Hong Kong’s Securities and Futures Commission (SFC) on Monday fined Southwest Securities (HK) HK$5 million ($650,000) for failing to meet anti-money laundering and counter-terrorist financing laws.
The listed brokerage firm violated provisions of the rules between January and December 2016, the SFC said. SSBL didn’t conduct relevant customer due diligence and handled third-party deposits without auditing the names of the originators.
More specifically, the company failed to identify nearly 90 percent of the third party deposits. As a result, 164 transactions totaling $110.1 million were passed without reviewing the source of funds deposited into SSBL bank accounts.
The review found lapses in Southwest Securities’ internal controls and systems and that the company failed to put in place controls to ensure the accuracy of the information it submitted to the SFC.
“In some cases where third party deposits were identified by SSBL, the clients’ relationship with the third party depositors (eg, friend) and the reason for these deposits (eg, busy at work) provided by the clients failed to explain the rationale for the transfers satisfactorily. However, SSBL did not critically evaluate these deposits and document the enquiries, as well as the reasons for approving them,” the watchdog further explains.
The lapse in oversight also extended to the failure to train or provide sufficient guidance to its staff to ensure they have a clear understanding of their respective roles in monitoring suspicious transactions.
The broker hadn’t self-identified or reported deficiencies before the SFC requested to review all client deposits and trading activities in 2016. Only after that, SSBL identified 31 suspicious transactions and reported them to regulators.
In reaching its decision, the SFC said SSBL had been cooperative during its investigation, and there is no evidence that failures were deliberate. Furthermore, the company had taken positive and extensive remediation work. It has also conducted a forward-looking review of its internal controls to ensure compliance with the relevant regulatory requirements.
The SFC added that Southwest Securities has no previous disciplinary record in relation to the anti-money laundering ordinance.
The case underlines the punitive measures being pursued by the SFC to maintain confidence in the local markets, which is made more difficult by the fact that many companies are based offshore.
Furthermore, Hong Kong regulators have been stepping up their compliance actions to enforce anti-money laundering rules. Last year, the HKMA fined and reprimanded Shanghai Commercial Bank HK$5 million for similar breaches.
Also earlier this year, HSBC said it would contact all retail and corporate clients to update their contract and funding source information and warned that some accounts might be suspended.