SFC compliance and licensing hints – Apr 2017

Licensee banned for six months from taking orders using WeChat and a mobile phone

On 20 March 2017, the SFC banned a licensed person from re-entering the industry for six months because he used his mobile phone and mobile application, WeChat, to receive and confirm clients’ order instructions without maintaining a proper record of those instructions. He also conducted discretionary trading on a client’s account without obtaining prior written authorisation from the client. We reported an enforcement case back in February 2016 where the SFC suspended a licensed person for three months because he received and discussed a client’s order instructions using WhatsApp Messenger on a mobile phone. We would again recommend licensed companies to remind employees of the restrictions on the use of mobile phones (even on a device provided by the company).

Having a process is not sufficient; it needs to serve the purpose and be properly supervised

On 16 March 2017, the SFC reprimanded and fined a licensed company HK$2 million for regulatory breaches and internal control failures. The Statement of Disciplinary Action has some useful pointers on what is the SFC’s expectation of adequate internal controls and management supervision:

• The internal procedures manual needs to cover specific work flow and cannot be changed or altered without prior approval from senior management
• If a specific operation involves more than one department, there should be proper communication and procedures on who needs to do what, so the relevant departments understand the workflow and can assess whether it achieves what it is intended to do
• Senior management needs to ensure that controls and policies are clearly formulated, communicated to all its employees and enforced by the compliance department or senior management
• Firms cannot simply rely on each individual department to assess and certify their own compliance with the relevant regulatory requirements without further verification or sample checking

With the introduction of the Manager-in-Charge regime, a licensed company’s board and senior management should work even closer together to ensure the internal process is adequate and properly supervised.

No demand note for annual licensing fee for 2017?

The SFC issued a circular on 20 March 2017 to remind the industry of its 24 March 2016 announcement regarding a two-year waiver of annual licensing fees from 1 April 2016 to 31 March 2018 for all licensed corporations, registered institutions and licensed individuals. The waiver only applies to annual licensing fees but not to fees for licence applications or transfers of accreditation.