Hong Kong Securities and Futures Commission (SFC) highlights operating, control and compliance deficiencies in asset management industry

Abstract

Purpose

To examine the nine common areas of non-compliance in managing investment funds and discretionary accounts, detailed in a Hong Kong Securities and Futures Commission (SFC) circular dated September 15, 2017, directed at SFC-licensed asset managers.

Design/methodology/approach

Discusses a July 2017 circular indicating the SFC’s general concerns and analyzing the following nine common areas of non-compliance cited in the September 15, 2017 circular: (1) inappropriate receipt of cash rebates giving rise to apparent conflicts of interests, (2) failure to follow investment-suitability and discretionary account mandates during solicitation, (3) failure to implement liquidity-risk management processes, (4) deficiencies in governance structures and fair-valuation procedures, (5) deficiencies in systems for ensuring best execution, (6) failure to safeguard fair order allocation, (7) inadequate controls for protection of client assets, (8) inadequate systems to comply with investment restrictions, and (9) inadequate safeguards to address market misconduct risk.

Findings

The nine examples of non-compliance provide a useful insight into key “problem areas” indicated to currently be of particular concern to the SFC.

Practical implications

All SFC-licensed asset managers would be well advised to revisit their internal governance structures and operational policies and procedures in order to ensure that they are compliant with applicable standards and requirements.

Originality/value

Practical guidance from a lawyer with extensive experience advising investment managers and advisers, fund administrators, trustees and other fund service providers on investment fund-related issues.

Citation

Godfrey, A.-M. (2018), "Hong Kong Securities and Futures Commission (SFC) highlights operating, control and compliance deficiencies in asset management industry", Journal of Investment Compliance, Vol. 19 No. 1, pp. 63-68. https://doi.org/10.1108/JOIC-02-2018-0005