The SFC found that EFG Bank had executed 139 offshore listed index option transactions, involving a premium of US$65 million, during a 13-year period.
The Hong Kong Securities and Futures Commission (SFC) announced today its disciplinary action against has publicly reprimanded and fined EFG Bank AG due to dealing in futures contracts without having the necessary license. The watchdog reprimanded the bank and imposed a fine of HK$2 million.
The penalties relate to findings that from April 1, 2003 to November 22, 2016 EFG Bank executed certain offshore listed index options for clients without a Type 2 (dealing in futures contracts) registration.
In fact, EFG Bank self-reported to the SFC that it had executed offshore listed index option transactions for clients which might constitute a Type 2 (dealing in futures contracts) regulated activity under the Hong Kong securities regulations. EFG Bank had executed 139 offshore listed index option transactions for 11 clients during the 13-year period in question. This activity fell within the definition of “futures contracts” under the securities regulations.
The transactions involved premium of about US$65 million, and EFG Bank earned US$27,629 in commission from these transactions.
The regulator notes that General Principle 7 (Compliance) of the Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission (Code of Conduct) provides that a licensed or registered person should comply with all regulatory requirements applicable to the conduct of its business activities so as to promote the best interests of clients and the integrity of the market. In addition, Paragraph 12.1 (Compliance: in general) of the Code of Conduct provides that a licensed or registered person should comply with, and implement and maintain measures appropriate to ensuring compliance with the law, rules, regulations and codes administered or issued by the SFC.
Via the execution of transactions in offshore listed index options for clients without a Type 2 (dealing in futures contracts) registration, EFG Bank has failed to put in place adequate controls to ensure compliance with a registration requirement, thus violating General Principle 7 (Compliance) and paragraph 12.1 (Compliance: in general) of the Code of Conduct.
The SFC has concluded that the fitness and properness of EFG Bank as a regulated person have been called into question. In determining the penalties, the SFC has taken into account that: (a) EFG Bank initiated a review of its offshore listed index options activities and self-reported the unlicensed activities to the SFC; (b) there is no evidence to suggest that the non-compliance was intentional; (c) EFG Bank co-operated with the SFC in resolving the SFC’s concerns; (d) EFG Bank has taken remedial measures to strengthen its internal controls to avoid recurrence of similar issues; and (e) EFG Bank has an otherwise clean disciplinary record with the SFC.