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:
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:
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.
SFC (Attn: | Mr Stephen Po, Senior Director, |
Intermediaries and Investment Products Division) |