Hong Kong Securities And Futures Commission Reprimands And Fines FIL Investment Management (Hong Kong) Limited HK$3.5 Million For Regulatory Breaches

The Securities and Futures Commission (SFC) has reprimanded and fined FIL Investment Management (Hong Kong) Limited (FIMHK) HK$3.5 million for regulatory breaches including unlicensed dealing in futures contracts, delay in reporting the breach to the SFC as well as submitting incorrect information during an application (Note 1).

The SFC found that between August 2007 and July 2018, FIMHK executed 6,738 trades in futures contracts for its overseas affiliates with an approximate value of US$40 billion without the required licence.  FIMHK identified the suspected breach in a review conducted between May and June 2018 but only reported the incident to the SFC in August 2018, after it had obtained external legal advice (Notes 2 to 4).

The SFC also found that FIMHK, when applying to the SFC for a new fund authorization in March 2017, submitted an incorrect information checklist based on an outdated template.  As a result, certain required information was not completed or provided in the checklist submitted to the SFC.

The internal investigation conducted by FIMHK and the reviews performed by an independent reviewer engaged by FIMHK identified certain deficiencies and weaknesses in FIMHK’s internal controls and systems, which suggest that FIMHK did not put in place satisfactory and effective systems and controls to ensure the accuracy of information submitted to the SFC at the relevant time.

In deciding the disciplinary sanctions, the SFC took into account that:

• there is no evidence to suggest that FIMHK’s failures were intentional or deliberate;
• there is no evidence of clients having suffered any financial loss;
• FIMHK engaged an independent reviewer to review its internal controls in relation to the fund application process and took steps to rectify the deficiencies identified;
• FIMHK took remedial actions to strengthen its internal systems and controls;
• FIMHK co-operated with the SFC in resolving the SFC’s concerns; and
• FIMHK has an otherwise clean disciplinary record with the SFC.

End

Notes:

1. FIMHK has been licensed under the Securities and Futures Ordinance (SFO) to carry on Type 1 (dealing in securities), Type 4 (advising on securities), Type 5 (advising on futures contracts) and Type 9 (asset management) regulated activities since 29 March 2005.  It has been licensed to carry on Type 2 (dealing in futures contracts) regulated activity since 30 May 2019.
2. FIMHK executed the trades without a Type 2 (dealing in futures contracts) licence.  Under section 114 of the SFO, no person shall carry on a business in a regulated activity or hold himself out as carrying on a business in a regulated activity without a licence or registration for the regulated activity.
3. Under paragraph 12.5(a) of the Code of Conduct, a licensed corporation is required to report to the SFC immediately upon the happening of any material breach, infringement of or non-compliance with any rules, laws, regulations and codes administered or issued by the SFC, or where it suspects any such breach, infringement or non-compliance by itself or persons it employs or appoints to conduct business with clients.
4. As stated in the circular issued by the SFC on 14 September 2018, all material breaches and non-compliance should be reported to the SFC as soon as practicable upon identification, i.e. not after the intermediary has already completed its investigation, obtained legal advice or taken remedial actions.