The client, the challenge
Previously, a Hong Kong Securities and Futures Commission (SFC) licensed Type 4 and 9 external asset manager, servicing primarily high-net-worth individuals, received a complicated complaint about mis-selling by an investment representative at the firm. The firm had recently undergone a change in ownership and was in the process of implementing better quality operating policies and procedures. The activities leading to the complaint straddled both the previous and the new management teams’ time.
The SFC issued an investigation letter with 21 detailed questions covering the company’s organisational structure, the design of investors’ portfolios, risk levels assigned, risk monitoring tools and processes, investment restrictions, use of leverage, point of sale practices, reporting to investors, concentration limits and the rationale of investing in complex products. There was considerable risk that if not properly managed, the SFC would issue a punitive enforcement action. Our objective was to address the SFC’s concerns but also to improve the compliance infrastructure at the company.
Our solution
We took control of the SFC response process, filing a detailed work plan to address each of the 21 questions, with each point being given a high, medium or low risk assessment matched with appropriate timelines for remediation. Once the SFC agreed with the plan, we worked over the course of 11 months to deal with all the findings from a high to low risk basis, which included implementation of new compliance policies and procedures, implementation of new investment parameters and portfolio construction models, adoption of a new third party risk management system and design of a reporting framework for the new MIC of Risk, development of a robust corporate governance structure including new management reporting and escalation controls and staff training.
The results
The SFC accepted all the remediation work and closed the matter without enforcement action.
