HK SFC AML Enforcement Action: Guangdong Securities

 

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SFC reprimands and fines Guangdong Securities Limited $3 million for breach of anti-money laundering guidelines
6 Mar 2017

The Securities and Futures Commission (SFC) has reprimanded Guangdong Securities Limited (GSL), now known as Sinolink Securities (Hong Kong) Company Limited (Sinolink), and fined it $3 million for failures in complying with anti-money laundering guidelines when handling third party payments (Note 1).

The SFC found that between February 2011 and March 2013, GSL’s internal controls for handling payments from client accounts to third parties were deficient and inadequate. GSL failed to demonstrate that it had conducted appropriate enquiries before processing third party payments. Moreover, the enquiries it claimed to have made at the time, and the rationale for approving the payments, were not properly documented in writing (Note 2).

Specifically, the SFC’s investigations revealed that:

  • only about 570 application forms out of approximately 700 payments from client accounts to third parties were found;
  • among these 570 payments accompanied with application forms, the relationship between the client and the third party and/or the purpose of one-third of these payments was not, or could not be verified; only about 67 were supported with proper documentation;
  • the application forms offered little information of the relationship between the client accounts and the third parties as well as the purpose of the payments but staff as well as management proceeded to approve such payments; and
  • the third party payments involved millions and in one case up to over $39 million.

The SFC is of the view that GSL’s conduct was in breach of the Prevention of Money Laundering and Terrorist Financing Guidance Note, the Guideline on Anti-Money Laundering and Counter-Terrorist Financing, and the Code of Conduct, which require licensed corporations to:

  • pay special attention to all complex, unusual large transactions, and all unusual patterns of transactions which have no apparent economic or visible lawful purpose. The findings and outcomes of these examinations should be properly documented in writing; and
  • take all reasonable measures to ensure that proper safeguards exist to mitigate the risks of money laundering and terrorist financing, including implementation of appropriate policies and procedures and ensuring their effectiveness and compliance with all relevant legal and regulatory requirements (Notes 3 to 5).

In deciding the disciplinary sanction, the SFC took into account:

  • GSL’s misconduct lasted for over two years;
  • GSL has been under the ownership of Sinolink Securities Co., Ltd. since March 2015 and the failures were attributable to the former senior management which has changed since the misconduct occurred;
  • neither GSL nor Sinolink has a disciplinary record with the SFC in relation to anti-money laundering failures; and
  • the cooperation of Sinolink in accepting the disciplinary action and not disputing the regulatory concerns.

End

Notes:

  1. Sinolink is currently licensed under the SFO to carry on Type 1 (dealing in securities), Type 2 (dealing in futures contracts), Type 4 (advising on securities), Type 6 (advising on corporate finance) and Type 9 (asset management) regulated activities.
  2. The breaches occurred before the business of GSL was acquired by Sinolink Securities Co., Ltd. in March 2015. The firm changed its name to Sinolink in November 2015.
  3. The “Prevention of Money Laundering and Terrorist Financing Guidance Note” (AMLGN) was published by the SFC in September 2009 and remained effective until 31 March 2012. From 1 April 2012, the AMLGN was superseded by the “Guideline on Anti-Money Laundering and Counter-Terrorist Financing” (AML/CFT Guideline) and the “Prevention of Money Laundering and Terrorist Financing Guideline issued by the Securities and Futures Commission for Associated Entities”.
  4. Paragraph 6.2.8 of the AMLGN and paragraph 5.10 of the AML/CFT Guideline require licensed corporations to monitor customer activities and pay special attention to all complex, unusual large transactions and all unusual patterns of transactions which have no apparent economic or lawful purpose. The background and purpose, including where appropriate the circumstances, of the transactions should be examined. The findings and outcomes of these examinations should be properly documented in writing and be available to assist the relevant authorities.
  5. Paragraph 4.2.2 of the AMLGN and paragraph 2.1 of the AML/CFT Guideline require licensed corporations to take all reasonable measures to ensure that proper safeguards exist to mitigate the risks of ML/TF, including implementation of appropriate policies and procedures for the prevention of money laundering and terrorist financing and ensuring their effectiveness and compliance with all relevant legal and regulatory requirements.
  6. General Principles 2 and 7 of the Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission require licensed corporations to act with due skill, care and diligence, in the best interests of its clients and the integrity of the market, and to comply with all regulatory requirements applicable to the conduct of their business activities.
  7. Licensed corporations are reminded to refer to the “Circular to Licensed Corporations and Associated Entities – Anti-Money Laundering / Counter Financing of Terrorism (AML/CFT) Compliance with AML/CFT Requirements” issued by the SFC on 26 January 2017 which sets out key areas of concern identified by the SFC in its review of some licensed corporations’ AML/CFT systems.

A nice touch is at the end of the Statement of Disciplinary Action:

 

In deciding the disciplinary sanction set out in paragraph 1, the SFC has had regard to its Disciplinary Fining Guidelines and has taken into account all relevant circumstances, including:

(a)  GSL’s misconduct lasted for over two years;
(b)  GSL has been under the ownership of Sinolink Securities Co., Ltd. since March 2015 and the failures were attributable to the former senior management which has changed since the misconduct occurred;
(c)  neither GSL nor Sinolink has a disciplinary record with the SFC in relation to AML failures; and
(d)  the cooperation of Sinolink in accepting the disciplinary action and not disputing the regulatory concerns. 

Link:

HK SFC Notice

Statement of Disciplinary Action

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