SFC fines Merrill Lynch units HK$15m for internal control lapses
Hong Kong’s Securities & Futures Commission has reprimanded and fined two units of Merrill Lynch HK$15 million (US$2 million) for lapses in the internal controls of their electronic trading system.
The fine was imposed on Merrill Lynch Far East Limited and Merrill Lynch (Asia Pacific) during a fourth-quarter review in 2016, which found failures in the disclosure of large futures position going as far back as 10 years, as well as the distribution of research reports, the SFC said in a statement.
The bank failed to ensure that its futures electronic trading system has proper governance procedures since January 2014, and failed to disclose it was a market maker in the relevant securities in research reports distributed to clients between 2011 and 2016.
Merrill Lynch Asia Pacific failed to comply with the applicable legal requirement to obtain a licence for advising on futures contracts between May 2005 and August 2016, the watchdog said.
In reaching this resolution, the SFC took into account the fact that the two units reported the unlicensed activities and non-disclosure of market-making activities in research reports to the regulator.
The two firms also undertook a credible review with the SFC to address the regulatory concerns and identify the deficiencies in their internal controls.
“The SFC also took into consideration MLFE’s board of directors have undertaken that the problems unveiled in the review findings concerning the compliance with requirements for LOP reporting will be rectified within 12 months and will not reoccur after 12 months,” the commission said.
The regulator said a higher fine may be imposed if the two firms had not so promptly cooperated.
Merrill’s Hong Kong spokespersons declined to comment.