications and, for the firm, review by the Securities and Futures Appeals Tribunal.
What is a restriction notice?
A restriction notice is the common name for a written notice served by the SFC under section 204 and/or section 205 of the Securities and Futures Ordinance (Cap. 571) (SFO). The face of the notice reads “Notice under Sections 204 and 205 of the Securities and Futures Ordinance Cap. 571 (SFO)”. It is addressed to the licensed corporation named in it — defined in the notice as the “Specified Corporation” — and takes effect on service.
Section 204 allows the SFC to restrict the firm’s business — for example, prohibiting it from entering into transactions of a specified kind, or requiring it to carry on business in a specified manner. Section 205 concerns relevant property — broadly, property held by the firm on behalf of its clients — and may prohibit the firm from disposing of or dealing with it, or require the firm to deal with it only in a specified way. In many cases the practical effect is to freeze securities and/or money in specified client accounts, sometimes up to a stated Restriction Amount.
The notice is usually accompanied by a Statement of Reasons and is typically published in the Government Gazette. Restriction notices are often imposed where it appears to the SFC that the prohibition or requirement is desirable in the interest of the investing public or the public interest (section 207(e)). A notice remains in force until the SFC withdraws, substitutes or varies it under section 208 — there is no automatic expiry.
What may the SFC prohibit or require?
The operative part of the notice sets out prohibitions and/or requirements. Depending on its wording, a restriction notice may:
- prohibit the firm from entering into transactions of a specified kind, or restrict the manner in which it carries on its business;
- prohibit the disposal of, or other dealing with, relevant property — including withdrawals and transfers of securities or money from named accounts;
- require the firm to deal with relevant property only in a specified manner;
- require the firm to notify the SFC immediately when it receives instructions — for example, requests to withdraw, transfer or dispose of assets in a named account; and
- cap the restricted property at a stated Restriction Amount.
The notice generally applies except with the SFC’s prior written consent, which may be granted by any two Executive Directors of the SFC. Margin obligations, forced sales, corporate actions, fees and similar events affecting a restricted account should be raised with the SFC before acting. Gazette notices sometimes contain instrument-specific exceptions — do not assume any exception applies without checking the exact wording of your notice.
Breaching a prohibition or requirement has serious consequences. The SFC may apply to the Court of First Instance under section 211, and the court may punish in the same manner as for contempt of court. Staff should understand that a client instruction does not override the notice.
How this differs from other SFC processes
A restriction notice is an intervention power, not an investigation tool or a disciplinary step.
| Process | Primary purpose |
|---|---|
| Restriction notice (sections 204–205) | Intervention — restricts the firm’s business and/or dealings with relevant property; takes effect on service |
| section 180 inspection | Supervision — review of the firm’s records, business and compliance |
| section 183 notice | Information gathering after a section 182 investigation has commenced |
| Notice of Proposed Disciplinary Action (NPDA) | Commencement of disciplinary proceedings against a regulated person |
| Court order (e.g. section 213) | Order of the Court of First Instance, such as an injunction or remedial order |
The same facts can involve more than one process: a firm operating under a restriction notice may also receive a section 183 notice, and a client whose account is frozen may be asked for information.
First steps after service
Record service and read the operative paragraphs
Note the date, time and method of service and who received the notice. Identify the Specified Corporation, each named account, the relevant property and any Restriction Amount. Read the exact prohibitions and/or requirements — the scope comes from the operative wording, not the covering letter.
Apply controls before the next trading session
Stop withdrawals, transfers and disposals on the named accounts except as the notice permits. Brief dealing, back office, finance and IT, and decide how client instructions touching restricted accounts will be routed and recorded.
Assign RO and MIC ownership
Name the responsible officer and the Managers-In-Charge (for example, operations and compliance) who own the response, and escalate to the board as appropriate. The firm remains responsible for compliance even where external advisers assist.
Seek consent for pending items
Margin calls, corporate actions, fees and similar items on restricted accounts: seek the SFC’s prior written consent before acting, and keep a record of each request and decision. Do not assume an informal discussion varies the notice.
Preserve records and expect follow-up
Preserve account records, order and instruction records, and communications for the named accounts. A restriction notice may be followed by a section 183 notice or other requests — plan collection so later deadlines do not become a second crisis.
