Hong Kong’s SFC fines Sincere Securities over internal control failings
The disciplinary action followed an investigation into an investor’s complaint concerning the conduct of a former account executive of Sincere Securities Limited.
The Hong Kong Securities and Futures Commission (SFC) today announces that it has reprimanded and imposed a fine of $5 million on Sincere Securities Limited over a series of internal control failings and regulatory breaches.
The disciplinary action followed an SFC investigation into an investor’s complaint concerning the conduct of a former account executive of the company. The SFC found that Sincere Securities did not require its account executives to obtain clients’ written consent before transferring their funds maintained at the company to their gold trading accounts opened with its associated company Allied Victory Gold and Silver Investment Limited.
Sincere Securities engaged an independent reviewer to conduct a review of its internal control systems and procedures. The independent review and a separate review by the SFC identified deficiencies across 14 areas of the company’s business operations and internal controls for the period between October 2015 and December 2016.
The 14 areas of deficiencies include: (i) procedures and manuals; (ii) compliance surveillance program; (iii) escalation policy; (iv) staff dealing activities; (v) discretionary trading; (vi) third-party authorization; (vii) handling of client funds; (viii) handling of client securities; (ix) client orders and dealing; (x) handling of returned mail; (xi) preparation and delivery of trading documents; (xii) customer due diligence; (xiii) credit and margin control procedures; and (xiv) books and records.
For instance, the company did not have specific procedures to filter, analyse and monitor staff dealing activities. It also failed to segregate the sales, dealing and settlement functions effectively with the result that its account executives handling client orders also handled clients’ fund deposits and withdrawals; and had no written procedures to prohibit its staff from receiving client order instructions through mobile phone when they are on the trading floor.
Moreover, some client order instructions were received through mobile phone applications, such as WhatsApp messenger, while they were in the company’s office but no contemporaneous record of the order details was maintained. Let’s note that SFC has been very stringent regarding proper record-keeping of client order instructions. The regulator has acted against entities and individuals that use mobile apps for receiving client instructions. For example, in May this year, the SFC prohibited Mr Wong Ka Hang, a licensed representative of Haitong International Futures Limited (Haitong), from re-entering the industry for 9 months pursuant to section 194 of the Securities and Futures Ordinance over accepting client orders via WeChat messages.
In the case of Sincere Securities, the SFC considers that the company’s systems and controls were inadequate and failed to ensure compliance with the applicable regulatory rules and requirements.
In deciding the disciplinary sanctions, the SFC took into account various factors, such as the company’s agreement to engage an independent reviewer to review its internal control systems and procedures, as well as the fact that Sincere Securities has taken remedial actions to address the deficiencies identified and had compensated the affected client in the complaint case.