Securities and Futures Commission (“SFC”) updates
9th November 2021: SFC bans two licensed representatives
- One representative banned for two years for engaging in discretionary trading in three clients’ accounts without prior permission.
- One representative banned for 16 months for trading stocks in client’s accounts instead of his own account. The representative also allowed another licensed representative to enter into discretionary trades in one of his client’s accounts without obtaining prior written permission.
1st November: SFC reprimand and fines Types 1 (dealing in securities) and 2 (advising on securities) licensee HKD3.3 million
- Fine levied for failure to: keep proper records of order instructions, put in place effective policies and procedures to oversee the activities of its account executives, implement robust telephone recording arrangements and notify the SFC immediately upon becoming aware of these issues.
29th October 2021: SFC publishes findings of its Thematic Review into spread charges
- Summary of key findings:
- Some intermediaries did not have any (or any adequate) policies and procedures to govern the treatment of price improvements.
- Some intermediaries did not have adequate systems and controls in place to ensure spreads or fees charges complied with fee schedules or bilateral pricing arrangements in place with clients.
- Some intermediaries had not put sufficiently documented guidance in place to govern the creation of bi-lateral pricing arrangements.
- Some intermediaries had not complied with transaction related disclosure requirements. The firms concerned were asked to remediate the deficiencies by the SFC.
- The SFC, together with the Hong Kong Monetary Authority (“HKMA”) reiterated their expectations of intermediaries with regards to spread charges and price improvements.
29th October 2021: SFC concludes consultation on conduct requirements for book building and placing activities
- Documents the SFC’s expectations of intermediaries involved in capital raising activities.
26th October 2021: SFC bans former relationship manager and execution dealer for life
- The action taken by SFC followed convictions for:
(i) offering monetary rewards to a colleague for opening accounts, contrary to the Prevention of Bribery Ordinance (POBO);
(ii) misleading the regulator; and
(iii) not reporting notifiable events to the regulator.
7th October 2021: SFC issues Restriction Notice to Type 9 asset management licensee
- Notice prevents licensee from carrying on any regulated business, directly or indirectly until further notice.
- Notice raised because SFC has concerns about the licensee’s fitness and properness. The SFC is currently conducting an investigation into the licensee’s activities.
4th October 2021: SFC documents expectations re: operational resilience and remote working
- SFC’s report documents: resilience standards, required implementation measures, suggested techniques and case study examples and lessons learned to assist firms in strengthening their systems and controls.
15th September 2021: SFC concludes consultation on anti-money laundering guidelines
- Primary objective to ensure guidelines reflect Financial Action Task Force’s (“FATF”) latest AML/CFT standards.
- Most notable are amendments providing additional guidance re: the assessment and management of the risks arising from cross-border correspondent relationships.
- Most provisions of the new guidelines became effective on 30th September 2021. The provisions pertaining to cross-border correspondents relationship become effective on 30th March 2022.
Dubai Financial Services Authority (“DFSA”) updates
3rd November 2021: Former managing partner fined USD 1.9 million and banned for involvement in misconduct
- Former managing partner was a senior figure in an investment group between 2006-2018.
- A group entity based in the Cayman Islands was found by the DFSA to have:
- provided financial services in the Dubai International Financial Centre (“DIFC”) without authorisation; and
- misled and deceived investors, particularly with regards to the use of investor funds, the withholding of sale proceeds and in reporting.
- In addition, the DFSA held that the former managing partner failed to take reasonable care to ensure his company complied with applicable laws and regulations in the DIFC, particularly with regards to ensuring prudential returns and financial statements were accurate and truthful.
- The DFSA stated that the former Managing Partner cooperated with DFSA and US authorities. Furthermore, the DFSA said that there was no evidence that the former Managing Partner personally benefited from the affair. These were considered mitigating factors that lead to a reduction in the former Managing Partner’s fine.
1st November 2021: DFSA’s decision to sanction form Senior Executive Officer (“SEO”) referred to Financial Markets Tribunal (“FMT”)
- The DFSA fined an SEO of an authorised firm USD175k and banned him from holding future office or employment concerned with supplying financial services in the DIFC for allegedly being involved in:
- the supply of unlawful physical cash services;
- the provision of false, misleading and deceptive information to the DFSA.
- The DFSA’s findings are provisional and are being contested by the respondent. The respondent denies all the abovementioned allegations.
- The FMT will decide whether to uphold, vary or reverse the DFSA’s decision.
25th October 2021: DFSA announces the introduction of a regulatory framework for investment tokens
- Provides definitions for Security Tokens and Derivative Tokens.
- Covers the marketing, issuance, trading or holding of investment tokens in or from the DIFC.
- Confirms that the DFSA is drafting proposals to cover cryptocurrencies, utility tokens and stablecoins that will be subject to consultation in late Q4 2021.
17th October 2021: DFSA publishes Markets Brief no.24 re: Suspicious Transaction and Order Reports (“STOR”)
- If your firm engages in trading activities that are subject to the jurisdiction of the DFSA then this is a must read.
- This document sets out the DFSA’s expectations re: the systems and controls firms should have to file STORs.
- Many of the themes covered in Markets Brief no.24 will be familiar to those of you who are familiar with the UK Financial Conduct Authority’s (“FCA”) STOR requirements.
National Futures Association (“NFA”) updates (selected for relevance to UK based entities)
28th October 2021: NFA orders UK introducing broker (“IB”) to pay USD140k fine
- The NFA found that the broker failed to:
- keep complete and accurate records of commodity transactions; and
- register an individual to act on its behalf as an associated person.
- The IB neither admitted nor denied the allegations.
16th September 2021: NFA orders UK swap dealer to pay USD150k fine
- The NFA found that the swap dealer failed to fulfil the qualification testing requirement for certain of its associated persons.
- The swap dealer neither admitted nor denied the allegations.
Commodities Futures Trading Commission updates (selected for relevance to third country entities)
14th October 2021: USD$500k penalty for voice recording failures
- Provisionally registered swap dealer found to have prematurely deleted over 1,000 hours of voice recordings discussing trades. The recordings were made between 8th July and 23rd December 2019.
- An IT analyst mistook the recordings in questions for test files.
- The failures were discovered because of internal inquiries made by the swap dealer. The swap dealer self-reported the breach to the CFTC upon discovery. The swap dealer to proactive steps to remedy the issues that it had detected.
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