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HK SFC fines an unlicensed CEO HK$400,000 in relation to AML breaches

On 5 July 2021, the Hong Kong Securities and Futures Commission (SFC) issued a press release which announced that it has reprimanded and fined Mr Raymond Leung Tak Shing (Leung) HK$400,000 for failing to discharge his duties in relation to AML requirements as a member of a licensed firm’s senior management team.

The SFC imposed a fine on a non-licensed “regulated person” for AML breaches for the first time since the Anti-Money Laundering and Counter-Terrorist Financing Ordinance came into effect on 1 April 2012.

The term “regulated person” means, according to s194(7) of the Securities and Futures Ordinance, a person who is or at the relevant time was a licensed representative or a responsible officer or a person involved in the management of the business of a licensed corporation (regardless of whether he or she is licensed).

Leung was the chief executive officer, director, compliance officer and money laundering reporting officer (MLRO) of Yardley Securities Limited (the Firm) which is a Type 1 licensed corporation providing margin facilities.

Reasonable measures should have been taken to mitigate money laundering risk

Between February and October 2016 (the Period), the SFC found that Leung adopted “a lax attitude” when he was responsible for handling and approving a substantial amount of third party fund transfers in the clients’ margin accounts.

The Firm’s failures were attribute to Leung’s failures as MLRO and senior management

Leung’s lack of scrutiny lasted for at least nine months, and the SFC found that the Firm’s failures (see below) were attributable to Leung’s failure to discharge his duties as a member of the senior management of the Firm. Despite red flags suggesting certain transfers were unusual or suspicious, Leung failed to make adequate enquiries, and failed to document the enquiries which he claimed to have made at the relevant time, before approving a substantial amount of third party transfers. Leung tried retrospectively to document his findings in late October 2016, after an inspection of the Firm by the SFC. However, the records of enquires which he claimed had been done remained absent.

This disciplinary actions follows the SFC’s disciplinary action over the Firm’s failures to comply with AML regulatory requirements (see SFC press release of 17 March 2021) during the same Period. The SFC reprimanded and fined the Firm HK$5 million. The SFC found that third party fund transfers processed were in Client A’s and Client B’s margin accounts totalling over HK$984 million where suspicious indicators were found. The indicators were set out in 7.14 and 7.39 of the Guideline on Anti-Money Laundering and Counter-Terrorist Financing at the material time – similar indicators are set out in 7.12 and 7.13 of the current Guideline on Anti-Money Laundering and Counter-Financing of Terrorism (For Licensed Corporations).

Compliance Officer should have ensured that the Firm has adequate AML systems including written policies and procedures

In addition, the SFC found that during the Period the Firm had no written policies and procedures to mitigate the AML risk. The staff member dealing with money deposits and withdrawals was not aware that the Firm had an MLRO. The Firm also failed to provide adequate AML training. All these were attributable to Leung’s neglect of his duties as the Compliance Officer.

This action serves as a good reminder to licensed firms, and its senior management (whether licensed or not), including MLROs, AML Compliance Officers and Managers-In-Charge of AML, to ensure that their firms have adequate and effective AML written policies and procedures covering good control measures to mitigate money laundering risk, including suspicious transaction reporting, and that staff are provided with adequate training.

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