Hong Kong's Securities And Futures Commission Reprimands And Fines Okasan International (Asia) Limited $4 Million

The Securities and Futures Commission (SFC) has reprimanded and fined Okasan International (Asia) Limited (Okasan) $4 million for failures in selling unlisted investment products and making proper disclosure of trading profits (Note 1).

An SFC investigation into Okasan’s practices and procedures in distributing unlisted investment products to its clients between January and September 2013 found that Okasan:

• did not ensure adequate product due diligence had been conducted on the products before recommending them to clients;
• did not ensure that recommendations and/or solicitations made to its clients in relation to the products were suitable for and reasonable in all the circumstances of the clients;
• did not maintain adequate documentary records of the investment advice or recommendations given to its clients nor provide clients with a copy of the written advice; and
• failed to make adequate disclosure to clients of the trading profits it made from back-to-back transactions (Notes 2 & 3).

In determining the penalty, the SFC took into account that Okasan:

• co-operated in resolving the disciplinary proceedings;
• has agreed to conduct an independent review of its systems and controls in respect of its distribution of unlisted investment products and to enhance its complaint handling procedures; and
• has an otherwise clean disciplinary record in relation to its regulated activities.

Notes:

1. Okasan is licensed under the Securities and Futures Ordinance (SFO) to carry on Type 1 (dealing in securities) and Type 4 (advising on securities) regulated activities.
2. Upon receiving a buy/sell order for unlisted investment product from a client, Okasan would buy/sell the same through its counterparty and take profit by marking up (for buy orders) or marking down (for sell orders) the price charged/paid to the client, as the case may be.
3. Paragraph 8.3 of the Code of Conduct requires that where a licensed person enters into a back-to-back transaction concerning an investment product, the licensed person should disclose to the client the trading profit to be made as a percentage ceiling of the investment amount or the dollar equivalent.