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The Securities and Futures Commission (SFC) has reprimanded and fined The Pride Fund Management Limited (Pride Fund Management) $400,000 over its failure to enter into mediation with an eligible claimant under the Financial Dispute Resolution Scheme (FDRS) administered by the Financial Dispute Resolution Centre (FDRC).
The disciplinary action follows a review of the SFC’s decision to sanction Pride Fund Management by the Securities and Futures Appeals Tribunal (SFAT). This is the first time the SFC has enforced the Code of Conduct obligations of intermediaries to comply with the FDRS (Notes 1, 2, 3 & 4).
The FDRS, which is administered by the FDRC, is an important part of Hong Kong’s regulatory framework under which banks and brokers are obliged to enter into mediation and potentially arbitration proceedings to resolve certain financial disputes with clients or persons who have been provided with financial services. Pride Fund Management refused to mediate a dispute with an eligible claimant despite requests by FDRC staff. The FDRC issued a Notice of Non-Compliance to Pride Fund Management in June 2013. It was only after the SFC commenced disciplinary proceedings against Pride Fund Management that it eventually agreed to enter into mediation with the claimant (Note 5).
Pride Fund Management claimed it had not understood that it was required to comply with the FDRS. The Hon Mr Justice Hartmann NPJ, Chairman of the SFAT, who upheld the SFC’s decision but varied the fine from $700,000 to $400,000, found that Pride Fund Management’s non-compliance was deliberate and that although the obligations under the FDRS may not be generally understood, after the SFAT’s reasons in this case and the public reprimand there can be no further excuse “…on the part of members of the financial industry for a lack of understanding, at least, of the scheme’s basic architecture”. The Hon Mr Justice Hartmann also warned that “…sterner penalties can be expected in the future….” (Note 6).
The FDRS provides an independent and impartial dispute resolution process to facilitate the resolution of monetary disputes between individual customers and financial institutions in Hong Kong. The SFC takes non-compliance with the FDRS seriously and will continue to take action against SFC-licensed intermediaries who fail to comply with the scheme.
Notes:
- Pride Fund Management is licensed under the Securities and Futures Ordinance (SFO) to carry on Type 1 (dealing in securities), Type 4 (advising on securities) and Type 9 (asset management) regulated activities.
- Please refer to the Reasons for Determination (Application No. 2 of 2015) which is available on the SFAT’s website (www.sfat.gov.hk).
- The FDRC was set up in November 2011 to administer the FDRS, an independent financial dispute resolution scheme which requires financial institutions who are its members to resolve monetary disputes with their customers through mediation and, failing which, arbitration. Other than firms which carry on Type 10 (providing credit rating services) regulated activity under the SFO, financial institutions or financial service providers authorized by the Hong Kong Monetary Authority or licensed by the SFC are to be members of the FDRS.
- Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission
- Paragraph 12A of the Code of Conduct requires a licensed person to comply with the FDRS for managing and resolving disputes administered by the FDRC in full and be bound by the dispute resolution processes provided for under the FDRS. Paragraph 12.6 of the Code of Conduct requires a licensed person to render all reasonable assistance to the FDRS.
- See Reasons for Determination, paragraphs 59-62.
