The Hong Kong Securities and Futures Commission fined Guoyuan Securities Brokerage (Hong Kong) Limited HK $4.5 million (approximately US $590,000) for not identifying and conducting adequate due diligence to assess whether “a large number of frequent and unusual transfers” between the firms’ clients and third parties were suspicious transactions warranting follow-up. The SFC noted there were instances where money from third parties was wired into clients’ accounts followed by a wire out of the account in an almost equivalent amount to other third parties. The SFC has recently sanctioned a number of brokers for not detecting and reporting third party funds transfers. (Click here for background in the article “HK SFC Sanctions Second Brokerage Company for Third-Party Deposits and Individual Manager at a Previously Fined Broker” in the March 19, 2017 edition of Bridging the Week.)
Compliance Weeds: Third party funds transfers are always potential red flags. Some are warranted – e.g., routine payments to third party advisers in a discretionary account. But all non-approved third party receipts and payments not explained and approved in advance should be investigated if not outright prohibited as well as considered for suspicious account reporting.