Hong Kong’s SFC warns brokerages not to engage in unauthorised FX margin trading on the Mainland

Maria Nikolova

The Mainland authorities have not approved any institution to engage in Forex margin business either directly or on an agency basis on the Mainland.

Hong Kong’s Securities and Futures Commission (SFC) has earlier today issued a circular about foreign exchange margin trading on the Mainland and other activities not regulated by the SFC.

In the document, the Hong Kong regulator notes that the Chinese State Administration of Foreign Exchange (SAFE) recently took action against a Mainland entity for soliciting Mainland investors to engage in FX margin trading outside the Mainland on behalf of an online trading platform operated by the entity’s offshore shareholder. SAFE advised that the Mainland authorities have not approved any institution to engage in forex margin business either directly or on an agency basis on the Mainland. SAFE also stressed that according to Mainland requirements, it is illegal for any unapproved institution to conduct forex margin trading or for any client, whether an organisation or individual, to entrust an unapproved institution to do so.

The SFC has become aware that some entities it supervises or their related parties offer leveraged foreign exchange trading or similar services to investors via websites presented in simplified Chinese and provide Mainland investors toll free telephone numbers for enquiry. The SFC warns licensed entities not to engage in unauthorised or illegal forex margin trading on the Mainland or assist other persons or Mainland investors in such activities.

The entities which provide or market FX margin trading or similar services to Mainland investors, or assist other persons to provide or market them to Mainland investors, should immediately review the legality of their activities under Mainland law and regulations. Any non-compliant activities should be discontinued immediately and be notified to the SFC.

Further, the SFC has become aware that some licensed businesses’ related parties may be associated with other alleged illegal activities on the Mainland, such as unauthorised stock broking or fraudulent crowdfunding or peer-to-peer lending, or alleged fraudulent London gold activities in Hong Kong.

The SFC reminds the licensed entities and their controlling entities to take all necessary steps to review the legality of the services offered by themselves and their related parties to ensure their activities comply with the law and regulations administered by the SFC as well as the applicable requirements of other jurisdictions. Unauthorised or illicit activities must be discontinued immediately.

Any contravention of the law or regulations of other jurisdictions may amount to a breach of paragraph 12.1 of the Code of Conduct, which may call into question the fitness and properness of a corporation to be, or to remain, licensed in Hong Kong.

Failure to take appropriate action may result in regulatory action. The SFC may impose conditions on the licensed businesses and their controlling entities to mitigate the risks and where the situation warrants, the SFC will take action which may include issuing restriction notices and suspending or revoking the licence of the licensed entity.

Recently, Hong Kong-focused retail Forex broker KVB Kunlun Financial Group Ltd (HKG:6877) made an announcement concerning its PRC domestic clients. A detailed survey of the Group’s Existing Ethnic Chinese Clients will be conducted. This survey aims to identify anyone who is, or who may possible be, classified as a PRC domestic client. Any person identified as an actual or potential PRC domestic client will then be disengaged as soon as possible.

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