SFC fines China Everbright Securities (HK) Ltd HK$2.5m
For pledging client securities as collateral for its own credit line from 3 banks in HK.
SFC reprimands and fines China Everbright Securities (HK) Limited $2.5 million
Issue date: 2020-09-29 16:30:00
The Securities and Futures Commission (SFC) has reprimanded China Everbright Securities (HK) Limited (CESHK) and fined it $2.5 million for pledging its clients’ securities with banks for financial accommodation without valid authorization (Note 1).
The SFC’s investigation found that between 1 April 2018 and 19 August 2018, CESHK relied on expired standing authority given by around 6,841 clients to pledge their securities as collateral in obtaining credit line from three banks in Hong Kong. The standing authority in question had expired on 31 March 2018 (Note 2).
By pledging clients’ securities without valid authorization from them, CESHK breached the Securities and Futures (Client Securities) Rules (CSR) and the Code of Conduct (Notes 3 & 4).
In deciding the sanction, the SFC took into account all relevant circumstances, including:
- after CESHK discovered its non-compliance with the CSR, it arranged call-backs of all pledged client securities and made a self-report to the SFC;
- CESHK’s failure to renew the clients’ standing authority was mainly caused by miscommunication between its former and current compliance team members and there is no evidence of systemic failure on the part of CESHK;
- there is no evidence of client loss as a result of CESHK’s breach; and
- CESHK co-operated with the SFC in resolving the SFC’s concerns and accepting the SFC’s findings and disciplinary action.
- CESHK is licensed under the Securities and Futures Ordinance (SFO) to carry on business in Type 1 (dealing in securities), Type 4 (advising on securities), Type 6 (advising on corporate finance) and Type 9 (asset management) regulated activities.
- Section 4(1) of the Securities and Futures (Client Securities) Rules provides that a standing authority is a written notice that, among other things, is given to an intermediary to authorize it to deal with client securities or securities collateral from time to time received or held on behalf of the client in one or more specified ways. Unless the client giving the standing authority is a professional investor, the standing authority shall not be valid for a period exceeding 12 months.
- Section 10 of the CSR provides that an intermediary must take reasonable steps to ensure that client securities and securities collateral are not deposited, transferred, lent, pledged, repledged or otherwise dealt with except as provided in the CSR.
- General Principle 8 (Client assets) and paragraph 11.1(a) (Handling of client assets) of the Code of Conduct for Persons Licensed by or Registered with the SFC requires a licensed corporation or registered institution to ensure that client assets are promptly and properly accounted for and adequately safeguarded.