Our Ref.: B1/15C
14 July 2009
The Chief Executive
All authorized institutions
Dear Sir/Madam,
The purpose of this circular is to share with authorized institutions (AIs) on some of the lessons learnt recently on staff abuses and frauds in private banking and the higher end of retail wealth management business (collectively referred to as "PB" in this circular) and remind AIs to maintain vigilant management control and oversight of this business.
A unique characteristic of PB is the close relationship between customer and relationship manager (RM) and the "all-inclusive" money management services provided by the RMs to their customers. Unless strong management control and oversight are maintained, the close customer-RM relationship, as well as the large amount involved in transactions, may make it susceptible to staff abuses or even frauds, such as unauthorized transactions and misappropriation of client funds.
This letter sets out some of the lessons learned recently on the prevention of staff abuses and frauds in PB, particularly in the areas of hold-mail service, address changes, and escalation and prompt reporting of non-compliance and suspicious transactions. In addition, the attachment to this circular puts forth some good practices in general on management control and oversight to minimise chances of staff abuses and frauds in PB operations.
In addition, whenever there is a suspected case involving possible criminal elements, AIs are expected to report the incident to both the Police and the HKMA in a timely manner.
AIs should review their PB operations to ensure that their controls are effective, having regard to the points mentioned above and the good practices set out in the Attachment. AIs which have grown rapidly in this area and which have not carried out any review in the past year should conduct the review as a matter of priority. Going forward, the HKMA will examine selected AIs' PB operations and retail wealth management to assess the sufficiency of their management control and oversight.
Should you have any questions on the above, please get in touch with your usual supervisory contacts at the HKMA.
Yours faithfully,
Nelson Man
Executive Director
(Banking Supervision)
Encl. Management Control and Oversight (PDF file, 192KB)