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SFC Reprimands and Fines Southwest Securities in Hong Kong for AML Breach

SFC Reprimands and Fines Southwest Securities in Hong Kong for AML Breach

by | May 19, 2020 | Compliance Updates, iComply Insights

SFC Reprimands and Fines Southwest Securities in Hong Kong for AML Breach

HK’s Securities and Futures Commission reprimands and fines Southwest Securities Brokerage Ltd US$5 million for breaches of anti-money laundering regulatory requirements

What Happened?

May 18, 2020: The Securities and Futures Commission (SFC) has determined that Southwest Securities (HK) Brokerage Limited (SSBL) failed to comply with their anti-money laundering and counter-terrorist financing (AML/CFT) regulatory obligations in 2016.

Investigators at the SFC uncovered that, between January and December 2016, SSBL failed to identify 164 out of 184 third-party deposits totaling USD $110.1 million for its clients.

SSBL failed to demonstrate that they had the necessary systems, policies, and procedures in place to review the sources of funds deposited into the bank’s sub-accounts that SSBL was responsible for maintaining.

As a result, the SFC is ordering SSBL to pay a total of USD $5 million in fines.

Source: https://www.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/doc?refNo=20PR45

Who Is Impacted?

Individual and corporate clients of SSBL.

Any financial services provider offering brokerage or investment services that fail to implement proper AML/CTF internal procedures and reporting.

Why This Matters?

SSBL’s clients were put at risk precisely 164 times due to staff failure to verify the transactions (as outlined in the SFC’s 2016 review).

The SFC determined that SSBL’s staff did not have a clear, consistent understanding of their roles and responsibilities in both the monitoring and identification of suspicious transactions.

SSBL failed to diligently supervise and provide sufficient guidance to its staff in order to properly enable them to even recognize indicators of potential money laundering or terrorist financing activity or consider a plan of action to mitigate the risks.

Specifically, the SFC found that SSBL was guilty of:

  • Inadequate and ineffective policies and procedures that increased the risk of money laundering and terrorist financing associated with SSBL’s handling of third-party deposits;
  • Failure to establish proper internal systems and controls to monitor SSBL clients’ activities, as well as to detect and report any suspicious transactions identified to the Joint Financial Intelligence Unit (JFIU) in a timely manner.

What’s Next?

In making its decision against SSBL, the SFC took into consideration that:

  • SSBL has since taken remedial steps to enhance its AML/CFT policies and procedures; and
  • SSBL otherwise has a clean disciplinary record with the SFC.

While these factors will help SSBL to recover from the regulatory action filed against them, they’ll likely be under scrutiny from financial providers, regulators, and investors worldwide for some time to come.

learn more

Is your AML compliance too expensive, time-consuming, or ineffective?

iComply enables financial services providers to reduce costs, risk, and complexity and improve staff capacity, effectiveness, and customer experience.

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BCSC targets EU virtual asset platform i-Coin

BCSC targets EU virtual asset platform i-Coin

by | Apr 29, 2020 | Compliance Updates, iComply Insights

BCSC targets EU virtual asset platform i-Coin

The British Columbia Securities Commission issues regulatory warning against i-Coin, a European cryptocurrency trading platform

What Happened?

April 29, 2020: Estonia-based cryptocurrency trading platform i-Coin was found to have accepted funds from a British Columbia resident without being recognized as an exchange or registered as a dealer in B.C. According to Canadian legislation, i-Coin’s activities were regulated and the firm has been added to the IOSCO warnings list.

Source: https://www.bcsc.bc.ca/Enforcement/Investment_Caution_List/i-Coin/

Who Is Impacted?

Cryptocurrency trading platforms and virtual asset service providers (VASPs) serving Canadian residents.

Why This Matters?

Many VASPs continue to operate on a global basis, without securing the required licenses or implementing the required KYC and AML compliance systems of the jurisdictions in which they accept users. This enforcement measure signals the importance for businesses to properly secure licensing in every jurisdiction they will accepting users.

What’s Next?

By adding i-Coin to the Investment Caution List, the BCSC has sent a clear message that these practices–although common in the cryptocurrency and fintech industries–are unlawful practices and can result in public enforcement.

VASPs who serve any Canadian user should seek legal and compliance advice from local experts to ensure they have the appropriate license for every jurisdiction in Canada.

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Is your AML compliance too expensive, time-consuming, or ineffective?

iComply enables financial services providers to reduce costs, risk, and complexity and improve staff capacity, effectiveness, and customer experience.

