In a separate announcement, State Street Global Advisors Asia has been fined HK4m by the SFC for failing to comply with regulatory requirements in the management of a Hong Kong tracker fund.
An SFC investigation found that, from 1 December 2008 to 30 June 2013, the cash balances of the fund deposited with State Street Bank and Trust Company (SSBT), the fund’s trustee and an affiliate of SSGA, did not earn any interest because SSBT’s deposit rates on Hong Kong dollars were zero.
SSGA did not check the rate of interest offered by other banks.
According to the SFC’s findings, the prevailing commercial interest rates on Hong Kong dollars (HKD) for a deposit of the same size and term as the fund’s cash balances were above zero during period.
Lower rate
As a result, the SFC found that “SSGA had failed to ensure that interest received on the fund’s Hong Kong dollar cash balances from its connected person was at a rate not lower than the prevailing commercial rate for a deposit of that size and term as required by the code on unit trusts and mutual funds (UT Code)”.
The SFC also found that SSGA’s internal procedures on the management of the fund’s cash balances were inadequate. By not following the requirements of the UT Code and the trust deed when depositing the fund’s cash balances with SSBT, SSGA had failed to manage and minimise the conflict between the interests of the fund’s investors and the interests of SSGA/SSBT.
The SFC further found that SSGA had wrongly represented in six interim and annual reports of the fund that the fund’s cash balances were placed in a non-interest bearing current account when in fact the cash was deposited with SSBT in an interest bearing account earning zero interest.
Cooperation and a clean record
In determining what sanctions to impose, the SFC took into account that SSGA cooperated with the regulator and made a voluntary payment of HK$318,315 into the fund.
The company also agreed to engage an independent reviewer to conduct an internal controls review of the cash management policy and procedures of SFC-authorised funds managed by SSGD.
Additionally, SSGA has a clean disciplinary record in relation to its regulated activities.
