Today the HK SFC released its annual report for the year ended 31 March 2013. The full report can be found here.
Here are some extracted highlights:
The number of licensed corporations reached a record high of 1,905 during the year, while the total number of SFC licensees and registrants declined 2% to 38,746.
Hong Kong continues to attract hedge fund managers or advisers and credit rating agencies (CRAs). As at 31 March 2013, the number of licensed hedge fund managers or advisers increased 5% year-on-year to 371. We also granted licences to the first two Mainland-related CRAs in mid-2012, bringing the total number of licensed CRAs to seven.
In June 2012, we completed the processing of the licence applications that had arisen out of the transfer by six banks to licensed corporations within their respective groups of their initial public offering sponsor business. We granted licences under the SFO to approximately 840 individuals who were previously responsible for conducting sponsor work within those six banks.
|Stock exchange participants||463||453||11,602||11,618||1,601||1,568||13,666||13,639||0.2%|
|Futures exchange participants||115||117||940||952||149||150||1,204||1,219||-1.2%|
|Stock exchange and futures exchange participants||65||65||3,720||3,984||392||380||4,177||4,429||-5.7%|
1 This table represents a snapshot view as at each financial year-end. The figures exclude registered institutions. The total number of licensees and registrants is 38,746.
In the past year, we conducted 271 risk-based inspections. Besides reviewing the protection of client assets, other focus areas during the year included dark pool operations, short-selling and client facilitation trading.
The new provisions under the Code of Conduct3 relating to sale of investment products have become fully operational since September 2011. We monitored licensed corporations on their compliance with the new Code of Conduct requirements through thematic on-site inspections.
Following our review of selected licensed corporations’ selling practices and regulatory compliance, we published theReport on the Thematic Inspection of Selling Practices of Licensed Corporations in October 2012 to highlight specific deficiencies and shortcomings, as well as best practices adopted by some firms. Intermediaries may use the report to strengthen their management supervision and compliance programmes.
To help us supervise selling practices, we conducted a survey to better understand the overall market structure and to identify the major types of non-exchange-traded investment products sold by licensed corporations. Findings of the survey were published in December 2012.
Findings of our fourth survey on Hong Kong’s hedge fund industry were published in March 2013. As at 30 September 2012, SFC-licensed hedge fund managers managed 676 hedge funds, up from 538 in 2010. The total hedge fund assets under management increased 37.8% to US$87.1 billion from US$63.2 billion in 2010.
AND on the enforcement side:
Actions against internal control failures
- Société Générale (SG) was reprimanded for internal control failings in its wealth management activities regarding the non-disclosure of certain fees and charges in secondary-market transactions of over-the-counter products between April 2003 and January 2006. SG agreed to reimburse all affected customers the full value of the undisclosed fees with interest. Almost all eligible customers have accepted the offer, and SG has paid out reimbursements of over US$13.7 million. SG was also required to undergo an internal control review by an independent reviewer.
- Manulife Asset Management (Hong Kong) Ltd was reprimanded and fined $24 million for inadequate internal controls in the sale of Manulife Global Fund from 2007 to 2012. The deficiencies were related to the company’s systems and processes for understanding its customers’ background and investment objectives for the sale of the fund.
- RBC Investment Management (Asia) Ltd (RBC) was reprimanded and fined $4 million for providing investment advice to clients on a number of non-SFC authorized funds between November 2006 and July 2008. RBC also agreed to make repurchase offers or pay compensation to relevant customers.
- Merrill Lynch (Asia Pacific) Ltd was reprimanded and fined $3.5 million for failing to take adequate steps to properly handle complaints of 11 clients in 2008. These clients were victims of a fraud involving around $56.4 million invested in investment products perpetrated by Joyce Hsu Ming Mei, a former sales representative. The company also agreed to engage an independent law firm and auditor to conduct a review of all client accounts handled by Hsu.
- We publicly reprimanded and fined CIC Investor Services $4 million for its failures between 2004 and 2010 to comply with regulatory requirements in treating clients as professional investors and to keep adequate records of its investment advice to clients.
- President Securities (Hong Kong) Ltd was reprimanded and fined $2 million for failing to act in the best interests of its clients when accepting subscriptions for a number of Lehman Brothers related structured products by 21 Taiwanese clients in 2008.
- Deutsche Securities Asia Ltd was reprimanded and fined $2.5 million for regulatory breaches and internal control failings relating to position limit failures.
- IMC Asia Pacific Ltd was reprimanded and fined $1.5 million for regulatory breaches and internal control failures concerning a large number of short-selling input errors between May 2007 and July 2010 and its failure to report the errors to Hong Kong Exchanges and Clearing Ltd until mid-2010.