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SFC Fines BOCOM US$19.6 million for Internal Control Failures

Apr 20, 2020 | Compliance Updates, iComply Insights

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.”

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