The Securities and Futures Commission (SFC) has reprimanded and fined BOCOM International Securities Limited (BISL) a total of $19.6 million for a range of regulatory breaches, including failures concerning the handling of third party fund deposits and the maintenance and implementation of a margin lending and margin call policy (Note 1).
BISL also failed to put in place adequate and effective controls to identify deposits made into client accounts by third parties, hence failed to ensure compliance with the Guideline on Anti-Money Laundering and Counter-Terrorist Financing and various provisions in the Internal Control Guidelines and the Code of Conduct (Notes 2 & 3).
Specifically, the SFC found that third party deposits made into client accounts in 2009, 2011 and 2015 by way of cheques and bank transfers were not identified until 2016.
Extensive deficiencies were also identified during the SFC’s review of BISL’s margin lending and margin call policy from December 2012 to November 2016, including failures to:
- document and strictly enforce a clear margin lending and margin call policy, in particular, in relation to the making of margin calls, forced liquidation and stopping further advances;
- keep records of written explanations for deviation from the margin lending policy;
- ensure margin calls are communicated to clients;
- promptly collect from clients amounts due as margin;
- maintain appropriate detailed records of margin call history;
- objectively set and enforce the credit limits for margin clients; and
- segregate the key duties and functions related to the application and approval of liquidation suspension and the making of margin calls.
Moreover, BISL failed to ensure that:
- transactions conducted in client accounts were properly authorized;
- it could be satisfied on reasonable grounds about the identity of the person ultimately responsible for originating the instruction in relation to a transaction and that order instructions were properly recorded;
- client identities and transaction details were properly confirmed in trade confirmations;
- it reported its representatives’ failures to record order instructions to the SFC immediately; and
- a client complaint was adequately investigated and promptly responded to.
In deciding the disciplinary sanction, the SFC took into account all relevant circumstances, including the following:
- BISL has an otherwise clean disciplinary record;
- BISL has taken steps to revise its policies and procedures in relation to the areas where deficiencies were identified;
- BISL has agreed to engage an independent reviewer to conduct a review of its internal controls;
- BISL’s failures are serious, extensive and lasted for a substantial period of time; and
- a clear message needs to be sent to the industry that the SFC will not hesitate to take action against licensed corporations that fail to put in place appropriate internal controls to protect their operations and clients.
End
Notes:
- BISL is licensed under the Securities and Futures Ordinance to carry on business in Type 1 (dealing in securities), Type 2 (dealing in futures contracts), Type 4 (advising on securities) and Type 5 (advising on futures contracts) regulated activities.
- Management, Supervision and Internal Controls Guidelines for Persons Licensed by or Registered with the SFC and Code of Conduct for Persons Licensed by or Registered with the SFC.
- Details of the relevant regulatory requirements are set out in the Statement of Disciplinary Action.
