SFC fines Sincere Securities Ltd HK$5 million for bad internal controls

Chris Hamblin

24 August 2019

The SFC began the case by investigating an investor’s complaint about the conduct of a former account executive at Sincere. It discovered that Sincere did not require its account executives to obtain clients’ written consent before transferring their funds to their gold trading accounts at its associated company, Allied Victory Gold and Silver Investment.

At the SFC’s request, Sincere hired an external consultant to review its internal control systems and procedures. The resuling report and a separate review by the SFC identified deficiencies in 14 areas of Sincere’s business operations and internal controls between October 2015 and December 2016.

Examples of the deficiencies

The compliance and procedural manual at Sincere was outdated and took no account of rules that appeared after May 2009.
Sincere did not have specific procedures to filter, analyse and monitor the dealing activities of its staff.
It failed to segregate the sales, dealing and settlement functions effectively, so account executives who handled clients' orders also handled their fund deposits and withdrawals.
It also had no written procedures to prohibit its staff from receiving "client order instructions" on their mobile phones when they were on the trading floor. Some of these instructions came through mobile phone applications such as WhatsApp messenger. Nobody made contemporaneous records of the details.

Sincere has an otherwise clean disciplinary record. It has taken remedial action and has compensated the wronged client in the complaint case. Nobody else seems to have suffered any losses.