SFC fines HPI Forex for sending “segregated” client funds to FXCM, Interactive Brokers accounts
The investigation revealed that HPI had transferred HK$8 million from its segregated client account at DBS to the accounts of FXCM and Interactive Brokers.
Hong Kong’s Securities and Futures Commission (SFC) has reprimanded and fined HPI Forex Limited (HPI) HK$2 million over violations of the Code of Conduct and Client Money Rules.
The disciplinary action, announced today, is taken because HPI has:
- failed to maintain client money in a segregated client account in breach of sections 4 and 5 of the Securities and Futures (Client Money) Rules (CMR); and
- used client money for proprietary transactions in breach of section 5 of the CMR, as well as General Principle 8 and paragraph 11.1 of the Code of Conduct for Persons Licensed by or Registered with the SFC (Code of Conduct).
In July 2014, HPI made a self-report to the SFC that:
- During the periods from March 4, 2013 to February 18, 2014 and from February 28, 2014 to April 20, 2014 (Relevant Period), HPI had transferred client money from its segregated client account in Hong Kong to its “client accounts” with overseas external brokers.
- The cause of the breach was HPI’s mistaken belief that client money could be maintained with the brokers as long as the accounts were specifically designated as “client accounts”.
According to HPI’s auditor, Ernst & Young (EY), HPI failed to segregate client money for amounts ranging:
- from HK$775,510 to HK$8,025,620 during the period from 4 March 2013 to 18 February 2014; and
- from HK$10,644 to HK$311,405 during the period from 28 February 2014 to 25 April 2014.
The SFC’s investigation revealed that HPI had transferred client money up to HK$8 million from its segregated client account at DBS Bank (Hong Kong) Limited (DBS) to the accounts of its overseas brokers, Forex Capital Markets Limited (FXCM) and Interactive Brokers LLC. HPI’s accounts at FXCM and Interactive Brokers, despite being labeled as “client accounts”, were not accounts established and maintained with an authorized financial institution or any other person approved by the SFC. Therefore, HPI has breached sections 4 and 5 of the CMR by transferring the client money from its segregated client account at DBS in Hong Kong to the overseas accounts of FXCM and Interactive Brokers.
The Hong Kong regulator also found that HPI had used client money that it transferred to its FXCM account to conduct proprietary transactions. Such conduct jeopardized the interests of its clients, and was in breach of sections 4 and 5 of the CMR, GP8 and paragraph 11.1 of the Code of Conduct.
In deciding on the penalty, the SFC considered all relevant facts, including:
- that safe custody of client money is a fundamental obligation of all intermediaries and the failures committed by HPI jeopardized the interest of its clients;
- HPI remitted the client money back to the segregated client account upon discovery of this matter and engaged an auditor to review its compliance with the CMR;
- HPI cooperated with the SFC in accepting the disciplinary action;
- there is no evidence that any client of HPI has suffered losses; and
- HPI has an otherwise clean disciplinary record.
