SFC reprimands and fines Sino-Rich Securities & Futures Limited $7.2 million for breaches of anti-money laundering regulatory requirements

SFC reprimands and fines Sino-Rich Securities & Futures Limited $7.2 million for breaches of anti-money laundering regulatory requirements

15 Mar 2021

The Securities and Futures Commission (SFC) has reprimanded and fined Sino-Rich Securities & Futures Limited (Sino-Rich) $7.2 million for failures in complying with anti-money laundering and counter-terrorist financing regulatory requirements when handling cash deposits and third party fund transfers (Note 1).

The SFC's investigation found that between April 2015 and October 2017 (Relevant Period), Sino-Rich had routinely processed:

• 238 cash deposits, with an aggregate amount of over $30 million; and
• 269 third party transfers, with an aggregate amount of over $900 million.

For cash deposits, there is no record of any enquires made by Sino-Rich's staff with the clients and approvals by its responsible officers (ROs) prior to January 2017. It was only after the SFC issued a management letter to Sino-Rich in November 2016 that Sino-Rich required its staff to record the reasons and the ROs' approval for cash deposits.

With respect to third party transfers, Sino-Rich's staff were required to fill in the relevant third party transfer forms but important information such as the client's relationship with the third party, the reason for the transfer and/or the client's signature was not provided in around 40% of the forms. The SFC also found that there were numerous occasions where the relationships or reasons stated do not include sufficient particulars to explain why the relevant clients had to use their securities/futures accounts at Sino-Rich to receive or route funds from/to third parties.

There is no record that Sino-Rich had rejected any requests for cash deposits and third party transfers or made any reports to the Joint Financial Intelligence Unit (JFIU) during the Relevant Period. Nonetheless, the SFC found that a substantial number of cash deposits and third party transfers processed or approved by Sino-Rich raised a number of red flags that warranted further inquiries or report to the JFIU. For example:

• 38 cash deposits with an aggregate amount of $3 million were made to a client's account within eight days and the said sum exceeded the client's liquid assets and annual net profit declared in its account opening documents;
• 12 cash deposits with an aggregate amount of $1 million were made to a client's account within a day and then the entire amount was transferred to an account of another broker on the same day; and
• Sino-Rich approved a client's request for third party transfer on the basis that such transfer was made to his business partner, even though the account opening documents recorded that the client was a full-time investor.

The SFC is of the view that Sino-Rich's conduct was in breach of the Anti-Money Laundering and Counter-Terrorist Financing Ordinance, the Guideline on Anti-Money Laundering and Counter-Terrorist Financing (April 2015 - February 2018 edition), the Code of Conduct and the Internal Control Guidelines (Notes 2 to 4).

In deciding the disciplinary sanctions against Sino-Rich, the SFC took into account that:

• Sino-Rich's failures lasted for more than two years involving over $930 million;
• it is important for licensed corporations to have in place adequate and effective internal control systems to mitigate the risk of money laundering and/or terrorist financing;
• Sino-Rich cooperated with the SFC to resolve the SFC's regulatory concerns;
• in resolving the SFC's regulatory concerns, Sino-Rich agreed to engage an independent reviewer to review its internal controls; and
• Sino-Rich has no previous disciplinary record with the SFC.

End

Notes:

1. Sino-Rich is licensed under the Securities and Futures Ordinance to carry on business in Type 1 (dealing in securities), Type 2 (dealing in futures contracts), Type 4 (advising on securities), Type 5 (advising on futures contracts) and Type 9 (asset management) regulated activities.
2. Please refer to paragraph 28 of the Statement of Disciplinary Action for the relevant regulatory requirements.
3. Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission.
4. Management, Supervision and Internal Control Guidelines for Persons Licensed by or Registered with the Securities and Futures Commission.

Page last updated 15 Mar 2021

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