SFC Fines State Street Global Advisors Asia $4m for Regulatory Breaches

State Street Global Advisors Asia's Tracker Fund of Hong Kong was found to have violated regulatory mandates.

Hong Kong’s Securities and Futures Commission (SFC), an independent statutory body set up to help police the country’s domestic securities and futures market, has formally reprimanded and fined State Street Global Advisors Asia Limited (SSGA) the sum of $4 million for acute failures to comply with regulations over specific funds, according to a SFC statement.

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In particular, the SFC fine stems from a lapse in the regulatory requirements related to the management of Tracker Fund of Hong Kong. The results follow after an SFC investigation that found evidence of wrongdoing between 2008 and 2013. As such, cash balances of SSGA’s Tracker Fund were found to have accrued no interest given that State Street Bank and Trust Company’s (SSBT) deposit rates on Hong Kong dollars were fixed at zero.

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SSBT operated as Tracker Fund’s trustee and affiliate of SSGA – per the investigation, SSGA did not check the rate of interest offered by other banks. However, a disparity exists in the findings of the SFC investigation, whereby commercial interest rates on Hong Kong dollars (HKD) for a deposit of congruent size and term as Tracker Fund’s cash balances were higher than zero over the aforementioned period.

As such, the SFC has surmised that SSGA failed to properly ensure that the interest received on Tracker Fund’s HKD cash balances were at a rate not lower than the commercial rate for a deposit of that size, as necessitated by the legal Code on Unit Trusts and Mutual Funds.

Furthermore, the SFC investigation also unearthed that SSGA’s internal procedures on the management of Tracker Fund’s cash balances were lacking – by failing to adhere to requisite legal codes when depositing the fund’s cash balances with SSBT, SSGA did not properly manage or mitigate the conflict between the interests of the fund’s investors and the interests of SSGA/SSBT, according to the SFC manifest.

Given the regulatory lapses, the SFC levied a series of measures and fines against SSGA, which effectively resolved its concerns. This included a voluntary payment of $318,315 into Tracker Fund and the appointment of an independent reviewer to conduct an internal controls review, as well as the aforementioned fine.

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