The Securities and Futures Commission (SFC) has reprimanded and fined CSC Futures (HK) Limited (CSC) $4.95 million for failures in complying with anti-money laundering and counter-financing of terrorism (AML/CFT) and other regulatory requirements between January 2017 and December 2018 (Note 1).
The SFC’s investigation found that CSC did not conduct any due diligence on the customer supplied systems (CSSs) used by 100 clients for placing orders during the material time. As a result, CSC 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 and 3).
In addition, the SFC identified that the amounts of deposits made into five client accounts were incommensurate with their declared financial profiles. As a result of its failure to maintain an effective monitoring system, CSC failed to detect, assess and conduct proper enquiries on the deposits and satisfactorily address the associated ML/TF risks.
The SFC is of the view that CSC’s systems and controls were inadequate and ineffective, and CSC failed to ensure compliance with the Anti-Money Laundering and Counter-Terrorist Financing Ordinance, the AML Guideline and the Code of Conduct (Note 4).
In deciding the disciplinary sanctions against CSC, the SFC has taken into account that:
- CSC’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;
- there has been a change in CSC’s senior management after the relevant period;
- CSC cooperated with the SFC in resolving the SFC’s concerns; and
- CSC’s otherwise clean disciplinary record.
Notes:
- CSC is licensed under the Securities and Futures Ordinance 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.
- 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 CSC’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.
- Please refer to the Statement of Disciplinary Action for the relevant regulatory requirements.
A copy of the Statement of Disciplinary Action is available on the SFC website
