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SFC reprimands and fines Fulbright Securities Limited $3.3 million and suspends its responsible officer for internal control failures

Issue date: 2021-11-01 17:07:10

The Securities and Futures Commission (SFC) has reprimanded and fined Fulbright Securities Limited (Fulbright) $3.3 million for internal control failures relating to its placing activities and recording of client order instructions (Note 1).

The SFC has also suspended Fulbright’s responsible officer, Mr Eric Liu Chi Ming, for six months from 29 October 2021 to 28 April 2022 (Note 2).

The disciplinary action followed an SFC investigation which found that Fulbright, when acting as a placing agent in the share placement of a Hong Kong-listed company in August 2018, had failed to:

• exercise due skill, care and diligence and continuously monitor its business relationship with clients when processing the placement subscription applications; and
• act in the best interests of its clients during the placement (Note 3).

The SFC also found that during the period from 1 November 2017 to 31 July 2019, Fulbright had failed to:

• properly record and maintain order instructions in relation to a total of 580 client orders;
• effectively implement policies and procedures, and diligently supervise its account executives to ensure client orders were handled in compliance with the applicable order handling regulatory requirements;
• establish and maintain appropriate and effective procedures for its telephone order recording compliance reviews; and
• report immediately to the SFC after it became aware of its account executives’ breaches of the applicable telephone order regulatory requirements (Note 4).

The evidence shows that Liu was responsible for managing and supervising Fulbright’s business operations in regulated activities at the material time and the firm’s failures were attributable to Liu’s failure to discharge his duties as a responsible officer and a member of Fulbright’s senior management (Note 5).

In deciding the disciplinary sanction, the SFC took into account Fulbright’s and Liu’s cooperation in resolving the SFC’s concerns.  In addition, Fulbright has also agreed to engage an independent reviewer to conduct a review of its relevant internal controls and undertaken to implement the reviewer’s recommended rectification measures.

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Notes:

1. Fulbright is licensed under the Securities and Futures Ordinance (SFO) to carry on business in Type 1 (dealing in securities) and Type 4 (advising on securities) regulated activities.
2. Liu has been accredited to Fulbright and approved as its responsible officer for Type 1 (dealing in securities) and Type 4 (advising on securities) regulated activities since 30 November 2004 and 18 May 2010 respectively.  At the material time, Liu was also Fulbright’s director, deputy general manager, manager-in-charge (MIC) (Overall Management Oversight) and MIC (Key Business Line).
3. Contrary to the Guideline to sponsors, underwriters and placing agents involved in the listing and placing of GEM stocks, the Anti-Money Laundering and Counter-Terrorist Financing Ordinance, the Guideline on Anti-Money Laundering and Counter-Financing of Terrorism, and the Code of Conduct for Persons Licensed by or Registered with the SFC (Code of Conduct).
4. Contrary to the Code of Conduct, the Securities and Futures (Keeping of Records) Rules and the Management, Supervision and Internal Control Guidelines for Persons Licensed by or Registered with the SFC.
5. Section 193(2)(a) of the SFO provides that where an intermediary is, or was at any time, guilty of misconduct as a result of the commission of any conduct occurring with the consent or connivance of, or attributable to any neglect on the part of a person involved in the management of the business of the licensed corporation, the conduct shall also be regarded as misconduct on the part of that other person.

Source: SFC