The Securities and Futures Commission (SFC) has reprimanded and fined CLSA Limited (CLSA) $9 million after resolving concerns over CLSA’s internal control failures in relation to its client facilitation services and reporting obligation under the Code of Conduct (Notes 1 & 2).

In November 2016, the SFC and CLSA jointly engaged an independent reviewer to conduct a review of CLSA’s internal controls from the period between 2014 and 2016.  The independent review covered, among other areas, CLSA’s facilitation trading business and notifications to the SFC concerning material or suspected material breach of legal and regulatory requirements.

The review found that CLSA did not:

  • put in place until March 2016 controls to prevent co-mingling of agency execution and client facilitation trading despite having introduced client facilitation services in 1986 (Note 3); and
  • immediately notify the SFC until February 2015 despite having learnt as early as April 2013 that its licensed representatives were suspected of violating overseas regulatory requirements and were being investigated by an overseas regulator (Note 4).

In reaching this resolution, the SFC took into account that CLSA:

  • took initiative to bring this matter to a conclusion by cooperating fully with the SFC in resolving the regulatory concerns; and
  • undertook a review with the SFC to address the regulatory concerns and identify the deficiencies in its internal controls.

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 in relation to avoidance of conflicts of interest.



  1. CLSA is licensed under the SFO to carry on business in Type 1 (dealing in securities), Type 4 (advising on securities) and Type 7 (providing automated trading services) regulated activities.
  2. The Code of Conduct for Persons Licensed by or Registered with the SFC (Code of Conduct).
  3. General Principles 2 and 6 of the Code of Conduct provide that a licensed corporation should act in the best interests of clients and avoid conflicts of interest.  Paragraph 8 of the Appendix to the Management, Supervision and Internal Control Guidelines for Persons Licensed by or Registered with the SFC indicates that a firm should avoid apparent and potential conflicts of interest by establishing and maintaining adequate “Chinese Walls”, such as the separation of dealers handling discretionary orders from those handling proprietary accounts.
  4. Paragraph 12.5 of the Code of Conduct requires a licensed corporation to report to the SFC immediately about any suspected or actual material breach of any applicable legal and regulatory requirements by itself or persons it employs or appoints to conduct business with clients.