The Securities and Futures Commission (SFC) reprimanded and fined a licensed company HK$1.5 million on 14 February 2020 for failing to comply with Taiwanese laws and regulations and failing to supervise its licensed representatives. This was not the first time the SFC took enforcement action against a licensee for not complying with local laws and regulations when conducting business abroad since the issuance of the 28 January 2014 circular.
In this case, the licensed company distributed investment products through its SFC licensed representatives to clients in Taiwan during the period from July 2014 to April 2015. The licensed representatives lived in Taiwan and only visited Hong Kong for a couple of days per month. Despite the business in Taiwan accounting for about 96% of the company’s distribution of investment products during the relevant period, the company did not have procedures to ensure its business was in compliance with Taiwanese laws and regulations. The company had guidelines on cross-border activities in May 2015 but it did not specify the steps to ensure compliance with local laws and regulations.
Licensed companies are obligated to comply with legal and regulatory requirements. This includes overseas requirements for business activities conducted in other jurisdictions. Therefore licensed companies should inquire into the relevant local laws before conducting any cross-border activities and should check with local counsel regularly on any relevant regulatory changes.
It was also revealed during the SFC’s investigation that the activities in Taiwan were not adequately supervised by the responsible officers (ROs). According to the statement of disciplinary action, the licensed company had at least four ROs. One of the ROs claimed that he relied on other ROs to supervise sales staff. The second RO said that his ability to supervise was ineffective given the sales staff were located in different parts of Taiwan. The third RO said that he knew nothing about how the sales persons operated in Taiwan, and the fourth RO said that she did not know where the sales persons distributed investment products. It was therefore not surprising that the SFC concluded that the licensed company had failed to supervise its licensed representatives adequately.
Licensed companies are required to supervise diligently persons employed to conduct its business. Had the manager-in-charge regime been in place during the relevant period, there would have been clearer accountability for which member(s) of senior management were responsible for this, and it seems likely the SFC would have held them personally accountable.
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