The Securities and Futures Commission (SFC) has reprimanded and fined Southwest Securities (HK) Brokerage Limited (SSBL) $5 million for failures in complying with anti-money laundering and counter-terrorist financing (AML/CFT) regulatory requirements in 2016 (Note 1).
Specifically, the SFC found that SSBL failed to:
- implement adequate and effective policies and procedures to mitigate the risk of money laundering and terrorist financing associated with third party deposits; and
- establish proper internal systems and controls to monitor its clients’ activities, and detect and report suspicious transactions to the Joint Financial Intelligence Unit (JFIU) in a timely manner.
The SFC’s investigation revealed that between January and December 2016, SSBL failed to identify 89 per cent (ie, 164 out of 184) of the third party deposits totalling $110.1 million for its clients due to a lack of systems and procedures to review the source of funds deposited into sub-accounts that SSBL maintained with a bank.
In some cases where third party deposits were identified by SSBL, the clients’ relationship with the third party depositors (eg, friend) and the reason for these deposits (eg, busy at work) provided by the clients failed to explain the rationale for the transfers satisfactorily. However, SSBL did not critically evaluate these deposits and document the enquiries, as well as the reasons for approving them.
SSBL’s staff also did not have a clear and consistent understanding of their respective roles and responsibilities in the monitoring and identification of suspicious transactions. Nor did SSBL diligently supervise and provide sufficient guidance to its staff to enable them to form suspicion or to recognise signs of money laundering or terrorist financing.
As such, despite the presence of red flags in some of the client activities, SSBL did not identify the suspicious transactions and make appropriate enquiries. It was only after the SFC requested SSBL to review all client deposits and trading activities for the year of 2016 that SSBL identified 31 suspicious transactions and reported them to JFIU.
The SFC is of the view that SSBL’s conduct was in breach of the Anti-Money Laundering and Counter-Terrorist Financing Ordinance, the Guideline on Anti-Money Laundering and Counter-Terrorist Financing and the Code of Conduct (Notes 2 & 3).
In deciding the disciplinary sanctions against SSBL, the SFC took into account that:
- adequate and effective internal control systems are fundamental to the fitness and properness of a licensed corporation;
- the necessity of a strong deterrent message that AML/CFT failures are not acceptable;
- SSBL has taken remedial steps to enhance its AML/CFT policies and procedures; and
- SSBL’s otherwise clean disciplinary record with the SFC.
- SSBL is licensed under the Securities and Futures Ordinance to carry on Type 1 (dealing in securities) and Type 4 (advising on securities) regulated activities.
- Please refer to paragraph 14 of the Statement of Disciplinary Action for the relevant regulatory requirements.
- Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission.