In a recent Statement of Disciplinary Action, the SFC suspended the license of Mr. Tang Kai Shing (“Tang”), responsible officer (“RO”) of Rifa Futures Limited (“Rifa”) for eight months for breaches of KYC, AML and CFT requirements.
The SFC had received a number of complaints against various licensed corporations for allowing clients to place orders to their broker supplied systems (“BSS”) through a software called Xinguanjia (“XGJ”), which was developed by Hengxin Software Limited. The complaints alleged that XGJ permitted the licensed corporations’ clients to create sub-accounts under their accounts maintained with the licensed corporations, and that those clients had solicited investors in Mainland to trade through such sub-accounts via XGJ without having to open separate securities accounts with the licensed corporations. Rifa was one the licensed corporations subject to the complaint.
During the relevant period, Rifa had permitted 310 clients to use customer supplied systems (“CSS”) (including XGJ) for placing orders, and the SFC found that Rifa had failed to:-
- perform adequate due diligence on the CSS used by clients for placing orders, and assess and manage the associated money laundering and terrorist financing and other risks; and
- conduct adequate ongoing monitoring of clients’ fund movements to ensure they were consistent with the clients’ nature of business, risk profile and source of funds.
Failure to perform adequate due diligence on the CSSs
In relation to Rifa’s failure to perform any due diligence or testing on the CSSs used by its clients, it transpired that Rifa only carried out walkthrough test on the connectivity between the CSSs and the BSS. Rifa attempted to claim that it had relied on the vendor of the BSS to conduct due diligence on the CSSs. The Vendor of the BSS, however, stated that Rifa never instructed Vendor of the BSS to conduct any due diligence or testing on the CSSs.
The SFC concluded that Rifa, without thorough knowledge of the features and functions of the CSSs, was not in a position to properly assess the money laundering and terrorist financing and other risks associated with use of the CSSs and implement appropriate measures to control, mitigate and manage such risks.
Failure to conduct adequate ongoing monitoring of clients’ fund movements
SFC’s investigation revealed that the amount of deposits made into accounts of five clients were incommensurate with their financial profiles. With respects to those deposits, Rifa had made telephone calls, albeit found to be not made on a timely basis, to the relevant client, informing them of such disparity. Rifa further asked 4 out of those 5 clients reasons for such disparity and deposits. The clients’ response were that the excess was attributed to an increase in their income derived from their investment, business and rent. Rifa had accepted the clients’ answer without further questions nor did Rifa requested any supporting document so substantiate what the clients claimed.
Disciplinary Action against Tang
The SFC considered that Rifa’s failures were attributable to Tang’s failure to discharge his duties as an RO and a member of Rifa’s senior management as Tang had the ultimate responsibility for the overall operation of Rifa during the relevant period.
Having considered all relevant circumstances, the SFC was of the opinion that Tang was guilty of misconduct and his fitness and properness to carry on regulated activities had been called into question.
It is clear that the SFC is taking a much stronger approach against failure to adhere to proper KYC, AML and CFT standards. Mere “for-show” due-diligence and monitoring checks will not be sufficient to discharge the duties of a license corporation and/or a RO.