The Securities and Futures Commission (SFC) of Hong Kong has reprimanded and fined Kylin International (HK) Co., Limited $9 million for multiple failures in managing private funds over a period of three years.

The SFC found that while acting as the investment manager or consultant for six sub-funds of a Cayman-incorporated fund between August 2018 and July 2021, Kylin failed to fulfill its regulatory obligations in five key areas.

• First, Kylin failed to manage and disclose conflicts of interest arising from six loans extended by it or its director to four of the sub-funds.
• Second, it did not perform monthly reconciliations or regular valuations of the sub-funds’ assets, nor did it appoint an independent auditor to audit the sub-funds’ financial statements.
• Third, it failed to implement adequate systems and controls for know your client and suitability assessment.
• Fourth, it neglected to maintain records demonstrating compliance with anti-money laundering and counter-terrorist financing (AML/CTF) regulations.
• Fifth, it misrepresented its regulatory obligations by incorrectly informing investors that it was exempt from the suitability assessment requirement as they were classified as professional investors.

During the relevant period, Mr Steven Wong Yung was a responsible officer and the chief executive officer of Kylin, while Ms Zhu Hong was a director and manager-in-charge of various core functions of Kylin. The SFC considers that Kylin’s misconduct was attributable to Wong’s and Zhu’s failures to discharge their duties as members of Kylin’s senior management.

Specifically, Wong was accountable for all of Kylin’s failures, whereas Zhu was responsible for the failures related to the loans and Kylin’s AML/CTF compliance.

In deciding the disciplinary sanctions against Kylin, the SFC has taken into account a variety of factors, including the potential of Kylin’s failures to undermine public confidence and damage market integrity, as well as the need to send a strong deterrent message to the market that the SFC will not tolerate misconduct as shown in Kylin’s failures.

The regulator also considered that Kylin implemented remedial measures subsequent to a limited review conducted by the SFC into Kylin’s business activities in late 2020 and that Kylin has ceased carrying on regulated activities and is no longer licensed.