The Securities and Futures Commission (“SFC“) publicly reprimanded and fined Fullbright Securities Limited (“Very shinyâ) HK $ 3.3 million in accordance with Section 194 of the Securities and Futures Ordinance (âOFS“).
In addition, the SFC also suspended Fullbright’s responsible agent license (“RO“), Eric Liu Chi Ming (“Liu“), who was at all times also appointed director, deputy director general and responsible director (“MICROPHONEâ) Of the overall vision of the management and of the key business sector.
The disciplinary action is taken in relation to the failures of Fullbright’s internal control in its activities of placing and recording customer orders.
The SFC’s investigation revealed that by acting as an placement agent in connection with the placement of shares of a Hong Kong listed company in August 2018, Fullbright did not:
- exercise skill, care and diligence and continually monitor its business relationships with clients when processing investment underwriting applications, as Fullbright had not adequately investigated its clients’ source of funding and it There was also a substantial delay in reporting incidents to the Joint Financial Intelligence Unit (“JFIU” ); and
- act in the best interests of its clients during the placement to the extent that Fullbright has processed investment requests despite the fact that its clients do not have the investment experience required under Fullbright’s internal investment notice and risk assessment questionnaires for its clients.
In light of the issues set out in the two points above, Fullbright has failed to comply with the Directive to sponsors, underwriters and placement agents involved in the listing and placement of GEM shares, the Anti-Compensation Ordinance. Money Laundering and Terrorist Financing, the Anti-Money Laundering and Terrorist Financing Guideline, and the Code of Conduct for Persons Authorized by or Registered with the SFC (“Code of conduct“).
The SFC also found that during the period from November 1, 2017 to July 31, 2019, Fullbright did not have:
- properly record and maintain ordering instructions for a total of 580 sales orders;
- effectively implement policies and procedures and diligently supervise its account managers to ensure that customer orders have been processed in accordance with applicable regulatory requirements for order processing;
- establish and maintain appropriate and effective procedures for its telephone order registration compliance reviews; and
- immediately report to the SFC after learning of the breaches of its account managers with regard to the regulatory requirements applicable to telephone orders.
With respect to Fullbrights senior management responsibilities, the SFC found that Fullbright’s failure was due to Liu’s failure to perform his duties as RO and as a member of his senior management. Liu failed to ensure that Fulbright maintains proper standards of conduct and adheres to proper procedures, in violation of General Principle 9 of the Code of Conduct. As a result, the SFC expressed serious doubts about Liu’s reliability and ability to conduct regulated activities, which called into question his suitability and qualities as an authorized person.
In deciding the appropriate disciplinary sanctions, the SFC took into account the cooperation of Fulbright and Liu in the SFC’s investigation into the case. In addition, Fulbright has also agreed to engage an independent reviewer to perform a review of its relevant internal controls and has committed to implementing the corrective actions recommended by the reviewer.
The main takeaway is that the SFC will not hesitate to sanction both the Approved Company and the Approved Person and will attribute the misconduct of the Approved Company to the Approved Person. Readers should also note that cooperation with the SFC in its investigation as well as demonstrating a willingness to take corrective action may positively contribute to the SFC’s decision as to the appropriateness and severity of disciplinary action.
A copy of the disciplinary action statement is available here.