HK regulator fines Ruifeng Securities $5.2M for fund management and account opening failures
Hong Kong’s Securities and Futures Commission (SFC) has reprimanded and fined Ruifeng Securities Limited (RSL) HK$5.2 million over failures relating to its fund management activities and account opening procedures.
The disciplinary action follows an SFC investigation into RSL when it acted as an investment manager of a Cayman-incorporated fund between 1 July 2019 and 10 December 2020. The investigation found that as of May 2020, RSL invested about 90 per cent of the fund’s US$94.5 million net asset value into financial instruments linked to a Mainland property developer even after identifying various downside factors in its own analysis.
It had also failed to make adequate disclosure of material information about the fund.
The SFC has also suspended the licence of Mr Fang Zhi for 10 months from 1 December 2023 to 30 September 2024 for failing to discharge his duties as a responsible officer of RSL in charge of its fund management activities.
Specifically, RSL failed to have sufficient risk management measures to ensure the fund was not exposed to excessive risks, and ensure that its decisions to invest in certain fixed income products for the fund were reasonable and in the fund’s best interest in light of all relevant factors.
The company has also failed to make adequate disclosure of information about the fund’s investment holdings which were necessary for the fund investors to be able to make an informed judgment about their investment into the fund.
In addition, the company has failed to identify, prevent, manage and minimise the conflict of interest arising from its underwriting activities and disclose the conflict to the fund’s investors; and
ensure the accuracy of a representation made on behalf of the fund to a notes issuer in a subscription agreement.
The SFC’s investigation also found that RSL had failed to adopt acceptable account opening procedures for verifying the identities of clients who opened their accounts on a non-face-to-face basis through RSL’s mobile application between 26 November 2018 and 31 July 2020.
The regulator considers that RSL’s failures in relation to the management of the fund are attributable to Fang’s failure to discharge his duties as a responsible officer and a member of the senior management of RSL.
In deciding the sanctions, the SFC took into account all relevant circumstances, including RSL’s remedial actions, RSL and Fang’s cooperation with the SFC in resolving the SFC’s concerns and their otherwise clean disciplinary record.