The Securities and Futures Commission (SFC) has reprimanded and fined South China Commodities Limited (SCCL) $4.8 million for failures in complying with anti-money laundering and counter-terrorist financing (AML/CFT) and other regulatory requirements between June 2017 and October 2018 (Note 1).
The SFC’s investigation found that SCCL did not conduct any due diligence on the customer supplied systems (CSSs) used by 19 clients for placing orders during the material time. As a result, SCCL was not in a position to properly assess and manage the money laundering and terrorist financing (ML/TF) and other risks associated with the use of such CSSs by its clients (Notes 2 & 3).
In addition, the SFC identified that the amounts of deposits made into four client accounts were incommensurate with their declared financial profiles. SCCL claimed that it was not aware of these anomalies. The SFC forms the view that SCCL failed to demonstrate that it had conducted proper enquiries on the deposits and satisfactorily addressed the associated ML/TF risks.
The SFC further found that SCCL’s failure to put in place an effective ongoing monitoring system to detect suspicious trading patterns in client accounts resulted in its failure to detect 3,783 self-matched trades in nine client accounts (Note 4).
The SFC is of the view that SCCL’s systems and controls were inadequate and ineffective, and failed to ensure compliance with the Anti-Money Laundering and Counter-Terrorist Financing Ordinance, the Guideline on Anti-Money Laundering and Counter-Terrorist Financing (AML Guideline) and the Code of Conduct (Notes 5 & 6).
In deciding the disciplinary sanctions against SCCL, the SFC took into account that:
- SCCL’s failures to diligently monitor its clients’ activities and put in place adequate and effective AML/CFT systems and controls are serious as they could undermine public confidence in, and damage the integrity of, the market;
- a strong deterrent message needs to be sent to the market that such failures are not acceptable;
- SCCL has taken remedial measures to enhance its internal systems and controls;
- SCCL cooperated with the SFC in resolving the SFC’s concerns; and
- SCCL’s otherwise clean disciplinary record.
- SCCL is licensed under the Securities and Futures Ordinance to carry on Type 2 (dealing in futures contracts) regulated activity.
- CSSs are trading software developed and/or designated by the clients that enable them to conduct electronic trading through the internet, mobile phones and other electronic channels.
- The CSSs were connected to SCCL’s broker supplied system (BSS) through application programming interface (a set of functions that allows applications to access data and interact with external software components or operating systems). BSSs are trading facilities developed by exchange participants or vendors that enable the exchange participants to provide electronic trading services to investors through the internet, mobile phones and other electronic channels.
- Self-matched trades refer to those trades where the client’s order matched with his/her own order in the opposite direction. The AML Guideline specifies the entry of matching buys and sells in particular securities and futures as an example of situations that might give rise to suspicion of money laundering, as it might create the illusion of trading and be an indication of market manipulation.
- Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission.
- Please refer to the Statement of Disciplinary Action for the relevant regulatory requirements.
This news item was originally published by the Securities and Futures Commission (SFC HK). For more information, please see the Source Link.