HK regulator fines Southwest Securities (HK) Brokerage for AML requirements breaches

Maria Nikolova

In 2016, the company failed to identify 89% of third-party deposits totalling $110.1 million for its clients due to a lack of systems and procedures to review the source of funds deposited into sub-accounts that SSBL maintained with a bank.

The Securities and Futures Commission (SFC) today announces the imposition of a $5 million fine on Southwest Securities (HK) Brokerage Limited (SSBL) for failures in complying with anti-money laundering and counter-terrorist financing (AML/CFT) regulatory requirements in 2016.

In particular, the SFC found that SSBL failed to implement adequate and effective policies and procedures to mitigate the risk of money laundering and terrorist financing associated with third party deposits. The company has also been found to have failed to establish proper internal systems and controls to monitor its clients’ activities, and detect and report suspicious transactions to the Joint Financial Intelligence Unit (JFIU) in a timely manner.

The SFC’s investigation shows that between January and December 2016, SSBL failed to identify 89% of the third party deposits totalling $110.1 million for its clients due to a lack of systems and procedures to review the source of funds deposited into sub-accounts that SSBL maintained with a bank. In some cases where third party deposits were identified by SSBL, the clients’ relationship with the third party depositors and the reason for these deposits provided by the clients failed to explain the rationale for the transfers satisfactorily. However, SSBL did not critically evaluate these deposits and document the enquiries, as well as the reasons for approving them.

SSBL did not diligently supervise and provide sufficient guidance to its staff to enable them to form suspicion or to recognise signs of money laundering or terrorist financing.

SSBL did not identify the suspicious transactions and make appropriate enquiries. It was only after the SFC requested SSBL to review all client deposits and trading activities for the year of 2016 that SSBL identified 31 suspicious transactions and reported them to JFIU.

In determining the disciplinary sanctions against SSBL, the regulator considered various factors, such as the necessity of a strong deterrent message that AML/CFT failures are not acceptable and the fact that SSBL has taken remedial steps to enhance its AML/CFT policies and procedures, as well as SSBL’s otherwise clean disciplinary record with the SFC.

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