SFC fine EFG Bank AG
The SFC got 2018 off to a flying start last week by fining EFG Bank AG (a subsidiary of private Swiss bank, EFG International) HK$2 million for dealing in futures contracts without the required registration.
Over a period of 13 years, from 2003 to 2016, EFG had executed 139 transactions in offshore listed index options, worth a total of HK$65 million. Whilst the bank was registered under the Securities and Finance Ordinance (SFO) both to advise on and deal in securities, it had failed throughout the entirety of that period to have in place the required registration to trade in futures contracts. This was a breach of s.114 of the SFO and also the SFC’s own Code of Conduct (which requires not only that banks comply with the SFO but also that they have measures in place to ensure such compliance). In the opinion of the SFC, the bank’s failings called into question its fitness and propriety as a regulated person.
Given the length of time over which the breach endured, the fine imposed by the SFC might be thought relatively light. In arriving at that outcome, however, the SFC took into account the following factors:
- EFG had self-reported the issue
- The breach appeared to arise out of oversight on the part of the bank, rather than deliberate non-compliance
- EFG co-operated with the SFC enquiry
- It had also put in place remedial measures to avoid similar outcomes in the future
- The bank had an otherwise clean disciplinary record
Although the measures taken against EFG are now part of a regular pattern of enforcement by the SFC (JP Morgan Securities and JP Morgan Chase Bank were both recently fined for similar infringements), financial institutions can at least take comfort from the consistency of approach being adopted by the regulator. As part of his keynote speech to the 8th Pan Asian Regulatory Summit last year, Thomas Atkinson (Executive Director of Enforcement at the SFC) promised leniency for companies which self-reported, co-operated and put in place remedial measures. It appears as if these factors were all given due weight in the case of EFG.
Of more concern in Mr Atkinson’s address, however, was the renewed focus of the SFC on enforcement action as a whole:
“You will remember that last year I told you that we believe the greatest threat to the reputation of Hong Kong as an international financial centre was corporate fraud and misfeasance. I said this because corporate fraud severely undermines the integrity of our markets. A market’s reputation is hard earned and easily lost, which is why we have prioritised these cases. The SFC currently has 136 active corporate fraud and misfeasance investigations. Of these, we are laser-focused on 28 that are particularly serious.” (His emphasis, not mine!)
Your clients have been warned. Happy New Year!