The Securities and Futures Commission (SFC) has reprimanded and fined Convoy Asset Management Limited (CAML) $6.4 million for control failures in solicitation and recommendation of bonds to clients (Note 1).
The SFC found that CAML referred clients to a third party platform between March 2015 and January 2017 to execute 30 transactions of bonds listed under Chapter 37 of the Main Board Listing Rules (Chapter 37 Bonds), some of which involved solicitation or recommendation made to clients (Note 2).
In recommending Chapter 37 Bonds to clients, CAML failed to:
- conduct proper and adequate product due diligence on these bonds before making recommendation or solicitation;
- have an effective system in place to ensure that the recommendation or solicitation in relation to bonds was suitable for and reasonable in all the circumstances;
- maintain proper documentary records of the investment advice or recommendation given to its clients and provide each of them with a copy of the written advice; and
- have adequate and effective internal controls and system in place to diligently supervise and monitor the sale of bonds through the third party platform and to ensure its compliance with applicable regulatory requirements.
In deciding the disciplinary sanctions, the SFC took into account that:
- CAML failed to put in place an effective system to ensure product suitability despite the SFC’s repeated reminders to licensed corporations on the importance of compliance with the suitability obligations and the specific guidance regarding the selling of fixed income products, complex and high-yield bonds;
- a strong message has to be sent to the market to deter similar misconduct;
- there is no evidence suggesting complaints or losses by CAML’s clients;
- CAML has decided to cease selling Chapter 37 Bonds to clients;
- CAML is now under the management of a new team of directors and managers-in-charge;
- CAML cooperated with the SFC in resolving the SFC’s concerns; and
- CAML has an otherwise clean disciplinary record.
- CAML is licensed to carry on Type 1 (dealing in securities), Type 4 (advising on securities) and Type 9 (asset management) regulated activities under the Securities and Futures Ordinance.
- Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited.