Hong Kong’s Securities and Futures Commission (SFC) has reprimanded and fined Capital Global Management Limited (CGML) HK$1.5m ($193,000) for failing to comply with applicable laws and regulations in distributing investment funds and offering investment advice in Taiwan, according to an SFC statement late last week.
The Hong Kong wealth management firm has also been censured for inadequately supervising the activities of its salespeople, who distributed investment products to Taiwan between July 2014 and April 2015.
Transactions with clients in Taiwan accounted for about 96% of CGML’s distribution of investment products during that period, yet the salespeople lived in Taiwan and visited Hong Kong only a
couple of days a month, according to the SFC.
The salespeople claimed that they understood sales of investment products in Taiwan were not allowed, but they were simply providing their clients with product information as part of their client relationship management.
But, the SFC decided that they were in fact pitching for investment business and offering investment recommendations to Taiwanese clients.
“CGML’s failures to ensure compliance with applicable laws and regulations in Taiwan and to adequately supervise its representatives have raised the SFC’s concern over its fitness and properness as a licensed corporation,” said the statement.
The firm’s failures constituted breaches of General Principle 7 of the SFC’s Code of Conduct.
Hong Kong’s regulator found that CGML’s internal guidelines on cross-border activities were not put in place until May 2015 and even then they did not provide for the steps to ensure compliance with the local laws and a regulations. Salespeople largely went unsupervised or supervision was inadequate.
The SFC issued a circular to intermediaries in January 2014 to remind them about their obligations when conducting cross-border business, including the importance of ensuring compliance with all relevant laws and regulations.
CGML, which was bought by First Financial Holdings, a US savings and loans company, in November 2016, is licensed under the Securities and Futures Ordinance to carry on business in Type 1 (dealing in securities), Type 4 (advising on securities) and Type 9 (asset management) regulated activities.
The SFC’s actions followed the decision of the the Prosecution Office of the Taipei District Court in August 2015 to fine the former owners of CGML, George Chen and Su Hsieh Chen, NT$2m ($66,700) and NT$0.5m respectively.
They were penalised for distributing offshore investment funds and offering investment advice in Taiwan from 2005 to 2014 without obtaining prior approval, which contravenes Taiwan’s Securities Investment Trust and Consulting Act.