The HK$5m ($640,000, €553,026, £482,171) fine was imposed after the Securities and Futures Commission conducted a regulatory inspection in March 2016 and an independent review in January 2017, which was agreed by the regulator and Noah.
The wealth manager failed to comply with requirements on know-your-client, product due diligence, suitability assessment, information for clients, and sales supervision and controls between January 2014 and June 2016, according to a statement from the SFC.
The inspection discovered that the wealth manager was unable to effectively assess client risk appetite and risk tolerance level with the risk profiling questionnaire.
Moreover, the features and risks of certain investment products were not sufficiently considered when assigning a risk rating to the product as part of the product due diligence process.
The regulator also added the deficient risk profiling and product rating framework potentially resulted in selling unsuitable investment products to clients.
Additionally, the firm did not require its sales staff to document the rationale underlying the investment advice or recommendations prior to March 2016. The inspection also found out an inadequacy in supervision and control mechanism in place for monitoring the sale of investment products.
“We had gone through several rounds of discussions with the regulator on the right methodology for KYC and product risk rating process. While we believe we have done everything we could, we also are learning the approaches of Hong Kong’s regulator on certain issues,” Kenny Lam, Noah’s group president, said on a conference call on the firm’s financial results on Wednesday.
Following the identification of issues, the firm granted clients the right to redeem the products they purchased during the reported period. According to Lam, the majority of products were in profit and not many clients intended to redeem the products.
“All of the identified issues have been corrected as of mid-2016,” said Lam, adding that during the reported period the firm received no complaint from the clients concerning individual or product risk profiling.
Due to the identified concerns, the regulator imposed a fine of HK$5m ($640,000) on Noah’s Hong Kong branch. When imposing the fine, the SFC said it took several factors into account:
- The firm engaged an independent reviewer to conduct an independent review to address the SFC’s regulatory concerns and review its internal systems and controls
- Affected clients were reimbursed
- Remedial actions were taken to strengthen its internal systems and controls and proactively engaged an external consultant to assist in the process
- A report prepared by an independent reviewer was provided within 12 months confirming that all the identified concerns have been rectified
- The firm cooperated with the SFC in resolving the concerns
- The firm does not have previous disciplinary record with the SFC
Noah has been a registered firm with licences type 2 (dealing in futures contracts), type 4 (advising on securities) and type 9 (asset management) since January 2012, according to records on SFC.
