SFC reprimanded and fined a brokerage firm for regulatory breaches

A brokerage firm (the “Firm“) has been recently reprimanded and fined HK$6 million by the Securities and Futures Commission (the “SFC“) for various regulatory breaches committed in the course of acting as the placing agent in a share placement between November and December 2019.

During the relevant period, the Firm acted as the placing agent for the majority shareholder (the “Shareholder“) of a listed company in Hong Kong (the “Company“) to procure not less than six placees to subscribe for the shares of the Company. In the absence of the Shareholder’s consent, the Firm (i) entered into bought and sold notes in respect of the shares on behalf of the Shareholder with the placees, where the transaction prices were inconsistent with the placing price agreed with the Shareholder, and (ii) transferred the shares from the Shareholder’s account to the placees’ accounts, hoping that the placees would sell the shares on the market to settle the placing price with the Shareholder.

Upon investigation, the SFC found that in failing to safeguard the assets of its client and acting beyond the client’s authorities and instructions, the Firm was grossly negligent and it breached certain provisions of the Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission in relation to safeguarding client assets, and acting with proper authorization. Nevertheless, the SFC acknowledged that there was no sufficient evidence to support a finding of dishonesty or recurrent breaches on the part of the Firm.

This case serves as a helpful reminder to all licensed firms that it is important to act within their authorities, including verifying whether the instructions they were acting on were given by the person ultimately responsible for the origination of the instructions, and to act with due care and in the best interests of the clients (which is fundamental to the fitness and properness of licensed corporations).

1 June 2023
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