Hong Kong’s Securities and Futures Commission (SFC) has fined Citigroup Global Markets Asia (CGMAL) HKD348.25m ($45m) for regulatory misconduct in its cash equities business.
Few of the company’s trading desks had issued inaccurate Indications of Interest (IOIs), and made misrepresentations to clients during the execution of facilitation trades, from 2008 to 2018.
According to SFC, the persistent fraudulent behaviour is a result of serious shortcomings in the company’s internal controls, compliance and management oversight.
It will launch disciplinary action against certain senior management of the company, who failed to discharge their supervisory duties, said the securities watchdog.
CGMAL has taken certain measures to strengthen its internal controls pertaining IOIs and client facilitation activities, and has appointed an independent reviewer to validate its controls framework, said SFC.
SFC chief executive officer Ashley Alder said: “The severity of CGMAL’s failures exposed a culture that encouraged chasing revenue at the expense of basic standards of honesty.
“As a result, in the face of unrelenting commercial pressure to solicit more business and increase CGMAL’s market share, deceptive practices were deployed at the expense of clients’ best interest and to the detriment of market integrity.
“The sanction against CGMAL is warranted because it fell far short of the standards expected of licensed intermediaries. It also underscores the SFC’s zero-tolerance attitude in its determination to root out misconduct by licensed intermediaries.”
In July 2014, CGMAL’s senior management had a roundtable meeting with the SFC.
The meeting addressed the common deficiencies identified in client facilitation activities, including missing explicit client consent and lack of client consent checking.
CGMAL has conducted a gap analysis following the meeting but failed to identify the misconduct or rectify the failures, stated SFC.
In 2018, the SFC has published a circular to the organisations providing client facilitation services, with further guidance on the standards of conduct and internal controls.
The company has conducted a further gap analysis after receiving the circular, but has still failed to identify the regulatory failures.
The SFC reviewed 174 sample facilitation trades executed by the company’s various trading desks from January 2014 to December 2018.
The review found that the heads and traders of the desks gave factually incorrect information, made misleading statements, and failed to obtain prior client consent.
SFC executive director of Enforcement Thomas Atkinson said: “A key concern of the SFC is the failure of CGMAL’s senior management to ensure the maintenance of appropriate standards of conduct and adherence to relevant regulatory requirements, and to understand, manage and monitor its business and risks.
“The prevalence of the misconduct for a prolonged period reflects a failure on the part of CGMAL’s senior management to properly discharge their management and supervisory responsibilities.”
