The Securities and Futures Commission (SFC) today issued a circular setting out the expected controls for account opening and maintenance of client relationships.
The circular follows the SFC’s review of the account opening practices of 12 securities brokers. The review identified significant deficiencies, including inadequate due diligence on account opening documentation, the acceptance of questionable or forged documents during the account opening process, and weaknesses in managing cross‑border correspondent relationships with overseas intermediaries. The SFC is deeply concerned about the potential misuse of client accounts for suspicious or illicit transactions, and hence heightened money laundering / terrorist financing risks. The SFC requires all licensed corporations (LCs) to conduct an internal review as soon as practicable to detect if any questionable or forged documents have been accepted for account opening.
“LCs should not grow their business at the expense of know-your-client standards. The SFC has zero tolerance for serious control lapses and the use of forged documents in account opening process, and will take firm supervisory and enforcement actions against relevant LCs and their senior management in order to maintain market integrity and a level playing field,” said Dr Eric Yip, the SFC’s Executive Director of Intermediaries.
The SFC also set out the additional measures for opening and managing investment accounts of Chinese Mainland investors. These additional measures include closure of investment accounts that were opened using questionable or forged documents, closure of zero‑balance dormant investment accounts, and obtaining written investor declarations and requiring settlement and fund deposits and withdrawals to be conducted exclusively through bank accounts held in the clients’ own names with eligible banks when opening new investment accounts. LCs are also reminded to comply with all relevant legal and regulatory requirements in both Hong Kong and the applicable jurisdictions when they provide services to investors outside Hong Kong.
The SFC also reminds investors that anyone who uses a false document, or a copy thereof, with the intent to induce LCs to accept it as genuine may be committing an offence under sections 73 or 74 of the Crimes Ordinance (Cap. 200). They risk their accounts being terminated by LCs and their potential criminal conduct being reported to law enforcement agencies.
Notes:
Appendix A to the circular sets out the deficiencies identified during the review and the regulatory standards expected of LCs.
Appendix B sets out the additional measures that LCs are required to implement when opening and managing accounts of Chinese Mainland investors.
Appendix C contains a set of frequently asked questions to assist LCs’ implementation of the controls and measures in the circular.
