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On 2 November 2015 Hong Kong’s Securities and Futures Commission (SFC) issued a press release giving details of action taken against a securities firm which is licensed to provide dealing and investment advisory services in Hong Kong.
The SFC publicly reprimanded the firm and fined it $4 million for failure to:
The case provides a timely reminder to those engaged in distributing or advising on investment products of the SFC’s expectations in relation to product due diligence, suitability and disclosure. It highlights the importance of being able to demonstrate a robust sales process, maintaining a well-documented process, adequate supervision and training of sales staff.
Between January and September 2013, the firm solicited and executed 51 buy and sell transactions in unlisted bonds for its retail clients.
The SFC found that:
Suitability of recommendations
The SFC was not satisfied that the firm’s sales staff were in a position to make suitable recommendations to clients as the firm did not provide adequate guidance on product due diligence and the suitability assessment, and in some cases failed to maintain complete client profiles or to make a proper assessment of clients’ risk tolerance level.
Documentation of investment advice
The firm did not adequately document its investment advice or its rationale and did not provide a copy to its clients.
The absence of such records raised concerns about the firm’s ability to supervise its sales representatives or to assess its position regarding possible mis-selling of products.
Disclosure of monetary benefit
The percentage or amount of trading profit that the firm made from back-to-back transactions should have been disclosed to its clients.
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