HK stock market regulator fines Everbright unit over regulatory breaches
Published: Jun 16, 2022 11:51 PM
Victoria Harbour in the Hong Kong Special Administrative Region Photo: VCG

Victoria Harbour in the Hong Kong Special Administrative Region Photo: VCG

The Hong Kong Securities and Futures Commission (SFC) on Thursday announced that it reprimanded and fined a subsidiary of financial conglomerate Everbright in the amount of HK$3.8 million ($484,083) over breaches of money laundering and terrorism financing regulatory rules.

In an announcement on its official website, the SFC said that it found that China Everbright Securities (HK) Limited (CESL) failed to "implement adequate and effective systems and controls to guard against and mitigate the risk of money laundering and terrorist financing associated with third-party deposits between January 2015 and February 2017."

The SFC investigation into CESL included a sample review of deposits the brokerage firm had received over the period, according to which "CESL failed to identify 178 third-party deposits amounting to over HK$250 million made through the sub-accounts maintained by CESL with a local bank."

The securities regulator also detailed CESL's failure to detect dubious deposits in some of its client accounts and make due enquiries. 

For instance, five clients with no apparent relationship to one another received approximately HK$5 million in total within four days from the same third party, the SFC revealed, and they used the funds for trades in the same stock.

It remains unknown whether the SFC investigation was based on tip-offs or unannounced inspections, Dong Shaopeng, an expert advisor for the China Securities Regulatory Commission, told the Global Times on Thursday.

As the investigation results point to regulatory breaches, essentially indicating compliance failures at CESL, the brokerage firm is likely to take a hit from the SFC decision in the short term, Dong said, hoping for CESL to make clarifications on the breaches and take it as a warning for failed compliance.

The regulator said that its decision took into account that a strong deterrent message ought to be sent to the market that anti-money laundering and counter-terrorism financing failures are by no means acceptable.

CESL "has taken remedial actions" to strengthen its concerning internal controls and systems, and the Hong Kong subsidiary cooperated with the SFC in resolving the regulator's concerns, per the Thursday announcement, which was issued after the market closed.

CESL hasn't filed any statement with the Hong Kong stock exchange regarding the penalty. Shanghai-listed Everbright Securities hasn't publicly commented on the issue, either.

Hong Kong-traded CESL suffered a steep selloff late in the session after opening higher, plunging 14 percent on Thursday, while Everbright Securities closed 7.23 percent lower in Shanghai trading.

The Hong Kong subsidiary has completed an overhaul of relevant issues and implemented effective control measures, in strict compliance with the regulatory requirements, the Beijing Business Today reported Thursday, citing the brokerage firm.

Prior to the course reversal on Thursday, Everbright Securities had staged a stellar rally since June 8. Its shares had soared 57 percent as of Thursday, leading securities shares in the Chinese mainland market, and being a powerhouse for the A-share market over the past few trading days.