Hong Kong securities regulator fines and reprimands CLSA, Deutsche Bank
The securities watchdog fined CLSA for internal control failures related to its equities trading business and Deutsche Bank for regulatory breaches
The Securities and Futures Commission (SFC) said on Tuesday that it has fined CLSA HK$9 million (US$1.1 million) for internal control failures over its securities trading business, while Deutsche Bank Aktiengesellschaft was fined HK$8.3 million for regulatory breaches.
For CLSA, an independent reviewer engaged by the bank and the SFC in November 2016, found that CLSA had failed to put in place “Chinese walls” to separate its agency execution and client facilitation trading between 2014 and 2016.
CLSA introduced client facilitation services in 1986, but it was not until March 2016 that it put in place such internal controls.
According to the SFC’s code of conduct, a licensed company should act in the best interests of clients and avoid conflicts of interests. This should be done by establishing and maintaining adequate “Chinese walls”, such as the separation of dealers handling discretionary orders from those handling proprietary accounts.
The review also found that CLSA did not immediately notify the SFC until February 2015 that its licensed representatives were suspected of violating overseas regulatory requirements and were being investigated by an overseas regulator. CLSA learnt about that suspected violation as early as April 2013.
“The SFC also took into consideration the undertaking of CLSA’s board of directors that reasonable steps will be implemented within the next 12 months to rectify CLSA’s internal control failures,” the SFC said.
The SFC also separately fined Deutsche Bank and its wholly-owned subsidiary Deutsche Securities Asia, HK$8.3 million over regulatory breaches related to short position reporting, segregation of client monies and engaging in regulated activities without a licence.
The bank failed to report 792 short positions between June 2012 and January 2015, which under SFC rules must notified within a specific time frame.
Between January 2015 and March 2017 it also published 49 research reports on futures contracts without the required licence.
Meanwhile, between January 2010 and December 2014 Deutsche Securities Asia failed to segregate client monies within the SFC rules’ prescribed time frame.
“The SFC considers that the cooperation by Deutsche Bank [and its subsidiary] has expedited the disciplinary proceedings; otherwise, similar failure would have resulted in a substantially higher level of fine,” the SFC said in a separate statement.