HKMA issues open letter for compliance with SFO

HKMA warns about the penalties for unregistered dealing

The Hong Kong Monetary Authority (HKMA) has sent an open letter to warn registered institutions of the importance of having adequate controls to ensure compliance with the prohibition of unregistered dealing under section 114(3) of the Securities and Futures Ordinance (SFO).

Registered institutions were also reminded to notify the HKMA promptly of changes to information related to relevant individuals pursuant to section 20(4) of the Banking Ordinance (BO).

Since the commencement of the SFO in April 2003, the HKMA has come across several cases of suspected unregistered dealings involving staff members of registered institutions, which has prompted this warning.

It suggests that registered institutions should put in place adequate control procedures to avoid possible unregistered dealings, including, among others, restricting certain staff members in receiving orders relating to securities or futures contracts from clients or execution of such orders; taking messages of telephone calls when the responsible relevant individuals are on leave or out of the office; to immediately report suspicion of any staff member to the compliance unit and where there is a reasonable grounds to believe unregistered dealing has taken place, the institution should immediately stop such practice and report the matter to the HKMA in writing as soon as practicable.

Registered institutions are also advised to ensure staff members who are seeking registration with the HKMA are fully aware that they are not allowed to engage in any regulated function of a regulated activity before proper registration; and to arrange regular training to staff on the implications of unregistered dealing and the importance of compliance with the relevant legal requirements.