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IIROC Imposes $250,000 Fine on Laurentian Bank Securities Inc.

by | Apr 24, 2020 | Compliance Updates, iComply Insights

IIROC Imposes $250,000 Fine on Laurentian Bank Securities Inc.

The Investment Industry Regulatory Organization of Canada fines Laurentian Bank Securities Inc. US$250,000 for not using a transaction monitoring system

What Happened?

April 16, 2020: Laurentian Bank Securities Inc.–a regulated investment dealer under the jurisdiction of the Investment Industry Regulatory Organization of Canada (IIROC)–was charged with failing to implement and maintain an adequate trading supervision system, which resulted in the organization failing to comply with AML obligations.

In a hearing that took place on April 24, 2020, the IIROC Hearing Panel accepted a settlement agreement, according to which Laurentian Bank Securities Inc. agreed to pay US$250,000 in fines.

Source: https://www.iiroc.ca/Documents/2020/227d22f8-bca1-49f9-8161-157d63ea9ffd_en.pdf

Who Is Impacted?

Businesses that facilitate the trading or exchange of regulated assets–including equities, debt, derivatives, and cryptocurrencies.

Why This Matters?

Failing to have a transaction monitoring system in place creates the risk of money laundering going unnoticed within your business.

Transaction monitoring is a requirement that, when overlooked, will result in staggering fines, sanctions, and damage to the integrity of your brand’s reputation.

What’s Next?

IIROC’s Trading Conduct Compliance department (TCC) is tasked with regularly examining and testing their participant’s transaction monitoring systems to identify any problems or concerns.

Laurentian Bank Securities Inc. will be required to address these concerns and to correct the deficiencies. Going forward, the firm can expect to face increased scrutiny and reputation damage and will continue to appear in AML screening for Adverse Media and Watchlists for years to come.

learn more

Is your AML compliance too expensive, time-consuming, or ineffective?

iComply enables financial services providers to reduce costs, risk, and complexity and improve staff capacity, effectiveness, and customer experience.

Request a demo today.

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US SEC Charges Dropil and team for Fraudulent and Unregistered ICO

US SEC Charges Dropil and team for Fraudulent and Unregistered ICO

by | Apr 24, 2020 | Compliance Updates, iComply Insights

US SEC Charges Dropil and team for Fraudulent and Unregistered ICO

U.S. Securities and Exchange Commission (SEC) charges founders and issuer of Dropil, Inc. with securities fraud

What Happened?

April 24, 2020: Between January and March 2018, Jeremy McAlpine, Zachary Matar, and Patrick O’Hara of Dropil, Inc. marketed the DROP token offering online to investors around the world.

In promoting the offering, Dropil promised to pool the capital raised for building and investing with their algorithm-based “Dex Bot”. Dropil promised investors the “Dex Bot” would provide returns from this activity in the form of DROP Tokens deposited into their wallets every 15 days. However, Dropil never made any deposits to investors’ wallets, nor performed any development of the aforementioned “Dex Bot”.

The U.S. SEC (United States Securities and Exchange Commission) also found that Dropil claimed to have raised a total of USD $54 million from 34,000 investors–despite only raising $1.8 million from no more than 2,500 investors. In addition to this falsified evidence and testimony, the founders of Dropil were found to have used the money raised to fund other projects, as well as their own personal bank accounts.​

Source: https://www.sec.gov/litigation/litreleases/2020/lr24804.htm

Who Is Impacted?

Any issuer of a virtual asset who has failed to properly register their offering as a security, or has chosen to market it with false and misleading statements, or promises of potential returns.

Why This Matters?

2,500 investors lost $1.8 million in this scheme. The action taken by the SEC is evidence that they have both the authority and technical ability to monitor, investigate, and take action against the bad actors operating illegally in the digital capital markets, without prejudice.

What’s Next?

Issuers of “utility tokens”, security tokens, cryptocurrencies, etc., who used their virtual asset to either raise capital, secure investment, or generate pre-sales will continue to fall under scrutiny.

  • Was the offering registered with the proper authority?
  • Was the opportunity marketed in a lawful manner and with integrity?
  • Are the funds that were raised being used in the manner that they were presented to potential purchasers?

Such firms should seek independent legal advice to consider whether they may be exposed to this type of risk.

The SEC action against the Dropil ICO is yet another case study in what can put an issuer offside–and land them in court–in the U.S. market.

learn more

Is your AML compliance too expensive, time-consuming, or ineffective?

iComply enables financial services providers to reduce costs, risk, and complexity and improve staff capacity, effectiveness, and customer experience.

