Hong Kong Securities And Futures Commission Reprimands And Fines BOCI Securities Limited HK$10 Million For Regulatory Breaches In Selling Investment Products

The Securities and Futures Commission (SFC) has reprimanded and fined BOCI Securities Limited (BSL) HK$10 million over BSL’s internal system and control failures in its investment product selling practices (Note 1).

The SFC’s disciplinary action followed an investigation which found that BSL had failed to comply with various regulatory requirements concerning client profiling, product due diligence and suitability assessment in its sale and distribution of investment products, including bonds listed under Chapter 37 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (Chapter 37 Bonds) (Note 2).

In particular, BSL failed to:

• properly assess and determine its clients’ risk tolerance level and investment strategy in certain cases;
• ensure the investment recommendations and/or solicitations made to its clients were reasonably suitable in all the circumstances;
• ensure the clients had sufficient net worth to be able to assume the risks and bear the potential losses of trading in derivative products and/or leveraged transactions;
• conduct proper and adequate product due diligence on certain investment products; and
• implement and maintain adequate and effective internal controls and systems to diligently supervise its sale and distribution of investment products to clients and to ensure its compliance with the regulatory requirements.

In deciding the penalty, the SFC took into account all relevant circumstances, including that:

• the multiple concerns identified by the SFC revealed systemic deficiencies in BSL’s systems and controls in relation to its overall investment selling and advisory business;
• BSL has taken remedial measures to enhance its suitability framework;
• BSL cooperated with the SFC in resolving its concerns; and
• BSL will implement Enhanced Complaint Handling Procedures (ECHP) to review client complaints in relation to its sale and distribution of investment products (Note 3).

Notes:

1. BOCI Securities Limited is licensed under the Securities and Futures Ordinance (SFO) to carry on Type 1 (dealing in securities), Type 2 (dealing in futures contracts), Type 4 (advising on securities) and Type 5 (advising on futures contracts) regulated activities.
2. The SFC’s investigation looked into BSL’s sale and distribution of: (i) Chapter 37 Bonds to clients during the period from 1 April 2015 to 31 March 2016 (Relevant Period 1); and (ii) equity-linked notes, mutual funds, bonds and accumulators/decumulators (collectively, Other Products) to clients during the period from 1 October 2016 to 31 December 2016 (Relevant Period 2).
3. ECHP was designed to ensure that an intensive review is conducted by BSL into relevant transactions to ensure complaints are resolved in a fair and reasonable manner.  BSL shall apply the ECHP to all client complaints in relation to its sale and distribution of Chapter 37 Bonds during Relevant Period 1 and Other Products during Relevant Period 2.