SFC Fines Fidelity Hong Kong for Unlicensed $40bn Trades

FIMHK had also submitted incorrect information to the SFC when applying for a new fund authorization in 2017.

Hong Kong’s Securities and Futures Commission (SFC) on Monday fined FIL Investment Management, the arm of US asset manager Fidelity Investments, HK$3.5 million ($450,000) for regulatory breaches ‎between 2007 and 2018.‎

The commission also reprimanded the company for failing to have ‎adequate licenses in place to execute 6,738 trades in futures contracts for its overseas affiliates. FIMHK conducted these unauthorized trades, which worth nearly $40 billion, relying on certain exemptions for over 11 years and only reported the breach to the SFC in August 2018.

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The local unit of Boston-based asset manager had also submitted incorrect information to the SFC after it filed an outdated template when applying for a new fund authorization in March 2017.

In light of the incidents, the SFC and FIMHK jointly engaged an independent reviewer to review its procedures and bring in measures to address the problems identified by the watchdog.

The review found lapses in FIMHK’s internal controls and systems and that the company failed to put in place controls to ensure the accuracy of the information it submitted to the SFC.

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On its part, Fidelity said in a statement that the incident has had no material impact on its operations and that it has strengthened internal mechanisms.

A representative of Fidelity Investments, which manages $7.2 trillion worth of mutual fund assets, was quoted as saying: “We reported the license issue to the SFC and we have co-operated fully with them during their investigation. We have taken all steps necessary to improve our internal controls.”

Hong Kong regulators stepping up compliance actions

In reaching its decision, the SFC said Fidelity had been cooperative during its investigation, and there is no evidence that failures were deliberate.‎ Furthermore, the company agreed to engage an independent ‎reviewer to conduct a forward-looking review of its internal controls to ‎ensure compliance with the relevant regulatory requirements.

“Fidelity Hong Kong has no disciplinary record in respect of ‎the present failures,” the ‎regulator said in its statement.‎

The case underlines the punitive measures being pursued by the SFC to maintain confidence in the local markets, which is made more difficult by the fact that many companies are based offshore.

Furthermore, Hong Kong regulators have been stepping up their compliance actions to enforce anti-money laundering rules. Last year, the HKMA fined and reprimanded Shanghai Commercial Bank HK$5 million for similar breaches. Also earlier this year, HSBC said it would contact all retail and corporate clients to update their contract and funding source information and warned that some accounts might be suspended.

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