Control communications
The notice is typically gazetted and public, but details of the underlying investigation may be secret under section 378. Take advice before saying more than the notice itself to clients, counterparties, insurers or group companies.
If your account has been frozen
A restriction notice is addressed to your broker — the Specified Corporation — not to you, and the broker must comply with it. You may first learn of the notice from the Gazette or from the broker.
A person affected by the prohibitions or requirements may apply to the SFC under section 208 to have them withdrawn, substituted or varied — for example, to permit specified dealings or to release funds. The application should explain who you are, how you are affected and why the variation is justified, with supporting evidence.
Take advice before applying: the SFC may ask questions, and a section 183 notice requesting records or an interview is possible. Do not ask the broker to move assets around the notice — acting on a restricted account without consent has serious consequences for both the broker and the client.
How we can assist
- Understand the notice — read the notice and the Statement of Reasons, map exactly what is prohibited and/or required, and identify the affected accounts, the relevant property and any Restriction Amount.
- Operationalise compliance — design the controls, instruction-handling and record-keeping that keep the firm inside the notice, and prepare SFC consent requests for items that must move.
- section 208 applications — for the firm or for affected clients: applications to withdraw, substitute or vary prohibitions and/or requirements, with the evidence and representations to support them.
- SFAT review for the firm — advice on merits and strategy, and representation in an application to the Securities and Futures Appeals Tribunal within 21 days of service.
- Related processes — section 183 notices and interviews, disciplinary proceedings, and court applications where a matter escalates.
Who we advise
Licensed corporations served with a restriction notice; their boards, responsible officers, Managers-In-Charge, and compliance, operations and finance staff; and clients whose accounts are frozen by a restriction notice. Where the firm’s interests and a client’s interests may differ, we advise on separate representation.
Frequently asked questions
Does a restriction notice mean the firm is under investigation?
A restriction notice does not, by itself, mean that the SFC has found misconduct by the firm. In many cases the notice concerns specified client accounts, and the firm is restricted because it holds the relevant property. The notice wording and the Statement of Reasons show what the SFC says the notice concerns.
When does a restriction notice take effect?
On service on the Specified Corporation. Record when and how the notice was served. There is no grace period: controls should be in place before the next trading session.
Can a client withdraw assets from a frozen account?
Not while the prohibitions apply, except with the SFC’s prior written consent or after the notice is withdrawn, substituted or varied under section 208. A person affected — including a client — may apply to the SFC under section 208.
How long does a restriction notice last?
There is no automatic expiry: a notice remains in force until the SFC withdraws, substitutes or varies it under section 208. The duration can be challenged through a section 208 application and, for the firm, an application for review by the Securities and Futures Appeals Tribunal.
Can the notice be varied or lifted?
Yes. Under section 208, the Specified Corporation or a person affected by a prohibition or requirement may apply to the SFC for it to be withdrawn, substituted or varied. A reasoned application with supporting evidence is more likely to succeed than a general request.
Can the firm seek a review by the SFAT?
Yes. Under section 217, an application may be made to the Securities and Futures Appeals Tribunal for a review of the decision stated in the notice. The application must be made within 21 days after the day the notice is served on the Specified Corporation, so the date of service should be recorded and diarised immediately.
Is a restriction notice public?
Restriction notices are typically published in the Government Gazette, so the existence of the notice is usually public. Details of the underlying investigation may be secret under section 378 — take advice before commenting beyond what the notice itself says.
What happens if the firm acts on a mistaken instruction?
Acting on a restricted account without the SFC’s prior written consent risks serious consequences, even where the instruction was genuine or the act inadvertent. The SFC may apply to the Court of First Instance under section 211, and the court may punish in the same manner as for contempt of court. If an instruction touches a restricted account, pause and take advice before acting.
Discuss your restriction notice
If your firm has been served with a restriction notice — or your account has been frozen by one — contact Liva Law to discuss the notice, the 21-day review period and the practical next steps. At first contact, please provide your name, a safe contact number and the date the notice was served. Please do not send the notice or other confidential documents until we have confirmed how they should be provided and whether we can accept the engagement.
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