Hong Kong’s Securities and Futures Commission (SFC) has reprimanded and fined an intermediary $6.4 million for control failures over a two year period in solicitation and recommendation of bonds to clients for execution on a third party platform.

In recommending bonds to clients, the intermediary failed to:

conduct proper and adequate product due diligence on the bonds;

have an effective system in place to ensure that the recommendation or solicitation of the bonds was suitable;

maintain proper documentary records of the investment advice or recommendation given to its clients and provide each of them with a copy of the written advice; and

have adequate and effective monitoring systems to supervise the sale of bonds through the third party platform and to ensure its compliance with applicable regulatory requirements.

The SFC’s report mentions that the size of the fine reflects the fact that the intermediary failed to put in place an effective system to ensure product suitability despite the SFC’s repeated reminders to licensed corporations on the importance of compliance with the suitability obligations and the specific guidance regarding the selling of fixed income products, complex and high-yield bonds.

The SFC found that the intermediary did not have product approval or due diligence procedures for the products in question, but relied on its individual consultants to conduct due diligence and assess product risk.

Source: https://www.lexology.com/library/detail.aspx?g=ded85773-18e2-46ad-b871-f48c6ca7e667