The Securities and Futures Commission (SFC) has reprimanded and fined HPI Forex Limited (HPI) $2 million for mis-handling client money (Note 1).
The SFC’s disciplinary action came after an admission by HPI that it had transferred client money up to $8 million to the accounts of its overseas brokers between March 2013 and April 2014.
The SFC found that HPI:
- transferred client money from its segregated client account maintained at a bank in Hong Kong to its accounts with two overseas brokers on six occasions;
- used the client money transferred to one of the two overseas brokers to conduct proprietary transactions; and
- remitted all client money from its overseas brokers’ accounts back to the segregated client account in Hong Kong after discovering that the conduct might constitute a breach of the Securities and Futures (Client Money) Rules (CMR).
In doing so, HPI breached the Code of Conduct and the CMR by failing to maintain client money in a segregated client account in Hong Kong with an authorized financial institution (Notes 2, 3 & 4).
HPI’s use of the client money to conduct proprietary transactions also constitutes a breach of its fundamental duty as a licensed intermediary to ensure that client assets are promptly and properly accounted for and adequately safeguarded (Note 5).
In deciding the disciplinary sanction against HPI, the SFC took into account that:
- HPI remitted the client money back to the segregated client account upon discovery of this matter and engaged an auditor to review its compliance with the CMR;
- HPI cooperated with the SFC in accepting the disciplinary action;
- there is no evidence that HPI’s clients have suffered losses; and
- HPI has an otherwise clean disciplinary record.
Safe custody of client money and client securities is a fundamental obligation of all intermediaries. Intermediaries are reminded to carefully review their internal control procedures for compliance with the CMR and the Securities and Futures (Client Securities) Rules. The SFC will continue to take action against intermediaries which mis-handle client assets.
- HPI Forex Limited is licensed under the Securities and Futures Ordinance (SFO) to carry on business in Type 3 (leveraged foreign exchange trading) regulated activities.
- Code of Conduct for Persons Licensed by or Registered with the SFC (Code of Conduct).
- The Securities and Futures (Client Money) Rules (CMR) prescribe the manner in which licensed corporations shall treat and deal with client money received or held in Hong Kong.
- According to Schedule I of the SFO, authorized financial institution means an authorized institution as defined in section 2(1) of the Banking Ordinance, i.e. a bank, a restricted licenced bank or a deposit taking company.
- General Principle 8 and paragraph 11.1 of the Code of Conduct provide that a licensed or registered person should ensure that client positions or assets are promptly and properly accounted for and adequately safeguarded.