The Securities and Futures Commission (SFC) has reprimanded Solid King Securities Limited (Solid King) and fined it $700,000 for failing to comply with the telephone recording requirements under the Code of Conduct and put in place effective internal control procedures to safeguard its telephone recording system and monitor its clients’ telephone orders (Notes 1 & 2).
The SFC’s investigation found that Solid King had failed to record client order instructions received through one of its telephone extension lines between May 2013 and January 2014 (relevant period) as the telephone machine concerned was disconnected from Solid King’s telephone recording system due to a loose electric cable.
During the relevant period, Solid King did not conduct any routine checks on its telephone recording system, nor did it review the recordings of client telephone orders on a regular basis. The loose electric cable was detected and re-attached to the telephone recording system by Solid King on 2 January 2014 and it discovered that its telephone recording system had failed to record client order instructions during the relevant period when it was required by the SFC on 8 January 2014 to produce the telephone recordings of certain client orders. As a result of the undetected defect in its telephone recording system, Solid King was unable to produce the telephone recordings required by the SFC.
Telephone recording of client orders is an integral part of an intermediary’s audit trails. It protects the interests of both the intermediary and its clients and serves as an effective compliance monitoring tool for preventing or detecting irregularities or fraudulent activities. Solid King’s failures have called into question its fitness and properness as an SFC licensee (Note 3).
Notes:
- Solid King is licensed to carry on Type 1 (dealing in securities) and Type 4 (advising on securities) regulated activities under the Securities and Futures Ordinance.
- Paragraph 3.9(b) of the Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission requires a licensed or registered person to: (i) use a telephone recording system to record the order instructions that are received from clients through the telephone; and (ii) maintain the telephone recordings as part of its records for at least six months.
- Please see the Circular to the SFC’s Licensed Intermediaries on Telephone Recording Requirements dated 25 November 2004 for details.
A copy of the Statement of Disciplinary Action is available on the SFC website
