Manulife Asset Management (HK) has been reprimanded and fined $3 million by the city’s securities regulator for inadequate internal controls in the distribution of a fund.
The Securities and Futures Commission (SFC) imposed a HK$24 million ($3.1 million) fine in relation to distribution of Manulife Global Fund from 2007 to 2012. It says it found “a number of serious deficiencies” in the way the fund was distributed.
The product in question is an umbrella collective investment scheme that comprises a number of authorised funds investing in various equity and bond markets.
In its investigation, the regulator focused on Manulife AM’s systems and processes for understanding its customers’ financial situation, investment experience and investment objective in soliciting or recommending the sale of the fund to them.
The SFC found that between 2007 and 2009 Manulife AM obtained this information by performing an investor profile for each customer. However, 73% of the customers in 2009 were not profiled or their information was either incomplete or outdated for at least 12 months.
Post 2010, Manulife AM introduced a questionnaire to assess each customer’s risk profile. But by February last year the new process had not been fully implemented to all customers and the firm had still not secured a completed risk-profile questionnaire from 70% of Manulife Global Fund customers.
The regulator indicated that these failures jeopardised Manulife AM’s capacity to ensure recommended securities were suitable for each customer, raising concerns about the quality and extent of the firm’s record-keeping.
“Intermediaries are obliged to ensure a product which they recommend is suitable for the customer,” stresses Mark Steward, the SFC’s executive director of enforcement.
“This cannot be done in a vacuum and is only effective if it is based on accurate, up-to-date information about the customer’s financial situation, needs and objectives. Manulife Asset Management failed to implement proper processes to comply with this most basic obligation for intermediaries.”
But the SFC acknowledges there has been no default in any of the sub-funds of the Manulife Global Fund, nor has any customer complained about the fund’s performance or suitability.
It adds that Manulife AM has a clean record and has cooperated with the SFC in resolving this matter, including agreeing to conduct an independent review of its distribution system for funds and to enhance its complaint handling procedures to resolve all client complaints from this matter.
In a statement, Manulife AM reiterates its cooperation with the SFC, saying it is committed to meeting the spirit and letter of the law and regulations of Hong Kong and will continue to improve its internal controls.
Manulife AM is licensed under the Securities and Futures Ordinance to carry out type 1 (dealing in securities), type 4 (advising on securities), type 5 (advising on futures contracts), and type 9 (asset management) regulated activities.
Separately, the SFC also announced yesterday that it had banned Du Jun, former managing director of Morgan Stanley Asia, from re-entering the industry for life.
The regulator concluded that Du was not a fit and proper person to be licensed. It comes after he was convicted of insider dealing in shares of Citic Resources.
Du was jailed for seven years and fined $23.3 million on September 18, 2009, after being found guilty of 10 counts of insider dealing at the District Court in Hong Kong.
It found that on nine occasions between February 15 and April 30, 2007, Du bought a total of 26.7 million shares of Citic Resources for $86 million while he was part of a team of Morgan Stanley bankers advising the firm on a proposed deal to acquire oil field assets in China. He also counseled or procured his wife to deal in Citic Resources shares on February 27, 2007.
Du appealed both conviction and sentence at the Court of Appeal, which on September 20 last year upheld the trial judge’s verdict and convictions. However, it reduced his prison term to six years and his fine to $1.68 million.