The Hong Kong Securities and Futures Commission (SFC) has reprimanded and fined Promising Securities Company Limited $3.5 million for breach of the Code of Conduct and the Management, Supervision and Internal Controls Guidelines.
The SFC’s disciplinary action arose from a self-report by Promising in 2014 that a settlement staff had misappropriated client assets following an enquiry by a client that 1,600 HSBC shares had gone missing from her trading account.
The SFC’s investigation found that Promising:
- employed and allowed the settlement staff, who was unlicensed, to perform regulated functions for its business in regulated activities, such as introducing clients to open trading accounts and handled and took orders from clients; and
- failed to implement adequate internal control procedures that ensure effective segregation of its operational functions, and allowed the same individual to perform both sales and settlement functions, which gave the settlement staff the opportunity to misappropriate around $8 million worth of client assets affecting 24 client accounts over a four-year period, which went undetected by Promising until the client enquired about her missing shares.
In determining the sanction, the SFC took into account all the circumstances, including:
- Promising has taken steps to return the misappropriated assets to all of the affected account holders;
- Promising agreed to engage an independent reviewer to conduct a review of its internal controls to ensure client assets are adequately protected against internal misconduct;
- Promising self-reported to the SFC about the misappropriation;
- Promising cooperated with the SFC in resolving the SFC’s concerns;
- Promising has an otherwise clean disciplinary record with the SFC; and
- The SFC wishes to send a clear message to the market that investor protection is one of the SFC’s regulatory objectives and the SFC will not hesitate to take necessary actions against those who fail to put in place appropriate internal controls to protect the firms and their clients.