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SFC reprimands and fines Lion Futures Limited $2.8 million for regulatory breaches

Issue date: 2023-11-22 16:15:00

The Securities and Futures Commission (SFC) has reprimanded and fined Lion Futures Limited (LFL) $2.8 million for failures in complying with anti-money laundering and counter-terrorist financing (AML/CFT) and other regulatory requirements between May 2017 and July 2019 (Note 1).

The SFC’s investigation found that LFL did not conduct any due diligence on the customer supplied systems (CSSs) used by five clients for placing orders during the material time.  As a result, LFL was not in a position to properly assess and manage the money laundering and terrorist financing and other risks associated with the use of CSSs by its clients (Notes 2 & 3).

In addition, the SFC found that LFL’s failure to put in place an effective ongoing monitoring system to detect suspicious trading patterns in client accounts resulted in its failure to detect 1,098 self-matched trades in five client accounts (Note 4).

The SFC is of the view that LFL’s systems and controls were inadequate and ineffective, and failed to ensure compliance with the Anti-Money Laundering and Counter-Terrorist Financing Ordinance, the Guideline on Anti-Money Laundering and Counter-Terrorist Financing (AML Guideline) and the Code of Conduct (Notes 5 & 6).

In deciding the disciplinary sanctions against LFL, the SFC has taken into account that:

• LFL’s failures to diligently monitor its clients’ activities and put in place adequate and effective AML/CFT systems and controls are serious as they could undermine public confidence in, and damage the integrity of, the market;
• LFL has taken remedial measures to enhance its internal systems and controls for continuous monitoring and identifying suspicious transactions;
• a strong deterrent message needs to be sent to the market that such failures are not acceptable;
• LFL cooperated with the SFC in resolving the SFC’s concerns; and
• LFL has an otherwise clean disciplinary record.

End

Notes:

1. LFL is licensed under the Securities and Futures Ordinance to carry on Type 2 (dealing in futures contracts) and Type 5 (advising on futures contracts) regulated activities.
2. CSSs are trading software developed and/or designated by the clients that enable them to conduct electronic trading through the Internet, mobile phones and other electronic channels.
3. The CSSs were connected to LFL’s broker supplied system (BSS) through application programming interface (a set of functions that allows applications to access data and interact with external software components or operating systems).  BSSs are trading facilities developed by exchange participants or vendors that enable the exchange participants to provide electronic trading services to investors through the Internet, mobile phones and other electronic channels.
4. Self-matched trades refer to those trades where the client’s order matched with his/her own order in the opposite direction.  The AML Guideline specifies the entry of matching buys and sells in particular securities and futures as an example of situations that might give rise to suspicion of money laundering, as it might create the illusion of trading and be an indication of market manipulation.
5. Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission.
6. Please refer to the Statement of Disciplinary Action for the relevant regulatory requirements.

News captured as of:2023-11-22 16:15:00

Source: SFC