Hong Kong SFC fines firm for Due Diligence Failures

The Securities and Futures Commission (SFC) has reprimanded and fined Guotai Junan Securities (Hong Kong) Limited (Guotai Junan) $1.3 million for non-compliance with the regulatory requirements in relation to ascertaining client identity (Note 1).

In July 2014, the SFC requested Guotai Junan to provide details of the ultimate clients of certain transactions it effected for an intermediary client in Korea. Guotai Junan was unable to provide the requested information within two business days of the request pursuant to the Client Identity Rule Policy, due to the intermediary client’s failure to comply with its obligation under its client agreement (Notes 2 & 3). 

The intermediary client informed the SFC and Guotai Junan on 1 August 2014 that as a matter of Korean law, it could not provide the requested client identity information without its clients’ written consent.  It was not until January 2015 that Guotai Junan provided the requested information to the SFC. 

Notwithstanding this, Guotai Junan continued to effect more than 8,000 transactions for the intermediary client between August 2014 and January 2015 despite having been reminded by the SFC of its obligation to refuse the business of those who are not prepared to provide ultimate client information to the regulators. 

In the circumstances, the SFC found that at the time when Guotai Junan effected those transactions, it could no longer be satisfied on reasonable grounds that it would be able to make available the ultimate client information in relation to such transactions to the SFC on request, which is in contravention of the Client Identity Rule Policy (Note 4).

In deciding the sanctions, the SFC took into account all relevant circumstances, including, Guotai Junan:

  • co-operated with the SFC in resolving the disciplinary proceedings; and
  • has agreed to conduct an independent review of its systems and controls in respect of its compliance with the regulatory requirements on ascertaining client identity.




  1. Guotai Junan is licensed under the Securities and Futures Ordinance (SFO) to carry on Type 1 (dealing in securities) and Type 4 (advising on securities) regulated activities.
  2. The Client Identity Rule Policy explains the client identity rule, paragraph 5.4 of the Code of Conduct for Persons Licensed by or Registered with the SFC, and the general approach the SFC will take in enforcing the client identity rule.
  3. Under its client agreement with Guotai Junan, the intermediary client: (a) agreed to provide ultimate client information to the SFC, the Stock Exchange of Hong Kong and/or the Hong Kong Futures Exchange (the Regulators), within two business days of a request; and (b) confirmed that they and their clients have waived the benefit of any law which prohibited the provision of ultimate client information to the Regulators.
  4. The Client Identity Rule Policy stipulates that a licensed person must refuse the business of those who are not prepared to provide client identity information to the Regulators upon request (paragraph 23).  The Client Identity Rule also stipulates that if a licensed person has been put on notice that some intermediary in the chain of intermediaries involved in a transaction might not comply with its agreement in relation to that transaction so that the licensed person could no longer be satisfied on reasonable grounds that the information would be available to the Regulators on request and continued to deal with that intermediary, the SFC would consider taking disciplinary action against the licensed person (paragraph 27).


Hong Kong SFC Release

Statement of Disciplinary Action

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