Hong Kong’s Securities and Futures Commission (SFC) today issued an official reprimand of BOCI Securities Limited (BSL) and fined the company HK$10 million due to its internal controls and systems failures in the selling of its investment products.
The disciplinary measures issued by the SFC followed an official investigation where it was discovered that BSL did not follow the rules governing the profiling of clients, conducting product due diligence and assessing the suitability of clients during the sale and distribution of investment products, which included bonds, as set out in Chapter 37 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (Chapter 37 Bonds).
BSL specifically failed to do the following:
- Adequately evaluate and establish the risk tolerance of its clients and the appropriate investment strategy for some clients.
- Confirm that the investments recommended to its clients were suitable to the client in every circumstance.
- Verify that each client had the necessary net worth to take on the risks and cover any potential losses arising from trading derivatives and/or highly leveraged products.
- Properly execute the requisite due diligence on specific investment products; and
- Institute and maintain sufficient internal systems and controls that constantly monitor the sale and distribution of investment products to its clients in order to guarantee that this process complies with the relevant regulations.
SFC decided on this penalty by analyzing all pertinent circumstances including:
- The SFC identified multiple systemic deficiencies within the systems and controls implemented by BSL to oversee the selling of investment products and in its advisory business.
- BSL executed new measures to enhance the compliance of its controls and systems.
- The firm cooperated fully with the SFC in addressing its concerns; and
- The firm committed to implementing an Enhanced Complaint Handling Procedures (ECHP) to evaluate clients’ complaints regarding the sale and distribution of its investment products.