Hong Kong SFC fines former Guangdong Securities Ltd. $3 million for Sinolink Securities AML compliance failure. What else did the SFC investigation reveal?
8 March, AtoZForex – The Hong Kong Securities and Futures Commission (SFC) has been active in supervising the financial market activities. After blacklisting a couple of companies in the past few days, recently SFC fines Guangdong Securities Ltd (GSL), now known as now known as Sinolink Securities. The regulator penalized GSL HKD 3 million (approx. USD 386,000) for Sinolink Securities AML compliance failure when handling third-party payments.
What SFC says about Sinolink Securities AML compliance failure?
The location of Guangdong Securities Limited is in Central Hong Kong. As of March 2, 2015, Guangdong Securities Limited operates as a subsidiary of Sinolink Securities Co. Ltd. Furthermore, the firm is a leading securities and investment management company. However, the Hong Kong watchdog 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. The company was unable to reveal that it had carried out appropriate inquiries before processing third party payments. Furthermore, the inquiries it claimed to have made at the time, and the ground on which the payments were approved, were not properly documented in writing.
What did SFC's investigations reveal?
In particular, the SFC’s investigations revealed that:
- out of approximately 700 payments from client accounts to third parties, only about 570 application forms were found;
- among these 570 payments along with application forms, only about 67 were with proper documentation. 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;
- 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 the 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.
Moreover, the Hong Kong regulator 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 requires 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 outcomes and findings of these assessments 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 procedures and policies and ensuring their effectiveness and compliance with all relevant legal and regulatory requirements.
What the Hong Kong regulator took into account?
Finally, in deciding the disciplinary sanction, the Hong Kong SFC took into account:
- GSL’s misconduct lasted for over 2 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 (AML) failures; and
- the cooperation of Sinolink in accepting the disciplinary action and not disputing the regulatory concerns.
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