SFC fines Interactive Brokers Hong Kong $4.2 million for regulatory breaches involving client assets and compliance failures.
SFC fines Interactive Brokers Hong Kong $4.2 million for regulatory breaches involving client assets and compliance failures.
Hong Kong’s Securities and Futures Commission (SFC) reprimanded and fines Interactive Brokers Hong Kong Limited (IBHK) $4.2 million for regulatory breaches involving client assets. The SFC’s investigation found that between 3 December 2017 and 23 October 2020, IBHK relied on expired standing authorities from 7,911 clients and loaned their securities listed on the Stock Exchange of Hong Kong Limited under a securities borrowing and lending agreement.
The incident occurred because IBHK failed to send renewal notices of the standing authority to these clients during the period due to a programming error. The SFC stated, “IBHK’s failure constitutes breaches of the Securities and Futures (Client Securities) Rules and the Code of Conduct.” Investigators emphasized that the programming error led to violations that could have compromised client interests, although there was no evidence of client loss.
The regulator assessed several factors before deciding on the disciplinary action, noting that IBHK had taken remedial measures and voluntarily reported the breach to the SFC.
IBHK accepted the SFC’s findings and agreed to the disciplinary action without contest. The regulator considered IBHK’s steps to rectify the situation, including system enhancements to prevent similar issues in the future, as well as their proactive disclosure of the problem. The SFC’s enforcement highlights the importance of strict compliance with client protection rules, particularly concerning the proper handling of client securities.
The SFC added, “Licensed corporations must ensure that all standing authorities are valid and renewed properly to uphold investor confidence and market integrity.” The fine serves as a reminder that even unintentional breaches caused by system failures can lead to serious consequences under Hong Kong’s regulatory framework.
While the SFC acknowledged IBHK’s cooperation and absence of client losses, the regulator stressed that compliance systems must function flawlessly to maintain the financial system’s stability. The SFC concluded, “Firms are expected to regularly review and test their controls to detect and prevent errors that may affect client interests.”
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