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Compliance Corner: Hong Kong, BEA

Editorial Staff, 21 September 2020

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The latest compliance news: regulatory developments, punishments, guidance, permissions and new product and service offerings.

Securities and Futures Commission
The Securities and Futures Commission of Hong Kong has publicly reprimanded the Bank of East Asia and fined it HK$4.2 million ($538,000) for failing to segregate its clients' securities from proprietary securities into separate accounts maintained at two external custodians.

Regulations say that an intermediary (or associated entity) which receives any client's securities must deposit them in a segregated account (a trust or client account) established or maintained in Hong Kong. 

Between November 2015 and January 2016, the Hong Kong Monetary Authority inspected the bank, and became concerned that the bank wasn’t complying with the rules. The bank reported to the HKMA about the matter in December 2016. 

The SFC looked into the matter and found that the bank had failed to segregate its clients' securities and proprietary securities in accounts, and that it had at two external custodians, Central Clearing and Settlement System (CCASS) and Sumitomo Mitsui Banking Corporation in Tokyo (SMBC), between April 2003 and December 2016.

Although the bank opened a custodial account and a number of sub-accounts with CCASS in May 1992 to protect its clients' securities and proprietary securities, it failed to segregate those securities and instead kept them together in one account. The bank then opened two accounts at SMBC in January 2003 and did the same.

The SFC says that the bank has broken section 5(1), along with General Principles 7 (on compliance) and 8 (on client assets) and paragraphs 11 (on the handling of client assets) and 12.1 (on compliance in general) of the code of conduct to which all firms that the SFC regulates must adhere.

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