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The Securities and Futures Commission (SFC) has reprimanded North Sea Securities Limited and fined it $700,000 for failing to put in place proper controls to monitor and supervise employee dealings, in breach of the Code of Conduct.
The SFC found that from 4 to 27 December 2013, there were 25 cross trades between four accounts belonging to or controlled by two North Sea employees, for the purpose of delaying the settlement of their personal trades.
At the material time, North Sea had no written policy on employee dealings to, among other things, specify the conditions under which employees may deal for their own accounts and require employees to identify all related accounts and report them to the senior management. North Sea also did not adequately supervise and/or review employee dealings and cross trades. Therefore, North Sea was unable to identify accounts in which its employees held beneficial interests and monitor dealings in such accounts.
Monitoring employee dealings is important for the detection and prevention of possible irregularities and/or market misconduct. The absence of any controls on employee dealings has not only facilitated North Sea’s employees to conduct personal trades in client accounts, but also impeded the ability of North Sea to ensure the integrity of the market.
In determining the sanction, the SFC took into account that:
- North Sea co-operated with the SFC in resolving the SFC’s concerns;
- there is no evidence that any client of North Sea has suffered any loss;
- North Sea agreed to engage an independent firm of reviewers to conduct review of its internal controls on employee dealings and on the supervision of staff in their trading activities; and
- North Sea has no previous disciplinary record with the SFC.