The Securities and Futures Commission (“SFC”) has publicly reprimanded and fined Fullbright Securities Limited (“Fullbright”) HK$3.3 million pursuant to Section 194 of the Securities and Futures Ordinance (“SFO”).
Further, the SFC has also suspended the licence of Fullbright’sResponsible Officer (“RO”), Eric Liu Chi Ming (“Liu”), who was at all material times also appointed as the director, deputy general manager and manager in charge (“MIC”) of overall management sight and key business line.
The disciplinary action is taken in relation to Fullbright’s internal control failures in its placing activities and recording of client orders.
Investigation by the SFC revealed that when acting as a placing agent in the share placement of a Hong Kong listed company in August 2018, Fullbright failed to:-
- exercise due skill, care and diligence and continuously monitor its business relationship with clients when processing the placement subscription applications in that Fullbright had not adequately investigate into source of fundings of its clients and also there being a substantial delay in reporting incidents to the Joint Financial Intelligence Unit (“JFIU”); and
- act in the best interests of its clients during the placement in that Fullbright had proceeded with placement applications despite its clients not meeting the requisite investment experience under Fullbright’s internal notice regarding placement and under its clients’ risk assessment questionnaires.
In light of the matters set out in the two points above, Fullbright failed to comply with the Guideline to sponsors, underwriters and placing agents involved in the listing and placing of GEM stocks, the Anti-Money Laundering and Counter-Terrorist Financing Ordinance, the Guideline on Anti-Money Laundering and Counter-Financing of Terrorism, and the Code of Conduct for Persons Licensed by or Registered with the SFC (“Code of Conduct”).
The SFC also found that during the period from 1 November 2017 to 31 July 2019, Fullbright failed to:-
- properly record and maintain order instructions in relation to a total of 580 client orders;
- effectively implement policies and procedures, and diligently supervise its account executives to ensure client orders were handled in compliance with the applicable order handling regulatory requirements;
- establish and maintain appropriate and effective procedures for its telephone order recording compliance reviews; and
- report immediately to the SFC after it became aware of its account executives’ breaches of the applicable telephone order regulatory requirements.
With regards to the responsibilities of Fullbrights’s Senior Management, the SFC found that Fullbright’s failure were attributable to Liu’s failure to discharge his duties as an RO and as a member of its senior management. Liu failed to ensure that Fulbright maintained appropriate standards of conduct and adhered to proper procedures, in breach of General Principle 9 of the Code of Conduct. As a result of this, the SFC expressed serious doubt over Liu’s reliability and ability to carry out regulated activities, which called into question his fitness and properness as a licensed person.
In deciding the appropriate disciplinary sanctions, the SFC considered Fulbright’s and Liu’s cooperation in the SFC’s investigation into the matter. In addition, Fulbright also agreed to engage an independent reviewer to conduct a review of its relevant internal controls and undertaken to implement the reviewer’s recommended rectification measures.
The key takeaway from this is that the SFC will not hesitate to sanction both the licensed corporation and licensed person and attribute the licensed corporation’s misconduct to the licensed person. Readers should also take note that cooperation with the SFC in its investigation as well as demonstrating a willingness to take remedial action may contribute positively to the SFC’s decision in the appropriateness and severity of disciplinary actions.
A copy of the Statement of Disciplinary Action is available here.