In a busy Christmas week of disciplinary activity, the Securities and Futures Commission (SFC) reprimanded and fined Fidelity Investment Management HK$3.5m (£338,680, $449,180, €400,270) for unlicensed dealing in futures contracts and a delay in reporting the breach to the regulator, as well as submitting incorrect information during a fund application.
The SFC found that, between August 2007 and July 2018, Fidelity executed 6,738 trades in futures contracts for its overseas affiliates with an approximate value of $40bn without a required Type 2 licence.
The US asset manager spotted the suspected breach in a review it conducted between May and June 2018, but only reported the incident to the SFC in August 2018 after it had obtained external legal advice, the SFC said.
Fidelity has been licensed under the Securities and Futures Ordinance to carry on Type 1 (dealing in securities), Type 4 (advising on securities), Type 5 (advising on futures contracts) and Type 9 (asset management) regulated activities since 29 March 2005.
However, the firm only obtained a Type 2 (dealing in futures contracts) licence on 30 May 2019.
The SFC also found that Fidelity submitted an out-of-date information checklist when applying for a new fund authorisation in March 2017, which meant that some necessary information was not provided to the watchdog.
Regulatory co-operation
An internal investigation and independent review uncovered “deficiencies and weaknesses in [Fidelity’s] internal controls and systems”, the Hong Kong regulator said.
“Fidelity International takes all matters relating to regulatory compliance very seriously and we are naturally very disappointed that the lapses in controls occurred,” a Fidelity spokeswoman told our sister publication Fund Selector Asia.
The SFC justified the leniency of its sanctions by noting that Fidelity’s failures weren’t intentional; that clients didn’t suffer any financial loss; and that the firm had hired an independent reviewer, took remedial actions and cooperated with the SFC.
Its otherwise clean disciplinary record in Hong Kong was also taken into account.
“We reported the licence issue to the SFC and we have cooperated fully with them during their investigation. We have taken all steps necessary to improve our internal controls,” the Fidelity spokeswoman added.
Non-disclosures
Separately, the SFC hit Hong Kong-based Adamas Asset Management with a HK$2.5m fine for failing to disclose notifiable interests in eight companies’ shares listed on the Hong Kong stock exchange (SEHK) between February 2013 and March 2016
The percentage level for notifiable interests is 5% and the level for changes to notifiable interests is 1%. Notification should be given to the SEHK and the listed corporation within three business days after the day on which the event occurs.
Adamas, which has a strategic partnership with Chinese insurer Ping An, had applied to the Securities and Futures Appeals Tribunal for a review of the SFC’s sanction last September, but subsequently ended its application and was ordered to pay costs.
As with its judgement on Fidelity, the SFC’s sanctions took into account Adamas’s self-reporting of its failure, remedial actions taken and its previous good behaviour.
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