The Securities and Futures Commission (SFC) has reprimanded and fined Potomac Capital Limited (Potomac) $800,000 for failures to comply with the Securities and Futures (Financial Resources) Rules (FRR) (Note 1).
The SFC found that Potomac overstated its liquid capital in its financial returns from November 2016 to May 2017 by incorrectly including certain fees receivables from two clients accumulated since around April 2013 as liquid assets when the aged fee receivables should not qualify as liquid assets under the FRR.
Excluding the aged fee receivables from liquid capital calculation under the FRR would have resulted in monthly liquid capital deficits varying from $335,000 to $449,000 for Potomac from February to May 2017 (Note 2).
The SFC is of the view that Potomac’s conduct was in breach of the Code of Conduct (Note 3).
In deciding the sanction, the SFC took into account all relevant circumstances, including:
- Potomac had incorrectly included the fees receivables in its liquid capital for more than three years;
- Potomac has rectified the FRR breach; and
- Potomac’s otherwise clean disciplinary record.
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Notes:
- Potomac is licensed under the Securities and Futures Ordinance to carry on Type 1 (dealing in securities) and Type 9 (asset management) regulated activities.
- Pursuant to section 35(a) of the FRR, a licensed corporation must include in its liquid assets the amount of any fees, commissions, commission rebates and interest charges to which it is beneficially entitled which arise from the carrying on by it of any regulated activity for which it is licensed and: (i) which have accrued and will first be due for billing or payment within the next three months; or (ii) which have been billed or fallen due for payment and remain outstanding for one month or less after the date on which they were billed or fell due.
- Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission.
