On 20 August 2014, the Securities and Futures Commission (SFC) published its Quarterly Report highlighting that the SFC has taken disciplinary actions against 8 licensed corporations and 7 licensed representatives during the period between April 2014 and June 2014.
The causes for the disciplinary actions include the following:
- Internal control failures (e.g. inadequate and ineffective front office supervision, insufficient trade monitoring, lack of training provided to staff)
- Fraud, theft or other misconduct
- Failure to ensure client assets are properly safeguarded
- Failure to comply with the new regulation on electronic trading
- Failure to obtain proper client authorization to conduct transactions on a discretionary basis
To avoid being reprimanded, fined and potentially a loss of business and/or reputation and money, licensed firms should have an effective organizational structure and clear reporting lines so that the senior management would have access to all relevant information to supervise the firm’s business on a timely basis.
Senior management should bear primary responsibility for ensuring the maintenance of appropriate standards of conduct and adherence to proper procedures by the firm. They should ensure that the firm’s employees are suitably qualified, properly trained and aware of their responsibility to act professionally at all times.
Licensed firms should also have an appropriate internal management system which is able to capture, monitor and control business risks and protect its business from financial loss arising from theft, fraud and other dishonest acts or omissions.
Financial Services Compliance and Regulation
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