Hong Kong Securities And Futures Commission Bans Citigroup Global Markets Asia Limited’s Former Responsible Officer Richard Charles Heyes For Five Years

The Securities and Futures Commission (SFC) has banned Mr Richard Charles Heyes, a former responsible officer (RO), Manager-In-Charge (MIC) of Key Business Line, board member, and Head of Pan-Asia Equities of Citigroup Global Markets Asia Limited (CGMAL), from re-entering the industry for five years from 15 September 2025 to 14 September 2030 (Note 1).

The disciplinary action follows the SFC’s earlier sanctions against CGMAL for serious regulatory breaches and internal control failures in allowing various trading desks under its Cash Equities business to disseminate mislabelled indications of interest (IOIs) and make misrepresentations to institutional clients when executing facilitation trades over a 10-year period from 2008 to 2018 (Notes 2 to 4).

The SFC is of the view that CGMAL’s breaches and failings were attributable to Heyes’ failure to discharge his duties as an RO, MIC and a member of CGMAL’s senior management.

Mr Christopher Wilson, the SFC’s Executive Director of Enforcement, said: “Senior management of a licensed corporation bears primary responsibility for ensuring the firm’s maintenance of appropriate standards of conduct and adherence to proper procedures. By exerting significant pressure on the trading desks to grow CGMAL’s market share while failing to be vigilant for telltale signs that his subordinates were achieving this by dishonest means, Heyes neglected and failed to properly discharge his managerial responsibility. Consequently, his subordinates’ misconduct lingered on through his serious neglect which enabled a culture of chasing revenue at the expense of client interests and basic standards of honesty to take root within CGMAL.”

“The SFC will make active use of the MIC regime to identify and hold errant members of senior management accountable for their firms’ failures in order to drive changes in the culture and behaviour of intermediaries,” Mr Wilson added.

Mislabelled IOIs

The SFC’s investigation revealed that Heyes should have known that it was the practice of CGMAL’s Equities Sales Trading Desk to send mislabelled IOIs to clients with a view to provoking client enquiries. Notably, he failed to ensure that CGMAL had implemented adequate and effective controls on issuance of IOIs despite the fact that a limited review of the business activities of CGMAL conducted by the SFC in 2014 had exposed other concerns in relation to the firm’s IOI process. In addition, despite having received reports from his subordinates between 2017 and 2018 recording client complaints about the quality and accuracy of CGMAL’s IOIs, he did not take any step to investigate the client complaints, and therefore no step was taken to stop the dissemination of mislabelled IOIs. His failures allowed the dishonest conduct of the desk to take hold.

Misrepresentation and non-disclosure to conceal the principal nature of facilitation trades

In mid-2014, Heyes attended an SFC roundtable meeting, during which the SFC highlighted common issues found in client facilitation activities in the market, including missing explicit client consent. However, he failed to ensure that CGMAL had adequate internal guidelines and compliance monitoring to check that traders had made pre-trade disclosure of CGMAL’s principal capacity and obtained clients’ prior consent before executing facilitation trades.

Furthermore, the SFC found that Heyes ought to have learnt from emails addressed or forwarded to him by his subordinates that traders were misrepresenting facilitation trades as agency trades to clients in order to gain additional market share. However, as he failed to take note of the relevant emails, the traders’ misconduct went unchecked.

These findings demonstrate that Heyes had failed to ensure that CGMAL maintained appropriate standards of conduct and adhered to proper procedures. His lapses included failing to ensure that adequate policies and systems controls were in place to effectively monitor the issuance of IOIs and the compliance with consent and disclosure requirements of facilitation trades, and that proper training had been provided to traders.

In deciding the disciplinary sanction, the SFC has taken into account all relevant circumstances, including:

• Heyes’ neglect in discharging his management and supervisory responsibilities was serious, thereby enabling CGMAL’s grave internal control failures and regulatory breaches to prevail for over 10 years;
• despite having been in the industry for a considerable period of time, his conduct fell short of the standards expected of an RO, an MIC, a board member and a member of the senior management of a licensed corporation;
• it is necessary to send a clear and strong message to the industry that the SFC will not tolerate misconduct such as Heyes’; and
• Heyes’ cooperation with the SFC in accepting the disciplinary action and withdrawing his appeal to the Securities and Futures Appeals Tribunal and his otherwise clean disciplinary record.

Notes:

1. Heyes was licensed to carry on Type 1 (dealing in securities), Type 2 (dealing in futures contracts), Type 4 (advising on securities) and Type 7 (providing automated trading services) regulated activities under the Securities and Futures Ordinance. He was accredited to CGMAL as a licensed representative from 30 March 2012 and approved as its RO from 15 October 2013 to 1 July 2020. He was also CGMAL’s MIC of Key Business Line – Equities from 12 July 2017 to 1 July 2020. Heyes is currently not licensed by the SFC.
2. CGMAL was reprimanded and fined $348.25 million by the SFC. Please refer to the SFC’s press release dated 28 January 2022.
3. An IOI is a widely used form of advertisement or representation made by licensed corporations to clients as a way to source potential clients with an interest in trading. Pursuant to the relevant industry guidelines that CGMAL claimed to have adopted, “In Touch With” and/or “P:1” IOIs could be issued where there was a reasonable expectation of interest from a specific client and resulting trades were expected to be of a riskless nature. Contrary to these guidelines, CGMAL issued such IOIs to clients when there was no genuine client interest or specific client that it was in touch with. Its Facilitation Desk would step in to provide liquidity when traders failed to source natural liquidity on an agency basis upon client enquiry.
4. In an agency trade, the licensed corporation acts as agent to find a counterparty (ie, natural liquidity) to cross with the client’s order. In a facilitation trade, the licensed corporation acts as principal and fulfils the client’s order by buying or selling the securities from/to the client using the firm’s capital. Clients generally prefer natural liquidity over facilitation. By misrepresenting a facilitation trade as an agency trade or refraining from informing the client about the involvement of the Facilitation Desk, CGMAL could avoid losing a trade to a competitor.