Hong Kong’s Securities and Futures Commission (SFC) today announced the imposition of a $5 million fine on Zhonghui International Futures Company Limited (ZIFC) for failures in complying with know-your-client, anti-money laundering and counter-terrorist financing (AML/CFT) and other regulatory requirements between May 2017 and July 2018.
The SFC’s investigation found that ZIFC, which permitted 26 clients to use their designated customer supplied systems (CSSs) for placing orders during the material time, had failed to conduct adequate due diligence on the CSSs. As such, ZIFC was not in a position to properly assess and manage the money laundering and terrorist financing and other risks associated with the use of such CSSs by its clients before allowing them to be connected to its broker supplied system (BSS).
In addition, ZIFC had failed to implement two-factor authentication (2FA) for clients to login to their internet trading accounts via CSSs for six months until October 2018.
The SFC identified that eight clients have authorized multiple third parties to place orders for their accounts via CSSs. However, ZIFC had failed to take reasonable steps to establish the true and full identity of these clients and their ultimate beneficial owners, nor make proper enquiries before approving the clients’ requests to set up the third party operated accounts.
The regulator further found that failure to have in place an effective monitoring system resulted in ZIFC’s failure to detect unusual money movements in three client accounts between January and August 2018 and 1,052 instances of self-matched trades in two client accounts between March and May 2018.
The SFC concluded that ZIFC’s conduct was in breach of the Anti-Money Laundering and Counter-Terrorist Financing Ordinance, the Guideline on Anti-Money Laundering and Counter-Terrorist Financing (AML Guideline), the Guidelines for Reducing and Mitigating Hacking Risks Associated with Internet Trading and the Code of Conduct.
In deciding the disciplinary sanctions against ZIFC, the SFC took into account a variety of factors, including the necessity of a strong deterrent message that such failures are not acceptable, as well as ZIFC’s cooperation with the SFC.