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Abstract:The Securities and Futures Commission (SFC) of Hong Kong has taken disciplinary action against CSC Futures (HK) Limited (CSC), imposing a fine of $4.95 million for significant lapses in adhering to anti-money laundering (AML) and counter-financing of terrorism (CFT) regulations.
The Securities and Futures Commission (SFC) of Hong Kong has taken disciplinary action against CSC Futures (HK) Limited (CSC), imposing a fine of $4.95 million for significant lapses in adhering to anti-money laundering (AML) and counter-financing of terrorism (CFT) regulations. These breaches occurred between January 2017 and December 2018, during which CSC was found to have failed in key compliance areas concerning its clients trading activities.
The SFC‘s investigation revealed that CSC did not conduct the necessary due diligence on Customer Supplied Systems (CSSs) used by 100 of its clients for placing orders during the material period. This lack of scrutiny meant that CSC was unable to properly evaluate and mitigate the risks associated with money laundering (ML), terrorist financing (TF), and other financial crimes. The use of CSSs, which allow clients to interface with the company’s trading systems, posed potential risks that went unmonitored, leaving the firm vulnerable to misconduct.
Another critical finding by the SFC concerned irregularities in deposit patterns in five client accounts. The investigation showed that the deposits made into these accounts were inconsistent with the clients declared financial profiles, raising concerns over possible ML/TF risks. Despite these red flags, CSC failed to detect, investigate, or properly address the discrepancies due to inadequate monitoring systems. This failure to implement an effective oversight mechanism meant that suspicious activities could occur without the necessary checks.
The SFC concluded that CSC‘s internal systems and controls during the relevant period were not only inadequate but also ineffective in preventing risks related to AML/CFT. Specifically, the company did not ensure full compliance with Hong Kong’s Anti-Money Laundering and Counter-Terrorist Financing Ordinance, the AML Guidelines, and the SFCs Code of Conduct, all of which set critical standards for financial firms to follow.
In determining the severity of the penalties, the SFC considered several factors. It highlighted that CSC‘s lapses were serious as they could potentially undermine public confidence in the market and damage its integrity. Given the firm’s failure to implement robust AML/CFT measures, the SFC determined that disciplinary action was necessary to reinforce the importance of compliance and risk management within the financial sector.
However, the regulator also acknowledged that CSC cooperated with the investigation and has an otherwise clean disciplinary record. This cooperation likely influenced the SFC's decision on the penalty, but the firms failures in monitoring client activities and implementing sufficient controls were deemed serious enough to warrant the substantial fine.
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