SFC Signals Tougher Approach to Legal Privilege Claims

Following a recent interlocutory ruling on legal professional privilege (LPP)¹, the Hong Kong Securities and Futures Commission (SFC) Head of Enforcement, Michael Duignan, has publicly signaled a tougher approach to privilege claims. Speaking at the GIR Live: Asia-Pacific Investigations Summit on August 25, 2026, Duignan said that the SFC is prepared to “push back hard” against over-broad claims of privilege. 

The warning is understandable. Privilege is sometimes claimed too widely, particularly in the pressure of dawn raids, compulsory production notices, and urgent regulatory requests. The ruling is a timely reminder of first principles. LPP is not a badge affixed by lawyers to documents after the event. It is a substantive immunity, justified by the public interest in enabling clients to obtain legal advice. Whether it applies depends on the real reason why the document came into existence, not on labels, authorship, or assertions of confidentiality. 

Background

The proceedings arose from alleged insider dealing by a buy-side hedge fund manager in connection with a block trade. The sell-side broker involved in the trade engaged external lawyers to investigate concerns about the handling of material nonpublic information. The lawyers conducted interviews and produced an internal investigation report, later provided to the SFC under an express limited waiver.

The buy-side hedge fund manager sought disclosure of the confidential report, interview notes, and related underlying emails/phone records assimilated by the sell-side broker. The broker claimed LPP, noting that the report has been provided to the SFC only under a limited waiver and that the underlying materials had never been given to the SFC. 

The Dominant Purpose Test

The claim failed. The court held that documents attract LPP only if their dominant purpose is “for seeking legal advice” or “for use in the conduct of or in relation to existing or contemplated adversarial litigation.” The court added that it “should not accept blanket claims of LPP” and must consider the issue objectively “with anxious scrutiny.” 

The dominant purpose must be “of clear paramountcy”; if other purposes are equally significant, there is no dominant purpose. On the facts, the report was titled “Internal Investigation Report; Project Palm.” Its substance was largely factual. It described the block trade, the relevant communications, and the broker’s policies. It contained some legal observations and remediation material, but these did not alter its dominant purpose. The report itself stated that the broker was “currently evaluating the conduct of employees involved in this Trade” and would keep the SFC apprised of “any subsequent action.” 

The court found that the dominant purpose of the report and underlying materials was not legal advice or litigation but to satisfy the broker’s regulatory reporting obligations to the SFC. It therefore treated the materials as part of the broker’s compliance obligations, not as documents created predominantly for legal advice.

The court accepted that if the materials had been privileged, they could not have been disclosed to the buy-side manager merely because they had been provided to the SFC. It observed that if the information was privileged, “once privileged, always privileged.” However, the broker failed because there was “no such dominant purpose.” A limited waiver preserves privilege. It does not create it.

That conclusion is unsurprising. Privilege depends on purpose, not authorship. A factual report does not become privileged because it is written by a lawyer. Nor does a self-report become legal advice because it is accompanied by a reservation of rights. The question is not what the document is called but why it was made.

The SFC’s Tougher Approach

The SFC’s reported intention to “push back hard” against over-broad privilege claims should be understood in that context. Regulators are entitled to test claims over entire devices, inboxes, or broad categories of seized materials. Unsupported claims cannot be justified by formulaic references to lawyers or by the mere application of privilege labels. But a tougher enforcement posture does not change the legal test. Privilege is a fundamental right, not a procedural indulgence. Broad provisional claims may be legitimate if made to preserve privilege pending proper review, particularly during dawn raids or urgent production exercises.

Conclusion

The SFC’s tougher posture should not be mistaken for a change in the legal test. Internal investigations in regulated businesses commonly serve several purposes at once: establishing the facts, assessing the legal risk, considering remediation, and engaging with regulators. Fact-finding may be an indispensable foundation of legal advice, and a lawyer who interviews witnesses is not necessarily acting as a mere investigator. Equally, a report to a regulator may form part of a wider legal strategy. Firms should avoid assuming that the involvement of lawyers will automatically protect all investigation materials. Privilege turns on the real reason the document came into existence.

The SFC can be expected to scrutinize blanket claims more closely. But disputed limited-waiver materials should still be treated with caution until privilege is resolved. A tougher enforcement posture does not dilute the fundamental character of legal professional privilege.

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¹HKSAR v Sadler Simon Peter & Ors; Merrill Lynch Far East Ltd, Intervener [2026] HKDC 720 (per Lam J).