Hong Kong Regulator SFC Fines Fidelity $450k

Hong Kong’s SFC said that between 2007 and 2018 Fidelity dealt in futures contracts without a “Type 2 licence”, relying on certain exemptions.

30 December 2019 | AtoZ Markets – Hong Kong’s Securities and Futures Commission (SFC) on Monday fined FIL Investment Management, the arm of US asset manager Fidelity Investments, HK$3.5 million ($450,000) for regulatory breaches between August, 2007 and July, 2018‎.‎

Fidelity lacks adequate licenses

The SFC also rebuked the company for failing to have ‎adequate licenses to execute 6,738 trades in futures contracts. FIMHK conducted these unauthorized trades, which worth nearly $40 billion, relying on certain exemptions for over 11 years. The firm only reported the breach to the commission in August 2018.

The local unit of Boston-based asset manager had also submitted incorrect information to the SFC. They did this after they filed an outdated template when applying for a new fund authorization in March 2017.

The SFC and FIMHK jointly engaged an independent reviewer to review its procedures and profer solutions to the problems. The review found lapses in FIMHK’s internal controls and systems. It also found that the company failed to put in place controls to ensure the accuracy of the information it submitted to the SFC.

In response, Fidelity said in a statement that the incident has had no material impact on its operations. It also said that the incident has strengthened the internal mechanisms.

A representative of Fidelity Investments, which manages $7.2 trillion worth of mutual fund assets, said:

“We reported the licence issue to the SFC and we have co-operated fully with them during their investigation. We have taken all steps necessary to improve our internal controls.”

Hong Kong SFC stepping up compliance actions

In reaching its decision, the SFC said Fidelity cooperated during its investigation and there is no evidence that failures were deliberate.‎ Moreover, the regulator said it took into account that the company had engaged an independent reviewer to look at its internal controls.

“Fidelity Hong Kong has no disciplinary record in respect of ‎the present failures,” the SFC said in its statement.‎

The case underlines the punitive measures being pursued by the SFC to maintain confidence in the local markets, which is made more difficult by the fact that many companies are based offshore.

This year the regulator fined UBS, Morgan Stanley, Bank of America Merrill Lynch and Standard Chartered a total of HK$786.7m. The SFC also blocked UBS from sponsoring initial public offerings (IPO) for a year.

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