The Securities and Futures Commission (SFC) has reprimanded and fined Xinhu International Futures (Hong Kong) Co., Limited (Xinhu) $9 million for failures in complying with anti-money laundering and counter-terrorist financing (AML/CFT) and other regulatory requirements between December 2016 and March 2019 (Note 1).
The SFC has also suspended the licence of Mr Ngai Wai, Xinhu’s former responsible officer and manager-in-charge (MIC) for overall management oversight, compliance, information technology and risk management for nine months from 8 October 2024 to 7 July 2025 (Note 2). This is because Xinhu’s failures were attributable to Ngai’s failure to discharge his duties as a responsible officer and a member of the senior management of Xinhu during the material time.
The SFC’s investigation found that Xinhu did not conduct any due diligence on the customer supplied system (CSS) used by 84 clients for placing orders. As a result, Xinhu 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 CSS by its clients (Notes 3 and 4).
In addition, the SFC identified that the amounts of deposits made into six client accounts were incommensurate with their declared financial profiles. Although Xinhu claimed that its staff had followed up with these clients on the suspicious or unusual deposits made into their accounts, it failed to demonstrate that it had conducted proper enquiries on the deposits and satisfactorily addressed the associated ML/TF risks. The SFC found that Xinhu had failed to implement adequate systems and controls to monitor and assess large, unusual or suspicious fund deposits made by its clients into their accounts.
The SFC further found that Xinhu’s failure to put in place an effective ongoing monitoring system to detect suspicious trading patterns in client accounts resulted in its failure to detect 12,413 self-matched trades in 10 client accounts (Note 5).
The SFC is of the view that Xinhu’s systems and controls were inadequate and ineffective, and failed to ensure compliance with the Anti-Money Laundering and Counter-Terrorist Financing Ordinance, the Guideline on Anti-Money Laundering and Counter-Terrorist Financing (AML Guideline) and the Code of Conduct (Notes 6 and 7).
In deciding the disciplinary sanctions, the SFC has taken into account all relevant circumstances, including:
- Xinhu’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;
- Xinhu and Ngai cooperated with the SFC in resolving the SFC’s concerns; and
- Xinhu and Ngai have otherwise clean disciplinary records with the SFC.
Notes:
- Xinhu is licensed under the Securities and Futures Ordinance to carry on Type 2 (dealing in futures contracts) regulated activity.
- Ngai was accredited to Xinhu and approved to act as its responsible officer for Type 2 (dealing in futures contracts) regulated activity from 20 May 2016 to 7 February 2020. He was also Xinhu’s manager-in-charge for overall management oversight, compliance, information technology and risk management from 10 July 2017 to 7 February 2020. Ngai has been accredited to Zhicheng International Financial Company Limited since 24 February 2020 and approved to act as its responsible officer for Type 2 (dealing in futures contracts) regulated activity.
- A CSS is a 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 CSS was connected to Xinhu’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.
- Self-matched trades refer to those trades where the client’s order matched with his/her own order in the opposite direction. The AML Guideline specifies the entry of matching buys and sells in particular securities and futures contracts as an example of situations that might give rise to suspicion of money laundering, as it might create the illusion of trading and be an indication of market manipulation.
- 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