Request a demo today.

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BCSC Advisory Regarding Pegasus Global Trading Limited

by | Apr 23, 2020 | Compliance Updates, iComply Insights

BCSC Advisory Regarding Pegasus Global Trading Limited

BCSC (British Columbia Securities Commission) adds Pegasus Global Trading Ltd. to the province’s Investment Caution List

What Happened?

April 23, 2020: Pegasus Global Trading Ltd., which claims to be a UK-based online trading platform, was found to be advertising their services to the residents of British Columbia without the required licensing

Pegasus is neither registered to trade in, nor advise on, securities and derivatives in Canada. According to Canadian legislation, Pegasus’ activities were regulated and the firm has been added to the IOSCO warnings list.

Source: https://www.bcsc.bc.ca/Enforcement/Investment_Caution_List/Pegasus_Global_Trading_Ltd_/

Who Is Impacted?

Any Canadian citizen who may have utilized Pegasus Global for advisory or investment-related services. North American businesses engaged in similar business activities or direct business relationships with Pegasus.

Why This Matters?

The BCSC’s Investment Caution List helps Canadian investors identify if they are at risk of a total loss of capital–with no recourse for recovery–when dealing with unlicensed service providers operating outside Canada’s regulatory oversight.

What’s Next?

By adding Pegasus Global Ltd. to the Investment Caution List, the BCSC has sent a clear message that these unlawful practices of promoting an unlicensed business can result in public enforcement. Appearing on these lists will damage a companies reputation and create barriers to their growth.

learn more

Is your AML compliance too expensive, time-consuming, or ineffective?

iComply enables financial services providers to reduce costs, risk, and complexity and improve staff capacity, effectiveness, and customer experience.

Request a demo today.

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SFC Reprimands and Fines Southwest Securities in Hong Kong for AML Breach

SFC Fines BOCOM US$19.6 million for Internal Control Failures

by | Apr 20, 2020 | Compliance Updates, iComply Insights

SFC Fines BOCOM US$19.6 million for Internal Control Failures

Hong Kong’s Securities and Futures Commission (SFC) has reprimanded and fined BOCOM International Securities Limited (BISL) for a range of regulatory breaches

What Happened?

April 20, 2020: BOCOM International Securities Limited (BISL) was reprimanded and fined by Hong Kong’s Securities and Futures Commission (SFC) for a total of US$19.6 million due to a range of regulatory breaches and internal control failures.

The SFC found that third-party deposits made to client accounts in 2009, 2011, and 2015 by way of cheques and bank transfers were not identified until 2016. BISL’s failure to ensure compliance with the guidelines on Anti-Money Laundering and Counter-Terrorist Financing is a significant reason for their 8-figure fine.

Source: https://www.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/enforcement-news/doc?refNo=20PR36

Who Is Impacted?

BISL’s clients, because the firm failed to ensure that:

  • transactions conducted in client accounts were properly authorized;
  • it could be satisfied on reasonable grounds about the identity of the person ultimately responsible for originating the instruction in relation to a transaction, and that order instructions were properly recorded;
  • client identities and transaction details were properly confirmed in trade confirmations;
  • it reported its representatives’ failures to record order instructions to the SFC immediately; and
  • a client complaint was adequately investigated and promptly responded to.

Why This Matters?

The lack of AML, CTF, and KYC due diligence on the transactions from 2009 to 2015 put both the clients of BISL at risk of financial fraud, as well as the public at risk of money laundering and terrorism financing, as transactions went unchecked and unmonitored until 2016.

What’s Next?

The SFC took into account all relevant circumstances, including the following:

  • BISL has an otherwise clean disciplinary record;
  • BISL has taken steps to revise its policies and procedures in relation to the areas where deficiencies were identified;
  • BISL has agreed to engage an independent reviewer to conduct a review of its internal controls; and
  • BISL’s failures are serious, extensive, and lasted for a substantial period of time.

The SFC concluded its decision with the following statement:

“A clear message needs to be sent to the industry that the SFC will not hesitate to take action against licensed corporations that fail to put in place appropriate internal controls to protect their operations and clients.”

learn more

Is your AML compliance too expensive, time-consuming, or ineffective?

iComply enables financial services providers to reduce costs, risk, and complexity and improve staff capacity, effectiveness, and customer experience.

Request a demo today.

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