On 7th May 2020, the SFC reprimands and fines Mega International Commercial Bank Co., Ltd. ("Bank") for HK$7 million on the grounds that the SFC found the bank in the course of selling Collective Investment Schemes ("CISs") to clients failing to implement adequate and effective internal control systems and controls to (1) properly assess its clients' investment objective, risk tolerance level and knowledge of derivatives; (2) ensure the investment recommendations and/or solicitations made to its clients were reasonably suitable in all the circumstances; (3) conduct adequate product due diligence on certain funds; (4) ensure all relevant factors were properly taken into account before assigning the funds risk ratings; and (5) identify funds which constituted derivative products (see https://www.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/enforcement-news/doc?refNo=20PR42).
In a nutshell, it is very important for each SFC licensed corporation to ensure that there are sufficiently well-drafted internal documents (such as client investment profile questionnaires and product due diligence forms) in place to address all the above issues, or else, it would be very easy for the SFC licensed corporation to fall into this regulatory internal control failure trap.
Nothing herein shall constitute or can be regarded as a substitute for formal legal advice. If in doubt please seek independent legal advice or contact us at info@mokco.com.hk for assistance.