Hong Kong’s SFC imposes HK$15.2m fine on Guosen Securities (HK) Brokerage over AML violations

Maria Nikolova

From November 2014 to December 2015, Guosen processed a significant number of third-party deposits with AML red flags without making any enquiries.

Hong Kong’s Securities and Futures Commission (SFC) has taken action against Guosen Securities (HK) Brokerage Company, Limited over anti-money laundering laws violations.

The regulator has imposed a fine of HK$15.2 million on the brokerage and has reprimanded it publicly.

The disciplinary action concerns Guosen’s internal control deficiencies and regulatory breaches in relation to anti-money laundering and counter financing of terrorism (AML/CFT) during the period from November 1, 2014 to December 31, 2015.

During the Relevant Period, Guosen accepted 221 third-party deposits (TPDs) via main accounts totalling HK$862.4 million, US$10.7 million and RMB 6.8 million. Although Guosen’s operational manual required clients receiving third-party deposits to submit a standard form declaring that the source and purpose of the funds were irrelevant to terrorist and criminal activities, the company neither requested that clients provide nor made any enquiries about the reasons for the TPDs and the clients’ relationships with the third party depositors. Guosen did not obtain copies of the identification documents of the third party depositors and had no procedures in place to verify their identities or to check if they were high-risk individuals or entities. There were no policies for the scrutiny and approval of TPDs. In reality, Guosen had no controls to mitigate the risks of ML/TF associated with TPDs.

Also, Guosen accepted over 9,000 TPDs in the aggregate amount of HK$4 billion made by telegraphic transfer (TT) and inter-bank transfer (RTGS), into the sub-accounts of more than 3,500 clients. Contrary to the provisions in its operational manual, Guosen did not require its clients to submit any Declaration in respect of these TPDs. Instead, Guosen’s IT system automatically processed all deposits in the sub-accounts, regardless of the source and amount of the deposits. Although Guosen’s then Head of Settlement kept records of these TPDs, nothing had been done to check whether they were consistent with the clients’ respective financial profiles as there were no procedures to either scrutinise or approve these TPDs.

Furthermore, during the Relevant Period, Guosen processed a significant number of TPDs with AML red flags without making any enquiries. For instance, at least 102 clients received TPDs which were incommensurate with the net worth as declared in their respective account opening forms. The total number and value of TPDs involved were 780 and approximately HK$990 million respectively. The evidence shows that this prevalent situation about TPDs being incommensurate with clients’ net worth was known to one account executive who helped some of her 300 clients deposit funds. However, no enquiries had been made to examine the background and purpose of those transactions. In short, Guosen did not take any steps to ascertain whether the TPDs were consistent with existing profiles of the relevant clients.

The SFC has also found that Guosen did not have any systems or procedures in place to continuously monitor activities in its clients’ accounts. Nor did Guosen take any steps to check whether a client’s activities were consistent with that client’s financial profile. The lack of ongoing monitoring had contributed to Guosen’s failure to recognise the large number of unusual and suspicious transactions during the Relevant Period.

The SFC has determined that Guosen is guilty of misconduct, and its internal control failures and regulatory breaches have called into question its fitness and properness to remain a licensed corporation.

In deciding the disciplinary sanction, the SFC has taken into account various factors, including:

  • there were more than 2,200 unusual or suspicious TPDs in the aggregate amount of over HK$2.3 billion during the Relevant Period which covers a period of 14 months;
  • the former senior management and a former RO of Guosen, who have now been replaced, turned a blind eye to the ML/TF risks associated with TPDs during the Relevant Period;
  • Guosen has engaged an independent reviewer to conduct a review of its internal controls and taken steps to remediate the deficiencies identified, including implementing new AML/CFT policies and TPD procedures;
  • Guosen cooperated with the SFC in resolving the SFC’s concerns and accepting the disciplinary action; and
  • Guosen has no disciplinary history with the SFC.

Read this next

Digital Assets

GK8 now allows clients to control their digital assets as they would their fiat

“As the institutional market is increasingly turning to self custody, our policy engine empowers them to automate transactions, approvals, and even crucial workflows, while providing the highest degree of security, consistency, governance and control.”

Digital Assets

Retail CBDCs in the UK: “Welcomed” by CryptoUK and R3, but “Dystopian” for ETC Group

“At this stage, we judge it likely that the digital pound will be needed in the future. It is too early to decide whether to introduce the digital pound, but we are convinced preparatory work is justified”, said the BoE and HM Treasury.

Institutional FX

Centroid taps Iress API to provide retail brokers with real-time market data

“It has always been a challenge to have an efficient, elegant solution for market data and order execution for retail brokers, but with Iress we have found absolutely the right partner to add to our client offering.”

Digital Assets

Ramp launches FCA-approved off-ramp product, onboards Brave, Trust Wallet, Ledger

“To obtain and maintain our FCA registration, we must meet and operate within their strict anti-money laundering and counter-terrorist financing standards. This is a huge achievement for us, as compliance is a cornerstone of our business and what we stand for.”

Institutional FX

State Street launches FIX API for Fund Connect ETF platform

“Expanding from proprietary APIs to the FIX industry standard will bring us closer to our goal of 100% digital interactions. This is another example of innovations we’ve brought to our operating model as we celebrate 30 years of servicing ETFs since the launch of SPY.”

Industry News

HollyWally opens office in Portugal to bring B2B2C wallet-as-a-service platform to Europe

“We looked at a number of centers for startups throughout Europe and were attracted straight away to Lisbon. There is great Government support and enthusiasm for startups, it’s well positioned between our Asian and US offices, it’s a cost-effective city in which to base a fintech and it’s a beautiful place.”

Retail FX

Eightcap integrates Acuity’s economic calendar for trade ideas on MT4 or MT5

“By incorporating Acuity’s cutting-edge AI technology into our platform, we are able to offer our clients a powerful new tool that will help them stay ahead of the markets. We are committed to providing an extensive range of tools and educational resources that will enhance our clients’ trading experience and allow them to trade smarter.”

Digital Assets

Fuse Network powers Web3 economy, payments with ‘Fuse 2.0’

Web3 payments revolution startup Fuse Network announced the release of ‘Fuse 2.0.’ alongside a new roadmap, whitepaper, and fresh branding aimed at bringing crypto payments to the mainstream global economy.

Inside View

Private Equity Renaissance

Recent years have seen a resurgence in the concept of trading physical equities, with a slew of new arrivals joining the market for what is arguably one of the oldest forms of investing. But what has been the driving force behind this change in momentum?