THE Securities and Futures Commission (SFC) has taken steps to tighten supervision of licensed foreign exchange traders in an attempt to plug the loopholes exposed by the recent Canwell Forex case. In October Canwell's financial returns were found to have misrepresented the fact that $32 million in assets had been borrowed from Silver Bound. While saying that the Canwell case was a deliberate attempt to circumvent the regulations, the SFC said yesterday certain procedures would be amended. These include the processes governing bank confirmations, company searches and the establishment of early warning signals. All future bank confirmations on cash balance of applicants are to include a specific item confirming that the balance is free of all charges. If there are charges, the commission will assess the impact on the financial position of the applicant. The commission will seek to verify any such charges in future company searches. The impact on the financial position of the applicant will be evaluated. Past company searches focused primarily on verification of data such as the identity of shareholders, directors and officers. In future, financial returns submitted to the commission will be vetted for internal inconsistencies, including the monthly returns. 'Inconsistencies which can indicate potential non-compliance of the FRR [financial resources rules] will be reviewed in detail,' the commission said. That will serve to send out early warning signals to the regulator. Having confirmed that other licensed traders do not have the same problem as Canwell, the SFC said its priority was to recover money due to Canwell's clients. 'This will initially be dependent on the outcome of the proceedings between Canwell and Silver Bound,' it said. If the court decides in favour of Silver Bound, which laid its claim on the only asset of Canwell, a bank deposit of $32 million, then there will be no fund left for Canwell's clients. Under the circumstances, the commission will consider taking action against the shareholders or directors of Canwell. The action will be aimed at recovering the capital of Canwell. 'According to filings by Canwell to the Companies Registry and the reports by Canwell's auditors, the capital was increased and subscribed to,' the commission said. Canwell should have a paid-up capital of $30 million. The administrator of Canwell does not know whether that amount could be recovered. The securities watchdog's second priority is to gather evidence to prosecute any wrongdoers. 'At the very least, the SFC will institute an inquiry into whether Canwell or any directors of Canwell have provided the SFC with false representations in obtaining its licence or have been guilty of any misconduct,' it said. Any third parties involved in aiding or abetting Canwell to circumvent the regulations will also be prosecuted. According to records filed with the Company Registry in March, Canwell had two directors. They were majority shareholder Cheng Chi-sin and Lam Shu-man. In May, the company increased its capital by $3 million from the initial $30 million.