Monday, February 1, 2016
Illicit Personal Dealing through Other Persons’ Accounts
Personal dealing, or personal trading has become a relatively recurring topic in a time where miscreants in the financial industry are inventing new ways to circumvent laws and internal policies. In the past months, Hong Kong has seen several cases of enforcement actions taken against representatives of financial institutions with regards to personal dealing activities.
Most recently, the Securities and Futures Commission ("SFC") banned a representative licensed under the Securities and Futures Ordinance ("SFO”) from re-entering the industry for 10 months for side-stepping the personal dealing policies of his employers. He hid his personal securities transactions from his employers by operating them through the personal securities account of his friend who was also a licensed representative in another firm. The friend has also been suspended by the SFC for a period of three months for abetment. The conduct of both representatives was in breach of the SFC's Code of Conduct which requires licensed corporations to actively monitor the personal trading activities of their employees. As a result of their actions, their respective employers were not able to ensure that there were no conflicts of interests or misconduct arising from their personal trading activities.
In an unrelated case, a licensed representative has been banned from entering the industry for four years for carrying out personal trading activities in a nominee account opened in the name of his cousin-in-law. This was also in breach of the SFC's Code of Conduct and called into question his fitness and properness as a licensed representative.
Such cases pertaining to the breach of personal dealing policies have also been seen in Singapore. On 25 January, the Monetary Authority of Singapore (“MAS”) issued a prohibition order for a period of two years and imposed a civil penalty of SGD 110,000 against an appointed representative of a broker. The representative had purchased shares of a company on which he had non-public information through trading accounts held by his wife, sister and mother with his employer. In October 2015, MAS has imposed a civil penalty of SGD 434,912 against a senior employee of a foreign bank. The senior employee purchased shares through his wife’s bank account in Singapore after he possessed price-sensitive and non-public information on the company. Also last year, the MAS issued a prohibition order against an appointed representative who conducted personal trading activities using the securities accounts of a former client. His actions deceived the firms which were servicing the trading accounts. In this regard, he had contravened section 201(b) of the Securities and Futures Act ("SFA"), which states that a person connected to the subscription, purchase or sale of any securities, must not engage in any act, practice or course of business which operates as a fraud or deception, or is likely to operate as a fraud or deception, upon any person.
In all of the above cases, the delinquent individuals tried to hide their activities through the use of another person’s or other persons’ accounts. Under the MAS Guidelines on Risk Management Practices on Internal Controls, firms must have adequate policies, procedures and controls to address conflict of interest situations. Furthermore, financial institutions must ensure that there is adequate segregation of duties to guard against the risk of unauthorised transactions, fraudulent activities and the manipulation of data for personal gain or the hiding of irregularities. They should have policies in place which restrict staff from handling the entire flow of a transaction. As the examples above demonstrate, the firms thereby need to be vigilant with respect to their employees' use of other persons’ accounts; a significant challenge to the control framework.
Posted by Unknown at 10:31 AM