Hong Kong Securities And Futures Commission Reprimands And Fines PICC Asset Management (Hong Kong) Company Limited $2.8 Million For Fund Management Failures

The Securities and Futures Commission (SFC) has reprimanded and fined PICC Asset Management (Hong Kong) Company Limited (PICC) $2.8 million over its failures to discharge duties as the manager of a Cayman-incorporated fund between May 2018 and May 2020 (Note 1).

The SFC’s investigation found that PICC failed to properly manage the fund to ensure that its investments were in line with its stated investment strategy, objectives and investment restrictions.  PICC also failed to implement adequate and effective internal controls for the fund’s risk management and to adequately supervise the staff designated as the fund’s investment manager.

In particular, the SFC found that:

• contrary to the fund’s investment objective and strategy, there were only one to three stocks at any given point in time in the fund’s portfolio during a 21-month period from its inception in May 2018 to January 2020 (Note 2).  In addition, the fund held highly concentrated positions in two Hong Kong-listed stocks, one of which was not on the permitted securities list approved by PICC’s senior management.
• PICC did not have adequate internal controls in place to ensure the fund’s adherence to the investment mandate and to manage non-compliance in this respect.  It also lacked effective controls to manage the liquidity and concentration risks of the fund, and to ensure compliance with its stop loss procedure.
• PICC placed significant reliance on the investment manager to manage the fund and the associated risks and failed to properly supervise his investment activities.

In deciding the disciplinary sanctions against PICC, the SFC has taken into account all relevant circumstances, including:

• the gravity of PICC’s failures to ensure the fund’s adherence to its investment mandate and to properly manage the risks of the fund could undermine the confidence of the investing public and market integrity;
• a strong deterrent message to the market that such failures are not acceptable;
• PICC has taken steps to enhance its risk management and liquidity monitoring controls; and
• PICC’s otherwise clean disciplinary record.

Notes:

1. PICC is licensed to carry on Type 4 (advising on securities) and Type 9 (asset management) regulated activities under the Securities and Futures Ordinance.
2. The fund’s investment objective was to achieve capital preservation combined with steady capital appreciation over the long term through primarily investing in a diversified portfolio of equity securities.