SFC Fines Potomac Capital with $800K for Breaching Rules


Hong Kong’s SFC has fined Potomac for incorrectly including aged receivables in its liquid assets. As a result, the wealth manager overstated its liquid capital for a period of more than 3 years.

June 9 2020 | AtoZ Markets – Hong Kong’s Securities and Futures Commission (SFC) has announced that it has publicly reprimanded and fined Potomac Capital Limited HKD 800,000 (USD 103,000) due to the firm’s failures to comply with the Securities and Futures (Financial Resources) Rules (FRR).

Potomac has SFO license to carry on Type 1 (dealing in securities) and Type 9 (asset management) regulated activities.

Related: Hong Kong Regulator SFC Fines RHB Securities $6.4 million

SFC found that Potomac overstated its liquid capital in its financial returns

According to the financial returns submitted by Potomac to the SFC, Potomac had excess liquid capital of over $5 million from November 2016 to May 2017. A major component of its liquid capital, i.e. “other assets arising from asset management”, was comprised solely of account receivables from two clients.

The evidence shows that Potomac included in its liquid assets certain fees receivables from the clients outstanding and accumulated since around April 2013, which fall outside the length of the period (i.e. 1 or 3 months depending on whether the fee receivable has been accrued, billed or fallen due for payment) prescribed under section 35(a) of the FRR.

If the aged receivables had been excluded, the liquid capital of Potomac would have been much lower, and Potomac would have had a required liquid capital deficit, varying from $335,000 to $449,000, for four months from February to May 2017.

Potomac has rectified the breach

According to the Hong Kong watchdog, Potomac incorrectly included the aged receivables in its liquid assets, and hence overstated its liquid capital, for more than three years as a result of its misinterpretation of section 35(a) of the FRR.

Potomac rectified the breach after the SFC pointed that out to Potomac in or around June 2017.

In determining the disciplinary sanction, the SFC has taken into account a variety of factors, including:

  • (a) Potomac had incorrectly included the Aged Receivables in its liquid capital for more than 3 years;
  • (b) Potomac has rectified the FRR breach; and
  • (c) Potomac’s otherwise clean disciplinary record.

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