Hong Kong’s Securities and Futures Commission (SFC), the country’s paramount securities regulator, hit brokerage firm DBS Vickers Securities with a $2 million fine on Thursday over regulatory breaches and internal control failings which resulted in under and over-segregation of client money.
The rules of client asset segregation are there to protect client money and custody assets if a firm becomes insolvent and to ensure money and assets can be returned to clients as quickly as possible.
During the period from June 2013 to September 2015, DBSVHK was found to have breached SFC rules relating to custody assets after using aggregated client monies in client accounts to meet settlement obligations. As such, the company improperly segregated client money after effectively using excess margin deposits of some clients to fulfil the margin requirement of other clients with unmet margin calls.
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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 should a firm become insolvent.
The SFC said the company also failed to arrange adequate protection for client money and custody assets for which they were responsible, citing deficiencies with DBSVHK’s internal reconciliation process that resulted in the under- and over-segregation of client money.
In deciding the sanction, the SFC took into account all relevant circumstances, including that none of DBSVHK’s clients has suffered losses as a result of the non-compliance. Moreover, in response to the SFC findings, DBSVHK established an independent team to review its customer money and asset processes in place, as well as to strengthen its governance and controls.