Hong Kong’s Securities and Futures Commission (SFC) has reprimanded and fined Ruifeng Securities Limited (RSL) $5.2 million for failings related to its fund management activities and account opening procedures.
The disciplinary action follows an investigation by the SFC into RSL when it acted as an investment manager of a fund incorporated in Cayman between July 1, 2019 and December 10, 2020. The investigation found that since May 2020, RSL invested approximately 90 percent of the fund’s U.S. Net Asset Value of $94.5 million in financial instruments linked to a mainland real estate developer, even after identifying several negative factors in its own analysis.
It had also failed to adequately disclose material information about the fund.
The SFC also suspended Mr Fang Zhi’s license for 10 months from 1 December 2023 to 30 September 2024 for failing to fulfill his duties as RSL’s responsible officer in charge of its fund management activities.
In particular, RSL failed to have adequate risk management measures in place to ensure that the fund was not exposed to excessive risks and to ensure that its decisions to invest in certain fixed income products for the fund were reasonable and in the best interests of the fund in the light of all the relevant factors.
The company also failed to disclose sufficient information about the fund’s investment holdings, which was necessary for the fund’s investors to be able to make an informed judgment about their investment in the fund.
In addition, the company failed to identify, prevent, manage and minimize the conflict of interest arising from its underwriting and to disclose the conflict to the fund’s investors. and
ensures the accuracy of a representation made on behalf of the fund to an issuer of notes in a subscription agreement.
The SFC’s investigation also found that RSL had not adopted acceptable account opening procedures to verify the identity of customers who opened their accounts non-face-to-face through RSL’s mobile app between 26 November 2018 and 31 July 2020.
The regulator considers that RSL’s failures in relation to the management of the fund were due to Fang’s failure to fulfill his duties as a responsible officer and member of RSL’s senior management.
In deciding the sanctions, the SFC took into account all the relevant circumstances, including RSL’s remedial actions, RSL’s and Fang’s cooperation with the SFC to resolve the SFC’s concerns and their otherwise clean disciplinary records.