The Securities and Futures Commission has fined XHK Limited HK$2.5 million for regulatory breaches relating to financial reporting, capital adequacy, and client money handling.

XHK operates as the Hong Kong regulated entity associated with the EXANTE trading group, a multi-asset brokerage offering trading services across securities, futures, FX, and CFDs through regulated entities in different jurisdictions.

XHK Hit Over Capital Breaches

The disciplinary action followed an SFC investigation triggered by self-reports from XHK. The SFC found accounting errors in financial returns submitted under the Securities and Futures Rules, resulting in both overstatements and understatements of liquid capital between January 2020 and June 2021.

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After corrections, XHK’s required liquid capital was found in deficit for four months, ranging from HK$3.6 million to HK$32.3 million, in breach of the rules.

XHK Faces Segregation Rule Breaches

The SFC said the issues were due to failures in overseeing external service providers preparing financial returns. The firm did not ensure they were competent or sufficiently experienced. Staff were also not familiar with FRR requirements and failed to identify errors before submission.

The regulator also found that between March and April 2021, XHK transferred up to HK$206 million of client money Client Money Client money refers to the money or margin – which may be any currency in the form of cash, check, draft, or electronic transfer – that a firm receives or holds for a client. Money held by a firm in the form of a stakeholder, which is are not payable on demand or immediately due, also refers to client money. The definition of client money does not apply to money held by businesses that operate in its own name on behalf of a client. Although the client does have to be in agreement before this arr Client money refers to the money or margin – which may be any currency in the form of cash, check, draft, or electronic transfer – that a firm receives or holds for a client. Money held by a firm in the form of a stakeholder, which is are not payable on demand or immediately due, also refers to client money. The definition of client money does not apply to money held by businesses that operate in its own name on behalf of a client. Although the client does have to be in agreement before this arr Read this Term from segregated accounts to overseas brokers without written direction or standing authority, as required under client money rules.

In addition, between February 2019 and October 2021, XHK failed to transfer non-client money, including about HK$38 million in commissions and interest, out of segregated accounts within one business day after identifying it as such. This breached the Client Money Rules.

The SFC said these failures also constituted breaches of the Code of Conduct.

No Client Losses Reported SFC

In deciding the penalty, the SFC considered the duration and extent of the failures, remedial measures, absence of client losses, clean disciplinary record, and cooperation with the investigation, which facilitated early resolution.

An XHK spokesperson said:
“We accept the SFC's findings and apologise to our clients and stakeholders. These were serious operational failures. Importantly, based on our investigations to date, we have found no evidence of financial loss to clients as a result.”

“We are in the process of developing a comprehensive remediation plan — including enhancements to our processes and controls — and are committed to its full and timely execution Execution Execution is the process during which a client submits an order to the brokerage, which consequently executes it resulting in an open position in a given asset. The execution of the order occurs only when it is filled. There is typically a time delay between the placement of the order and the execution which is called latency.In the retail FX space, reliable brokers always strive to deliver best execution to their clients in order to maintain a solid business relationship with them. This is a co Execution is the process during which a client submits an order to the brokerage, which consequently executes it resulting in an open position in a given asset. The execution of the order occurs only when it is filled. There is typically a time delay between the placement of the order and the execution which is called latency.In the retail FX space, reliable brokers always strive to deliver best execution to their clients in order to maintain a solid business relationship with them. This is a co Read this Term.”