Hong Kong's Securities and Futures Commission (SFC) announced on Monday that it had banned Philip John Shaw, a former responsible officer, board member and Head of Pan-Asia Execution Services of Citigroup Global Markets Asia Limited (CGMAL), for serious regulatory breaches. According to the regulator's statement, Shaw cannot re-enter the financial industry for the next ten years until 3 March 2033.
Citigroup's John Shaw Banned for 10 Years
The SFC imposed disciplinary measures on Shaw due to CGMAL's significant regulatory violations and internal control shortcomings between 2008 and 2018. The SFC identified Shaw's failure to fulfil his duties as a responsible officer and senior management member of CGMAL as the leading cause of the company's breaches.
Shaw introduced a mechanism to facilitate the bulk generation of mislabelled Indications of Interest (IOIs) by CGMAL's Equities Sales Trading Desk involving some of the market's most actively traded blue-chip stocks. Such IOIs were not backed by any potential order or interest from specific clients, but they were tagged as "Natural" and "In Touch With" to provoke client inquiries.
Although the quality and accuracy of the IOIs had drawn client complaints, Shaw did not stop the dissemination of mislabelled IOIs and represented to the clients that they were classified in accordance with industry standards.
On one occasion, after a trader had told a client that CGMAL advertised facilitation flow using "Natural" IOIs, Shaw instructed the trader to refrain from being honest with clients about the source of liquidity behind such IOIs. Additionally, he misrepresented the client to perpetuate the falsehood created by the mislabelled IOI.
SFC Indicates a Long List of Shaw's Breaches
Since at least 2015, Shaw has given factually incorrect information to the client or taken positive steps to conceal the principal nature of the trade. The SFC also found out that the banned professional made misleading statements, remained silent or was not explicit with the client about the involvement of the Facilitation Desk and failed to obtain the client's consent before routing the order to the Facilitation Desk for execution .
Christopher Wilson, the SFC's Executive Director of Enforcement, said the sanction against Shaw is warranted. "A key concern of the SFC is that Shaw had, through his misconduct, engendered a culture of chasing revenue at the expense of client interests and basic standards of honesty within CGMAL. In the circumstances, his conduct fell far short of the standards expected of a member of senior management of a licensed intermediary."
The SFC's decision to ban Shaw from re-entering the industry for ten years sends a clear and strong message that the SFC will not tolerate similar misconduct. The SFC's enforcement action serves to remind senior management of licensed intermediaries that they are responsible for maintaining appropriate standards of conduct and adherence to proper procedures within their firms.
Wilson added that "the disciplinary action against Shaw also underscored the SFC's determination to hold errant senior management accountable for their firms' failures. This is imperative for driving changes in the culture and behavior of intermediaries."
In December 2022, the SFC fined Guosen Securities (HK) Brokerage Company, Limited (Guosen) HK$2.8 million for failing to properly handle client assets and accounts. Additionally, to reduce the risks associated with the futures industry and regulated futures brokers, the SFC has proposed several new market mechanisms currently subject to open consultation.
