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SFC reprimands and fines Yardley Securities Limited $5 million for breaches of anti-money laundering regulatory requirements

Issue date: 2021-03-17 16:30:09

The Securities and Futures Commission (SFC) has reprimanded and fined Yardley Securities Limited (YSL) $5 million for failures in complying with anti-money laundering and counter-financing of terrorism (AML/CFT) regulatory requirements when handling third party fund transfers (Note 1).

The SFC investigation found that, between February and October 2016, YSL failed to take all reasonable measures to ensure that proper safeguards exist to mitigate the risks of money laundering and terrorist financing.

Despite red flags suggesting that some of the third party fund transfers in two client accounts between February and May 2016 were unusual or suspicious, YSL processed and approved these transfers without conducting proper enquiries and sufficient scrutiny.  In addition, YSL did not properly record enquiries it claimed to have made in relation to these transfers.  Specifically, the SFC’s investigation found that:

• YSL approved the third party transfers without documenting the reasons at the relevant time.
• The written evaluation forms for the transfers, which YSL prepared retrospectively to document the evaluation it claimed to have made, showed that YSL has failed to make adequate enquiries.
• There are no records of enquiries which YSL claimed to have made (Note 2).

YSL also failed to have adequate policies, procedures, controls and provide adequate training to its staff to ensure compliance with the AML/CFT regulatory requirements.  Specifically, the SFC’s investigation found that:

• YSL had no written policies and procedures on AML/CFT until October 2016.
• YSL’s staff were not aware of its AML/CFT policies and procedures, including those on suspicious transaction identification and the reporting of such transactions to the money laundering reporting officer (MLRO).  The staff responsible for processing money deposits and withdrawals was not aware that YSL had an MLRO.
• YSL did not provide adequate AML/CFT training to its staff to ensure that they followed its policies.

The SFC is of the view that YSL’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 and the Code of Conduct (Notes 3 & 4).

In deciding the disciplinary sanction, the SFC took into account that YSL’s failures lasted for at least nine months and that it adopted a lax attitude when handling a substantial amount of third party transfers in its clients’ accounts.

End

Notes:

1. YSL is licensed under the Securities and Futures Ordinance to carry on Type 1 (dealing in securities) regulated activity.
2. These third party fund transfers had the characteristic of one or more of the suspicious indicators set out in paragraphs 7.14 and 7.39 of the Guideline on Anti-Money Laundering and Counter-Terrorist Financing and in the website of the Joint Financial Intelligence Unit (https://www.jfiu.gov.hk/en/str_screen.html), including, among others: (i) frequent and significant sums of monies transferred to and from third parties that were unrelated to the client and/or whose identities were unknown and/or not verified; (ii) clients’ accounts were used as a conduit for transfers; (iii) transactions which were unnecessarily complex and do not constitute the most logical, convenient or secure way to do business and/or is out of the ordinary range of service normally requested of a licensed corporation; (iv) “U-turn” transactions; and (v) the involvement of a casino.
3. Please refer to paragraphs 6 and 8 of the Statement of Disciplinary Action for the relevant regulatory requirements.
4. Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission.

Source: SFC