The Securities and Futures Commission (SFC) has reprimanded and fined Enlighten Securities Limited (ESL) $5 million for internal control failures over securities margin financing (Note 1).
The SFC has also suspended the licence of Mr Denny Kua Kong Chak – a responsible officer and a manager-in-charge of ESL, and a member of the firm’s senior management – for seven months from 21 March 2025 to 20 October 2025 (Note 2).
The SFC’s investigation revealed deficiencies in ESL’s risk management controls and practices over securities margin financing between 1 May 2020 and 30 November 2022 (Relevant Period).
The SFC found that ESL provided financial accommodation to margin clients who had long outstanding margin shortfalls and poor history of settling margin calls, and failed to implement prudent measures to manage the risks involved. Specifically, ESL failed to:
- set triggers for stopping further securities purchases by margin clients with insufficient account equity;
- effectively manage margin calls and/or exercise forced liquidation on margin clients and document the explanation for deviation from its margin lending and margin call policy;
- properly manage its margin clients’ credit limits; and
- promptly collect margin due by clients.
ESL’s failures fell short of the standards expected of it under the Internal Control Guidelines, the Code of Conduct and the Guidelines for Securities Margin Financing Activities (Notes 3 and 4).
The SFC considers that ESL’s failures were attributable to Kua’s failure to discharge his duties as a responsible officer and a member of the senior management of ESL during the Relevant Period.
In deciding the disciplinary sanctions against ESL and Kua, the SFC took into account the following:
- the deficiencies in ESL’s risk management controls over securities margin financing were first identified by the SFC in 2015, and persisted throughout the Relevant Period;
- the SFC has repeatedly reminded licensed corporations and their senior management to implement prudent risk management policies and procedures and margin lending practices; specifically, ESL was reminded to do so in two management letters issued to it in 2015 and 2022;
- ESL’s failures in the SFC’s disciplinary action were attributable to Kua’s failure to discharge his duties as a member of ESL’s senior management;
- ESL’s financial position and its decision to cease business – but for these factors, the SFC would have imposed a $6.5 million fine against it;
- a strong deterrent message to remind the market that such failures are not acceptable; and
- ESL and Kua have otherwise clean disciplinary records with the SFC.
Notes:
- ESL is licensed under the Securities and Futures Ordinance to carry on Type 1 (dealing in securities) regulated activity.
- Kua has been a director of ESL since 10 October 2003 and accredited to it and approved to act as its responsible officer since 30 November 2004. He has also been a manager-in-charge of key business line, operational control and review, overall management oversight and risk management of ESL since 14 July 2017.
- Management, Supervision and Internal Controls Guidelines for Persons Licensed by or Registered with the Securities and Futures Commission and the 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.
A copy of the Statement of Disciplinary Action is available on the SFC website
