The Securities and Futures Commission (SFC) has reprimanded and fined Mega International Commercial Bank Co., Ltd. (MICBC) $7 million over MICBC’s internal system and control failures in relation to the sale of collective investment schemes (CISs) (Note 1).
Following a referral from the Hong Kong Monetary Authority (HKMA), the SFC conducted an investigation which found that, in the course of selling CISs to clients between August 2014 and July 2015, MICBC had failed to implement adequate and effective systems and controls to (Note 2):
- properly assess its clients’ investment objective, risk tolerance level and knowledge of derivatives;
- ensure the investment recommendations and/or solicitations made to its clients were reasonably suitable in all the circumstances;
- conduct adequate product due diligence on certain funds;
- ensure all relevant factors were properly taken into account before assigning the funds risk ratings; and
- identify funds which constituted derivative products.
In deciding the sanction, the SFC took into account that:
- MICBC took remedial actions to strengthen its suitability framework;
- MICBC engaged an independent reviewer to validate whether the findings raised by the HKMA during the onsite examination are fully addressed and whether its control mechanisms operate effectively in accordance with its internal policies and procedures, and undertook to submit the validation review report to the SFC and the HKMA as soon as it is available;
- there is no evidence that MICBC’s failures resulted in losses borne by its clients;
- MICBC cooperated with the SFC in resolving its concerns; and
- MICBC has no previous disciplinary record with the SFC.
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Notes:
- MICBC is registered under the Securities and Futures Ordinance to carry on business in Type 1 (dealing in securities) regulated activity.
- The case was referred to the SFC by the HKMA which conducted an investigation into MICBC after identifying various irregularities in MICBC’s selling practices of CISs during an onsite examination.
