The Securities and Futures Commission (SFC) has reprimanded and fined Sincere Securities Limited (SSL) $5 million for a series of internal control failings and regulatory breaches (Note 1).
The disciplinary action followed an SFC investigation into an investor’s complaint concerning the conduct of a former account executive of SSL. The SFC found that SSL did not require its account executives to obtain clients’ written consent before transferring their funds maintained at SSL to their gold trading accounts opened with its associated company (Notes 2 & 3).
At the SFC’s request, SSL engaged an independent reviewer to conduct a review of its internal control systems and procedures. The independent review and a separate review by the SFC identified deficiencies across 14 areas of SSL’s business operations and internal controls for the period between October 2015 and December 2016 (Note 4).
Examples of the deficiencies include:
- The Compliance and Procedural Manual of SSL was outdated and failed to capture the regulatory requirements that came into effect after May 2009;
- SSL did not have specific procedures to filter, analyse and monitor staff dealing activities;
- SSL failed to segregate the sales, dealing and settlement functions effectively with the result that its account executives handling client orders also handled clients’ fund deposits and withdrawals; and
- SSL had no written procedures to prohibit its staff from receiving client order instructions through mobile phone when they are on the trading floor. Some client order instructions were received through mobile phone applications, such as WhatsApp messenger, while they were in SSL’s office but no contemporaneous record of the order details was maintained.
The SFC considers that SSL’s systems and controls were inadequate and failed to ensure compliance with the applicable regulatory rules and requirements (Note 5).
In deciding the disciplinary sanctions, the SFC took into account all relevant circumstances, including:
- SSL’s agreement to engage an independent reviewer to review its internal control systems and procedures;
- SSL has taken remedial actions to address the deficiencies identified;
- SSL had compensated the affected client in the complaint case, and there is no evidence suggesting other SSL’s clients having suffered losses as a result of the identified deficiencies;
- SSL’s cooperation with the SFC in resolving its concerns; and
- SSL’s otherwise clean disciplinary record.
Notes:
- Sincere Securities Limited is licensed under the Securities and Futures Ordinance to carry on Type 1 (dealing in securities), Type 4 (advising on securities) and Type 9 (asset management) regulated activities.
- The SFC had taken disciplinary action against the relevant account executive. Please see the SFC’s press release dated 25 September 2017.
- The associated company of SSL is Allied Victory Gold and Silver Investment Limited.
- The 14 areas of deficiencies include: (i) procedures and manuals; (ii) compliance surveillance programme; (iii) escalation policy; (iv) staff dealing activities; (v) discretionary trading; (vi) third-party authorization; (vii) handling of client funds; (viii) handling of client securities; (ix) client orders and dealing; (x) handling of returned mail; (xi) preparation and delivery of trading documents; (xii) customer due diligence; (xiii) credit and margin control procedures; and (xiv) books and records.
- Please refer to paragraph 6 of the Statement of Disciplinary Action for the relevant rules and regulations.
A copy of the Statement of Disciplinary Action is available on the SFC website
