Hong Kong SFC fines asset manager for internal control failures

The Securities and Futures Commission (SFC) in Hong Kong has reprimanded and fined Changjiang Asset Management (HK) Limited (Chiangjiang) HK$3.4 million for internal control failures relating to segregation of client money and provision of account statements to clients. Please see the SFC’s statement here. In more detail:

• In breach of the Securities and Futures (Client Money) Rules, Chiangjiang (i) under-segregated client money to the extent of HK$300 to HK$1.05 million on multiple occasions by, amongst other things, withdrawing money belonging to its segregated client accounts to meet settlement obligations of other clients where there were insufficient balances; and (ii) was late in transferring rebates to five of its clients in amounts ranging from HK$651,518 to HK$8.5 million, on some occasions up to 113 days late.
• Chiangjiang also failed to immediately notify the SFC after it became aware of the above non-compliance.
• In breach of the Securities and Futures (Contract Notes, Statements of Account and Receipts) Rules, Chiangjiang (i) issued inaccurate account statements to three of its clients; and (ii) failed to provide account statements to four of its clients on 19 occasions within the prescribed time limit.
• Further, the above failures are also breaches of the Code of Conduct for Persons Licensed by or Registered with the SFC.

The relatively significant fine imposed by the SFC is likely attributable to, amongst others, the large sums of client money which were the subject of non-compliance. This disciplinary action also serves as a reminder to financial institutions that implementing good internal controls, as well as properly maintaining those controls, is crucial to reducing compliance risks.