HK SFC Enforcement Action: iStar International Futures Co

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SFC reprimands and fines iSTAR International Futures Co. Limited $3 million over anti-money laundering-related internal control failures 

12 Apr 2017

The Securities and Futures Commission (SFC) has reprimanded iSTAR International Futures Co. Limited, now known as Rifa Futures Limited (Rifa), and fined it $3 million over failures to comply with anti-money laundering regulatory requirements when processing third party fund transfers (Note 1).

An SFC investigation found that between January and July 2014, Rifa took insufficient steps to mitigate the risk of money laundering when handling third party deposits and transfers by failing to:

  • obtain proper written instructions from clients and verify the identity of third parties before effecting third party deposits on numerous occasions (Note 2);
  • make sufficient enquiries concerning third party deposits and maintain proper records of the findings (Note 3);
  • ensure that the approval process in respect of third party deposits was effective;
  • provide adequate anti-money laundering training to its staff; and
  • put in place an appropriate and effective compliance function.

The SFC considers that Rifa’s conduct was in breach of its obligation to take all reasonable measures to ensure that proper safeguards exist to guard against the risks of money laundering and terrorist financing associated with third party fund transfers, including making appropriate enquiries to ensure third party fund transfers are consistent with the customers’ known legitimate activities, maintaining records of such enquiries, and effective implementation of internal policies for the prevention of money laundering and terrorist financing and communication of such policies to staff members.

The SFC further found that Rifa breached the Securities and Futures (Client Money) Rules on one occasion by effecting a payment from a client’s account to the account of one of its responsible officers (Note 4).

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

  • has since taken action to remediate its internal control deficiencies;
  • cooperated with the SFC in resolving the disciplinary proceedings;
  • agreed to engage an independent reviewer to conduct a review of its internal controls; and
  • has an otherwise clean disciplinary record.

End

Notes:

  1. Rifa is licensed under the Securities and Futures Ordinance (SFO) to carry on business in Type 2 (dealing in futures contracts) regulated activities.
  2. Under paragraph 2 of the guidance note on Suggested Control Techniques and Procedures for Enhancing a Firm’s Ability to Comply with the Securities and Futures (Client Securities) Rules and the Securities and Futures (Client Money) Rules, which was published under section 399 of the SFO in April 2003, a licensed corporation is required to ask its clients to give written instructions in all their dealings with the firm (except for trade instructions), which should bear the client’s signature which the firm should in turn match against that appearing in the client’s account opening documents kept in the firm’s records.  Where the instructions provide for acts by a third party on a client’s behalf, a licensed corporation should verify the identity of the designated third party.
  3. Under paragraphs 5.10 and 5.11 of the second edition of the Guideline on Anti-Money Laundering and Counter-Terrorist Financing, a licensed corporation is required to examine and make enquiries regarding the background, purpose and circumstances of transactions which are complex, large or unusual; the findings and outcomes of such examinations and enquiries should be properly documented in writing and be available to assist the relevant authorities.
  4. Section 5(3) of the Securities and Futures (Client Money) Rules provides that a licensed corporation may not pay any client money to any of its employees unless that employee is the client on whose behalf such client money is being held.
  5. 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 certain licensed corporations’ AML/CFT systems.

Links:

HK SFC Notice

Statement of Disciplinary Action

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