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Authored by: Mary Nieto and Rakhi Punjabi
In early November 2021, the Hong Kong Securities and Futures Commission (SFC) announced that it had reprimanded and fined a licensed corporation (the Firm) HK$3.3 million and suspended the licence of a member of its senior management for a period of six months, for internal control failures relating to the Firm’s placing activities and recording of client order instructions.
At the time of the Firm’s breaches, the individual was the Firm’s responsible officer (RO), and was also appointed as the director, deputy general manager, manager in charge (MIC) (Overall Management Oversight) and MIC (Key Business Line).
This marks the SFC’s first enforcement action against an MIC since the MIC regime took effect in 2017.
The SFC considered the Firm’s failures were attributable to the individual’s failure to discharge his duties as an RO and a member of the Firm’s senior management.
Under section 193(2)(a) of the Securities and Futures Ordinance, where a licensed corporation is (or was) guilty of misconduct as a result of the commission of any conduct occurring with the consent or connivance of, or attributable to any neglect on the part of i) an RO of a licensed corporation or ii) a person involved in the management of the business of the licensed corporation, then that person is also guilty of misconduct. The SFC found that the individual was responsible for the management and supervision of the Firm’s business operations in regulated activities at the material time.
The failures relating to placing activities involved breaches of the SFC’s Placing Guidelines, the Code of Conduct, the Anti-Money Laundering and Counter-Terrorist Financing Ordinance and the SFC’s AML Guideline. Failings related to the recording of client order instructions involved breaches of the SFC’s Code of Conduct, Internal Control Guidelines and the Keeping of Records Rules.
The SFC’s statement of disciplinary action is available here: statement.
The SFC will not hesitate to sanction both licensed corporations and those involved in the management of the business of the licensed corporation. It is worth noting that a ‘person involved in the management of the business of the licensed corporation’ includes both licensed and unlicensed individuals. In July 2021, the SFC sanctioned an unlicensed individual for failure to discharge his duties in relation to AML requirements as a member of a firm’s senior management – see our article here.
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