Hong Kong's Securities And Futures Commission Revokes W. Falcon Asset Management (Asia) Limited’s Licence

The Securities and Futures Commission (SFC) has revoked the licence of W. Falcon Asset Management (Asia) Limited (Falcon) for window-dressing its liquid capital, breaching the terms of a restriction notice and failing to provide timely notification of the resignation of its director who engineered the window-dressing scheme (Note 1).

The disciplinary action follows an SFC investigation which found that Falcon provided the SFC with false or misleading information in its licence application and financial returns between June 2014 and June 2017.

Falcon window-dressed its month-end liquid capital by including in its liquid capital computation the amount of certain cheques, which were subsequently dishonoured.  This practice was adopted from the time of Falcon’s SFC licence application. Had the amount of these cheques been excluded, Falcon would have been denied a licence to carry on regulated activities due to a liquid capital deficit at the time of its licence application and at each of the month-ends over a three-year period.    

In May 2017, the director of Falcon guaranteed a loan taken out in the name of Falcon. Two months later, the SFC issued a restriction notice against Falcon after a self-report by Falcon that its liquid capital had dropped below the required level.  Subsequently, Falcon defaulted on repayment of the loan and proceeded to enter into a debenture with the lender, thereby subjecting its assets to a floating charge, contrary to the terms of the restriction notice (Note 2).

The director resigned from Falcon on 23 October 2017, but both the director and Falcon failed to provide the SFC with written notification of such resignation within seven business days as required.

The SFC is of the view that Falcon’s failures were in breach of the various regulatory provisions including the Code of Conduct.  The failures also cast doubt on Falcon’s ability to carry on regulated activities competently and call into question its fitness and properness to remain licensed by the SFC (Note 3).

In deciding the penalty, the SFC took into account all relevant circumstances of the case, including:

• the misconduct was egregious and serious;
• investors’ and the public’s confidence in market integrity was damaged;
• Falcon had an otherwise clean disciplinary record; and
• the need to remove Falcon from the industry in order to protect the investing public.

Notes:

1. Falcon was licensed to carry on Type 1 (dealing in securities), Type 4 (advising on securities) and Type 9 (asset management) regulated activities under the Securities and Futures Ordinance. 
2. The restriction notice prohibited Falcon from carrying on all regulated activities, disposing of or dealing with any relevant property in any manner without the SFC’s prior written consent, except for the return of any client money, client securities or any other client assets held by it as directed by the relevant clients.  Please see the SFC’s press release dated 7 July 2017.
3. Code of Conduct for Persons Licensed by or Registered with the SFC.