- Our Ref.:
- B1/15C
G16/1C
13 June 2007
The Chief Executive
All Registered Institutions
Dear Sir/Madam,
Controls to ensure compliance
with Section 114(3) of the Securities and Futures Ordinance (SFO)
and Section 20(4) of the Banking Ordinance (BO)
I am writing to remind registered institutions (RIs) of the
importance of having adequate controls to ensure compliance with
the prohibition of unregistered dealing under section 114(3) of the
SFO. RIs should also promptly notify the HKMA of changes to
information related to relevant individuals1 pursuant to section 20(4) of the BO.
Under section 114(3) of the SFO, no person shall perform any
regulated function in relation to a regulated activity carried on
as a business or hold himself out as performing any regulated
function, unless such person carries on for a RI a regulated
activity for which the RI is registered and his name is entered in
the register maintained under section 20 of the BO. A person who,
without reasonable excuse, contravenes section 114(3) of the SFO
commits an offence2.
It is therefore important to note that:
- (a)
- a person who knowingly allows or facilitates an individual who
is not a relevant individual to engage in any regulated function in
relation to a regulated activity for a RI may be regarded as aiding
and abetting a breach of section 114(3) of the SFO, and his
fitness and propriety for being a relevant individual may be called
into question; and
- (b)
- a RI and its staff members supervising the relevant lines of
business may be subject to disciplinary action for inadequate
controls and lack of supervision of staff to ensure compliance with
section 114(3) of the SFO.
Since the commencement of the SFO in April 2003, we have come
across several cases of suspected unregistered dealings involving
staff members of RIs. In ensuring compliance with section 114(3) of
the SFO, RIs should put in place adequate control procedures to
avoid possible unregistered dealings. These should include, among
others, the following:
- (a)
- Staff members who are not relevant individuals should not be
instructed or allowed to take part in receiving orders relating to
securities or futures contracts from clients or execution of such
orders. This restriction applies also to those personnel who
provide administrative or secretarial support to frontline
staff.
- (b)
- Staff members who are not relevant individuals may sometimes be
required to communicate with clients, such as taking messages of
telephone calls. Such activities may be performed as a regular duty
or only on an ad hoc basis, particularly when the responsible
relevant individuals are on leave or out of office. If staff
members are in doubt whether performance of such activities will
become engaging in any regulated function in relation to a
regulated activity, they should consult a relevant individual on
this matter. RIs should also provide adequate guidance to the staff
members concerned on how to deal with the possible scenarios as
well as to refer the clients to a relevant individual who is
registered for the appropriate type of regulated activity (e.g.
Type 1 for orders relating to securities).
- (c)
- Whenever staff members (e.g. supervisor of / frontline staff
served by a staff member who is not a relevant individual) become
aware that an individual is / has been involved in possible
unregistered dealing, they should immediately report the incident
to the compliance unit for investigation. RIs should seek proper
legal advice if they have doubt about possible unregistered dealing
of any staff member. Where there is a reasonable ground to believe
that unregistered dealing has taken place, the RI should
immediately stop such practice and report the matter to the HKMA in
writing as soon as practicable.
- (d)
- RIs should ensure that 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. It is also the responsibility of the
supervisors of these staff members to ensure compliance with this
requirement.
- (e)
- RIs should arrange regular training to staff on the
implications of unregistered dealing and the importance of
compliance with the relevant legal requirements as well as internal
control procedures in this regard.
I would also like to take this opportunity to remind RIs of
their obligation under section 20(4) of the BO. There should be
proper procedures to ensure that the HKMA is notified of changes to
any information of relevant individuals, including de-registration,
within seven business days3. The
notification should be made in writing for changes of information
in relation to executive officers, and through the on-line
submission mechanism of the electronic register for changes of
information in relation to other relevant individuals.
If you have any questions on the content of this letter, please
feel free to contact Ms Alice Lee at 2878-1603.
Yours faithfully,
Arthur Yuen
Executive Director
(Banking Supervision)
1As defined
in section 20(10) of the BO, "relevant individual", in relation to
a RI, means an individual who performs for or on behalf of or by an
arrangement with the institution any "regulated function" in a
regulated activity. Under the same section of the BO, "regulated
function", in relation to a regulated activity carried on as a
business by a RI, means any function performed for or on behalf of
or by arrangement with the institution relating to the regulated
activity, other than work ordinarily performed by an accountant, a
clerk or a cashier.
2The
maximum penalties are a fine of $1,000,000 and imprisonment for 2
years and, in the case of a continuing offence, a further fine of
$20,000 for every day during which the offence continues.
3Every
director, every chief executive and every manager of an authorized
institution which fails, without reasonable excuse, to comply with
section 20(4) of the BO, commits an offence. The maximum penalties
are a fine of $400,000 and imprisonment for 2 years and, in the
case of a continuing offence, a further fine of $20,000 for every
day during which the offence continues.
- Encl.
- List of RI (Excel file, 22KB)
- c.c.
-
| SFC (Attn: |
Mr Stephen Po, Senior Director, |
|
Intermediaries and Investment Products Division) |
