The Hong Kong Securities and Futures Commission (SFC) has slapped a $4 million fine on Sun Hung Kai (SHK) Investment Services for internal-control failures that contributed to market misconduct.
The culprits were two former SHK officials, Edmond Chau Chin-hung and Connie Cheung Sau-lin, who in 2003 engaged in false trading and price rigging over shares of QPL International Holdings.
For SHK, this is water under the bridge. It calls this an isolated incident, and a spokesman says: "In the past six years, improvements have been made to the group's internal controls and reporting framework, and we will continue to strengthen our compliance processes while delivering the highest standards of professional conduct."
This is not, however, the first time that SHK Group has come under fire from the SFC.
Chau was an executive director and responsible officer at SHK Investment Services. He was also authorised to trade on behalf of Sun Hung Kai Strategic Capital, which in 2003 was known as Cheeroll Limited. The SFC's market-manipulation tribunal also found SHK Investment Services "vicariously liable" for Cheung's misconduct.
The tribunal recommended disciplinary action be taken by the SFC against SHK Investment Services, Chau and Cheung in February this year. The SFC has subsequently determined SHK Investment Services' internal controls had failed.
Failures included allowing Chau to trade both the proprietary book and on behalf of clients, when these activities should be segregated. Chau used the information from clients to engage in unlawful activities in a proprietary account.
The firm also allowed Chau and Cheung to place orders in the same dealing room by open-outcry, which again broke internal rules on physically separating prop- and client-trading functions. SHK Investment Services did not detect this activity for five weeks until the SFC brought the matter to its attention.
However, the SFC recognises that the firm did not profit from this misconduct, that it has cooperated with the SFC regarding a settlement resolution and that it has since improved its controls and reporting framework.