Hong Kong’s Securities and Futures Commission (SFC), the country’s paramount securities regulator, hit brokerage firm Promising Securities Company Limited (Promising) with a $3.5 million fine on Wednesday over regulatory breaches and internal control failings which resulted in misappropriating client assets.
The SFC’s investigation found that on numerous occasions, spanning across a 4-year period, Promising had allowed its staff to perform both sales and settlement functions, which gave them the opportunity to misappropriate around $8 million worth of client assets. Promising was unable to detect the fraud action, which affected 24 accounts, until a client informed the firm that 1,600 HSBC shares had gone missing from her trading account.
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As such, the company failed to implement adequate internal control procedures that ensure effective segregation of its operational functions. The failings breached the watchdog’s the Client Money Rules as well as the SFC’s Code of Conduct (Notes 3 & 4), which are designed to protect client assets.
In deciding the sanction, the SFC took into account all relevant circumstances, including that Promising has taken steps to return the misappropriated assets to all clients who suffered losses as a result of the non-compliance. Moreover, in response to the SFC findings, the company will hire independent consultant to review its customer money and asset processes in place, as well as to strengthen its governance and controls.