SFC publishes recent inspection findings related to client facilitation

On 14 May 2019 the Securities and Futures Commission (SFC) issued a circular setting out its findings from recent inspections focussing on compliance with the expected standards of conduct by brokers providing client facilitation services (see SFC circular 14 February 2018, Circular to licensed corporations on client facilitation). The SFC is particularly concerned about potential conflicts of interest presented by such activities.

Inspection findings

(a)     Some traders misrepresented a house or client facilitation trade as an agency trade; 

(b)     Some traders were silent or not transparent about whether facilitation would be involved in a trade;

(c)      Some traders failed to obtain explicit pre-trade consent from clients when effecting client facilitation trades; 

(d)     Some indications of interest were described as natural although they were not based on a genuine client intent to trade; and 

(e)     Some firms’ policies and procedures were unclear or ambiguous.

The SFC reiterates that brokerage firms and their traders should obtain explicit client consent prior to each client facilitation trade. Client consent should never be unidirectional, blanket, implied by the making of disclosure or obtained after the trade. Licensed individuals should always act honestly and fairly when dealing with clients (as required by General Principle 1 of the Code of Conduct). 

The SFC advises to critically review existing policies and procedures for compliance with the expected standards and ensure they have been properly implemented and communicated to all relevant staff. 

The SFC warns that any apparent improper conduct or non-compliance will be investigated. 

The circular of 14 May 2019 can be accessed here: Recent inspection findings related to client facilitation.