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On 10 September 2019, the Securities and Futures Commission (SFC) announced a public reprimand and a HK$2.1 million fine for a multinational bank for failures in complying with the telephone recording requirements under the Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission (Code of Conduct). The disciplinary action followed an investigation after the bank self-reported two incidents of non-compliance with the requirements to the SFC and the Hong Kong Monetary Authority.
The recording functions of 59 telephone lines of the bank’s private banking division were inadvertently disabled during various periods between 8 April 2017 and 31 January 2018, resulting in the failure to tape-record 5,830 client order instructions. The errors were not discovered promptly – the failures continued for around six to nine months.
The SFC concluded that the bank had failed to put in place effective internal control measures to ensure proper implementation of the telephone recording function and timely detection of any recording failures, and was in breach of various provisions in the Code of Conduct, including General Principles 2 (diligence), 3 (capabilities) and 7 (compliance), as well as paragraphs 3.9(b) on order recording and 12.1 relating to compliance in general.
Licensed corporations and registered institutions which receive client instructions by telephone need to record client order instructions and maintain the telephone recordings for at least six months. This is a fundamental requirement but things may go wrong due to any number of reasons such as inadvertent manual errors or a loose electric cable, so it is important that firms conduct routine checks of their telephone recording systems and recordings to ensure compliance continuity.
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