Hong Kong’s Securities and Futures Commission has fined RHB Securities Hong Kong (RHBSHK) $6.4 million for failing to comply with regulatory requirements on conflicts of interest and supervision of account executives.
The disciplinary action, announced Thursday, followed an SFC investigation that found RHBSHK failed to:
- Effectively implement its policy for avoiding actual and potential conflicts of interest between its research reports and investment banking relationships;
- Adequately disclose its investment banking relationship with the listed company covered in a research report; and
- Effectively monitor the trading activities of its research analysts.
Moreover, RHBSHK did not have adequate controls to supervise its account executives. “The frequency and extent of its sample checking procedures for ensuring that client orders received by account executives through telephone are tape-recorded are not commensurate with the size of RHBSHK’s business,” the SFC said. “As a result, the discretionary trading activities without written authorization of an account executive went undetected for 23 months.”
In deciding on the disciplinary sanctions, the SFC said it considered all relevant circumstances, including RHBSHK’s failures were not detected until an SFC inspection; steps to remediate its internal control deficiencies; and cooperation with the SFC to resolve the disciplinary proceedings.