Overcharging and failure to disclose remuneration

The Securities and Futures Commission (SFC) has prohibited Ms Chan Tan Lo (Chan) from re-entering the industry for 14 months for overcharging and failings in relation to disclosure of information about the final execution prices and/or the actual commission rates charged in connection with a number of bond transactions.

Chan’s conduct was in breach of General Principles 1 (honesty and fairness) and 5 (information for clients) and paragraph 2.1 (accurate representations) of the Code of Conduct for Persons Licensed by or Registered with the SFC (Code of Conduct).

Summary of facts

Chan was an associate director and relationship manager (RM) of BOCI Securities Limited (BOCI). She was a licensed representative accredited to BOCI for type 1 (dealing in securities) and type 2 (dealing in futures contracts) regulated activities between 13 May 2004 and 11 April 2016. Chan is currently not licensed by the SFC.

BOCI’s regular sample checking of telephone recordings identified nine bond transactions (Bond Transactions) which Chan executed for two clients from 1 March 2016 to 23 March 2016 where Chan charged commission rates higher than had been previously agreed with the clients. The clients had agreed with Chan that BOCI could charge them a commission of 0.2% of the execution price in bond transactions.

The audio-recordings showed that during the price quotation stage Chan quoted the best available prices to the clients for the Bond Transactions and either expressly told the clients that there would be a mark-up of 0.2%, or did not correct the clients’ understanding that there would be a mark-up of 0.2%. Subsequently, the Bond Transactions were executed at a better price than the prices quoted by Chan.

It is not clear from the statement of disciplinary action what information was provided to the clients on execution, but the inference is that they were charged the quoted price plus 0.2% mark-up. The SFC stated that Chan failed to disclose the actual execution prices and the actual commission rates/mark-up charged by her, and/or provided inaccurate information about the execution prices and commission rates/mark-up. As a consequence, the commission rate/mark-up actually paid by the clients was between 0.2% and 0.8% higher than the rates which had been agreed. Despite Chan’s knowledge that the commission she ultimately charged the clients was higher than that agreed, she failed to inform the clients and/or provided misleading information to the clients about the price and/or the commission. The SFC considered her conduct to be dishonest.

Conclusion

The SFC concluded that Chan is not a fit and proper person to be licensed and that she should be prohibited from re-entering the industry for 14 months.

The case demonstrates the value of sample checking and carefully analysing the content of transaction audio-recordings.