City International Futures (Hong Kong) Limited (CIFHKL), which is now known as VERCAP Financial Services Limited, has been fined $100,000 and reprimanded by Hong Kong's market supervisor, Securities and Futures Commission (SFC). This is due to their failure to comply with anti-money laundering (AML), counter-terrorist financing (CTF) regulations, and other regulatory requirements.

SFC Charges City International Futures $100,000

According to the press release, SFC's investigation found that between at least March 2016 and October 2018, CIFHKL failed to conduct due diligence on the customer-supplied systems (CSSs) provided by 16 clients for order placement. This omission led to CIFHKL's inability to effectively evaluate and manage AML and CTF risks.

Moreover, CIFHKL failed to establish an effective system for monitoring and detecting suspicious trading patterns in client accounts. In many instances, a large number of trades in the same futures contracts were placed by the same client in the same second and at the same price. CIFHKL's systems and controls were deemed ineffective and inadequate, failing to ensure compliance with the AML guideline and the SFC's Code of Conduct.

"In addition, the SFC identified that the amounts of deposits made into two client accounts were incommensurate with their declared financial profiles. Although CIFHKL claimed that it conducted daily monitoring on client accounts' fund movements and was aware of the substantial deposits in the two client accounts, it failed to demonstrate that it had conducted proper enquiries on the deposits and satisfactorily addressed the associated risks," SFC commented in the statement.

In making its decision to impose a financial penalty of $100,000 dollars, the SFC took into account several mitigating factors. CIFHKL's senior management changed after the relevant period, and it ceased business in March 2021, with the financial position and clean disciplinary record being taken into account. CIFHKL cooperated with the SFC in resolving the regulator's concerns.

However, the SFC felt that a strong message needed to be sent to the market that such failures are unacceptable.

Another Day, Another Fine from Hong Kong's SFC

The Hong Kong market watchdog is one of the most active on the worldwide regulatory scene and has, on numerous occasions in the past, taken decisions to impose severe penalties on financial companies or industry professionals.

On Monday, the SFC 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.

The CMGAL itself was fined back in January 2022 for some serious regulatory failures and paid $44.68 million. However, after a further investigation, the SFC recognized that Shaw's inability to fulfil his duties as a responsible officer and senior management member of the company was one of the leading causes of the company's breaches. His ten-year suspension is intended to set an example for others, discouraging them from condoning unlawful activity.

In addition, Guosen Securities (HK) Brokerage Company, Limited was fined HK$2.8 million by the SFC in December 2022 due to its inadequate handling of client assets and accounts. Furthermore, the SFC has proposed several new market mechanisms to mitigate risks associated with the futures industry and regulated futures brokers. These proposals are currently open for consultation.