SFC gives duty alert

PUBLISHED : Friday, 15 August, 1997, 12:00am
UPDATED : Friday, 15 August, 1997, 12:00am
 

A relaxation of the rules on the expansion of brokerages has prompted a warning from the Securities and Futures Commission on internal controls at branches and head offices.


Commission executive director David White said the regulator expected brokers to open more branches in the near future, after the stock exchange relaxed rules regarding branch expansion.


Previously, a brokerage with one broker's seat on the exchange was allowed to have only one branch.


Last month, the rule was relaxed to allow brokers to open as many branches as they wished.


The move is in an attempt to encourage retail investment by having more branches outside Central district, where brokers' headquarters are usually located.


Mr White has reminded brokers keen to expand that they should first make sure internal control systems were in place.


'It is the brokers' duty to ensure their branches have proper internal control systems to avoid any misconduct which will affect investors,' he said.


'Stockbrokers should treat their branches no different from the headquarters' back-office operation.' His comments followed a case of false accounting at the Kwun Tong branch of Hing Shing Investments Co, which has led to 91 clients reporting total losses of $37 million.


The branch closed this week and the branch manager, who was found not to have carried out client trading orders and not to have given proper receipts to clients, is missing. The case has aroused concerns about the internal control systems.


Mr White would not comment on the Hing Shing case but said all brokers should ensure their branches had sufficient controls to regulate their staff.


He said there was no need to review control guidelines.


'All stock brokers know they need to follow the internal control guidelines.


'The current guidelines are adequate and I would not see there is urgent need to change them.'

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