HK regulator imposes $19.6m fine on BOCOM International Securities for internal control failures
The list of regulatory breaches includes failures concerning the handling of third party fund deposits and the maintenance and implementation of a margin lending and margin call policy.
Hong Kong’s Securities and Futures Commission (SFC) today announces that it has reprimanded and fined BOCOM International Securities Limited (BISL) a total of $19.6 million for a series of regulatory breaches, including failures concerning the handling of third party fund deposits and the maintenance and implementation of a margin lending and margin call policy. The company was also found to have failed to put in place adequate and effective controls to identify deposits made into client accounts by third parties, hence failed to ensure compliance with the Guideline on Anti-Money Laundering and Counter-Terrorist Financing and various provisions in the Internal Control Guidelines and the Code of Conduct.
Specifically, the SFC found that third party deposits made into client accounts in 2009, 2011 and 2015 by way of cheques and bank transfers were not identified until 2016.
Extensive deficiencies were also identified during the SFC’s review of BISL’s margin lending and margin call policy from December 2012 to November 2016, including failures to:
- document and strictly enforce a clear margin lending and margin call policy, in particular, in relation to the making of margin calls, forced liquidation and stopping further advances;
- keep records of written explanations for deviation from the margin lending policy;
- ensure margin calls are communicated to clients;
- promptly collect from clients amounts due as margin;
- maintain appropriate detailed records of margin call history;
- objectively set and enforce the credit limits for margin clients; and
- segregate the key duties and functions related to the application and approval of liquidation suspension and the making of margin calls.
Furthermore, BISL failed to ensure that transactions conducted in client accounts were properly authorized and that client identities and transaction details were properly confirmed in trade confirmations. The company has also failed to make sure that a client complaint was adequately investigated and promptly responded to.
In determining the sanctions, the SFC considered various factors, including that the company has an otherwise clean disciplinary record and that it has agreed to engage an independent reviewer to conduct a review of its internal controls. The regulator also took into account that BISL’s failures are serious, extensive and lasted for a substantial period of time, and that a clear message needs to be sent to the industry that the SFC will not hesitate to take action against licensed corporations that fail to put in place appropriate internal controls to protect their operations and clients.
