Hong Kong regulator gets tough on Forex Broker IDS Forex HK over money-laundering concerns
The SFC prohibits the Forex broker from carrying on all activities for which it is licensed, including leveraged FX trading.
Hong Kong’s Securities and Futures Commission (SFC) today announced the issuance of a Restriction Notice on IDS Forex HK Limited over concerns that capital injections the broker got from its sole shareholder may in fact be proceeds of crime.
In the notice, the regulator specifies that IDS Forex HK Limited is a corporation licensed under Hong Kong laws to provide leveraged foreign exchange trading, advising on securities, and asset management. The company is now prohibited from carrying on all of the regulated activities for which it is licensed by the Commission and from disposing of any relevant property or dealing with any relevant property in any manner.
The sole shareholder of the broker, Mr Kim Sunghun, was convicted of illegal fund-raising and fraud in Korea and was sentenced to 12 years imprisonment on February 3, 2017. He engaged in a fraudulent investment scheme under which 12,076 investors had been deceived between November 2011 and August 2016 for a total amount of about KRW 1.1 trillion (USD 974 million). Between September 2015 and April 2017, Mr Kim injected HKD 165 million (USD 21.2 million) into the broker.
The Hong Kong regulator is concerned that Mr Kim’s capital injections may be proceeds of crime and there may be an attempt at laundering the proceeds of crime through the brokerage.
The SFC started a check of the business operations of the company on June 7, 2017, and the probe continues. It has thus far revealed that despite substantial capital reserves, very little actual business transactions have taken place since September 2016. The fact that the broker has no actual or real business operation in the past 3 years as expected from a fit and proper licensed corporation is one point of concern for the regulator.
In addition, the Commission has found that the related entities of the broker have an office established in the People’s Republic of China for the purpose of carrying out “research work” for the Fund, an office in Indonesia and an office in Vietnam. However, the staff were unable to explain what activities precisely are carried out by the Indonesian office and the Vietnam office or how these offices relate to or benefit the broker.
The broker appears to have little to no active client base. Its current client portfolio includes two individual clients with no cash balances and open positions, two corporate clients wholly owned by Mr Kim with no cash balances and open positions, and one corporate client of which Mr Kim is one of the shareholders, with an account balance of approximately USD 151,000 and no open positions.
The SFC alleges that the broker is not fit and proper to remain licensed and that the introduction of the prohibitions protects the interest of the investing public.