The market watchdog has reprimanded and fined Sun Hung Kai Investment Services HK$4 million for internal control failures that led to two former staff becoming involved in price-rigging. It is the latest in enforcement action by the Securities and Futures Commission that has seen eight brokerages fined HK$20 million in total. The fine imposed on Sun Hung Kai yesterday was among the highest three penalties. Under the Securities and Futures Ordinance of 2003, the SFC can fine licensed brokerages and individuals up to HK$10 million for malpractices such as price-rigging or illegal short selling. Before the new law was passed, it could only revoke or suspend a brokerage licence, but a fine was seen as more effective punishment. The Market Misconduct Tribunal in January found that Edmond Chau Chin-hung, a former senior officer at Sun Hung Kai, and trader Connie Cheung Sau-lin had engaged in false trading and rigging the share price of QPL International Holdings for a five-week period in May and June 2003. The tribunal was made up by a judge and two lay members who could accept a lower level of evidence than a criminal court. It recommended that the SFC take action on Sun Hung Kai, Chau and Cheung. The SFC found there were internal control failures at Sun Hung Kai, which authorised Chau to conduct both client and proprietary trades. This gave him the chance to misuse information gathered on the client-trading side to engage in unlawful activities in a proprietary account. The SFC also said Sun Hung Kai allowed Chau and Cheung to place orders in the same room by open 'outcry', which was inconsistent with its policy of physically separating proprietary and client trading. The brokerage also failed to detect Chau and Cheung's misconduct until the SFC spotted the malpractice. The SFC said that in deciding the fine, it had taken into account the fact that Sun Hung Kai did not sanction the actions of Chau and Cheung or profit from their actions. In a separate case, Sun Hung Kai earlier this year reached a settlement with the SFC to fully repay HK$85 million to 300 clients who bought minibonds issued by Lehman Brothers Holdings. The products became worthless when the US lender collapsed in September last year. Sun Hung Kai Financial chief executive Joseph Tong Tang said the brokerage had improved its internal controls since the misconduct was uncovered six years ago. 'We have made a lot of improvements to the group's internal controls and reporting framework,' Tong said. The SFC's executive director of enforcement, Mark Steward, said Sun Hung Kai Investment had policies to segregate client and proprietary trading but such policies were not properly implemented or policed. 'Policies designed to prevent market misconduct must be actively monitored and supervised by senior management and the SFC will hold firms to account for their failure to ensure their compliance systems are working properly,' Steward said. In June, the SFC fined Tanrich Futures HK$4 million for allowing its staff to cold-call clients. In March, it fined Macquarie Equities (Asia) HK$4 million for failing to properly control its warrant commission rebate programme, enabling two investors to manipulate the market.