Below is a snapshot of some of the key local and international regulatory and compliance developments in May 2012 relevant to the Asian wealth management industry.
Date: June 7, 2012
Tags: Regulation, AML, Compliance, Enforcement
Below is a snapshot of some of the key local and international regulatory and compliance developments in May 2012 relevant to the Asian wealth management industry.
Each update includes a brief summary, with a link so you can access further information if you would like to. These are divided by geography to make them quicker to review.
If you are a subscriber to the Hubbis Learning Management System – after reading this monthly update you can take a short test to assess and prove your understanding of the content. If you pass it, you can get a certificate to authenticate 30 minutes worth of learning.
SUMMARY
For more information – either click on each link or scroll down to the relevant section.
International
UK regulator fines Habib Bank for AML control failings
http://www.hubbis.com/articles.php?aid=1337302433§ion=
Swiss regulator reprimands Valiant over market manipulation
http://www.hubbis.com/articles.php?aid=1336098639§ion=
UK regulator's ban on former UBS advisers upheld
http://www.hubbis.com/articles.php?aid=1337906412§ion=
New index addresses risks associated with money laundering
http://www.hubbis.com/articles.php?aid=1336705441§ion=
Hong Kong
Hong Kong regulator bans broker for life
http://www.hubbis.com/articles.php?aid=1336705572§ion=
Hong Kong regulator indicates tougher stance on wrongdoers
http://www.hubbis.com/articles.php?aid=1337305251§ion=
Hong Kong tightens criteria for short selling
http://www.hubbis.com/articles.php?aid=1337302379§ion=
Hong Kong loosens entry criteria in banking sector
http://www.hubbis.com/articles.php?aid=1337906328§ion=
Singapore
Singapore modifies selling requirements on investment products
http://www.hubbis.com/articles.php?aid=1337305331§ion=
Singapore regulator reprimands UOB
http://www.hubbis.com/articles.php?aid=1337906368§ion=
Singapore reviews requirements for unlisted margined derivatives
http://www.hubbis.com/articles.php?aid=1338518154§ion=
China
China to reduce A-share trading fees
http://www.hubbis.com/articles.php?aid=1336098579§ion=
India
Indian central bank to use consultant to help supervise banks
http://www.hubbis.com/articles.php?aid=1336705407§ion=
Thailand
Thai government pressured to push AML laws
http://www.hubbis.com/articles.php?aid=1336705378§ion=
UPDATES
International
UK regulator fines Habib Bank for AML control failings
The UK Financial Services Authority (FSA) has fined Habib Bank £525,000 and its former money laundering reporting officer (MLRO) Syed Itrat Hussain £17,500 for failure to take reasonable care to establish and maintain adequate anti-money laundering (AML) systems and controls.
According to a statement, the failings at Habib lasted almost three years and exposed the firm to an unacceptable risk of laundering money.
The FSA’s investigation identified that from mid-December 2007 to mid-November 2010, Habib failed to establish and maintain adequate controls for assessing the level of money laundering risk posed by its customers. In particular, Habib maintained a high-risk country list which excluded certain high-risk countries on the basis that it had group offices located there.
However, Habib’s local knowledge of these countries did not negate the higher risk of money laundering they presented. The FSA also found that Habib failed to conduct adequate enhanced due diligence in relation to higher-risk customers.
As MLRO, Hussain was responsible for oversight of Habib’s AML systems and controls, but failed to ensure that these systems and controls were adequate.
Habib and Hussain agreed to settle at an early stage and therefore qualified for a 30% discount.
More details: http://www.fsa.gov.uk/library/communication/pr/2012/055.shtml
Swiss regulator reprimands Valiant over market manipulation
The Swiss Financial Market Supervisory Authority, FINMA, has reprimanded Valiant Holding and the former Valiant Privatbank (now Valiant Bank) for violating market conduct rules.
According to a FINMA statement, Valiant propped up the price of its own registered shares against the general market trend, and kept them artificially high, in 2010.
In doing so, it committed a serious violation of the supervisory provisions on market conduct, and infringed both its duty to ensure proper business conduct and its organisational requirements.
More details: http://www.finma.ch/e/aktuell/Pages/mm-valiant-20120425.aspx
UK regulator's ban on former UBS advisers upheld
The Upper Tribunal (Tax and Chancery Chamber) has directed the UK Financial Services Authority (FSA) to fine Sachin Karpe £1.25 million and Laila Karan £75,000, and ban them both from performing any role in regulated financial services, for failing to act with integrity.
Between January 2006 and January 2008, Karpe was desk head of the Asia II desk at UBS’ international wealth management business in London, which provided services to customers resident in India, or of Indian origin.
During this period, Karpe carried out substantial unauthorised trading, predominantly in FX instruments, with a gross value of billions of pounds across 39 customer accounts. He also made unauthorised transfers and loans between client accounts in order to conceal losses arising from the unauthorised trading. In addition, he directed others (including Karan) to assist him in arranging the transfers and loans, and creating false documentation for the unauthorised trading.
His scheme resulted in substantial losses for 21 customers. UBS has since paid compensation to the affected customers in excess of US$42 million.
Karpe also established an investment structure to enable a major (Indian resident) customer (via an investment fund incorporated in Mauritius) to breach Indian law in clear contravention of UBS guidelines.
The Tribunal accepted that the compliance failings at UBS might have created an environment within which staff could “get away with” misconduct – yet this was no excuse for Karpe’s sustained dishonesty.
Karan worked as a client adviser on the Asia II desk, reporting directly to Karpe between February 2007 and January 2008. Although Karan did not instigate the unauthorised trading; she assisted Karpe in concealing the unauthorised activity.
Said Tracey McDermott, acting director of enforcement and financial crime at the FSA: “However, the findings and the resulting sanctions send a clear message that an approved person must take responsibility for their own actions. Where an approved person is aware that colleagues are engaging in misconduct, we expect them to blow the whistle, not to become involved themselves.”
More details: http://www.fsa.gov.uk/library/communication/pr/2012/057.shtml
New index addresses risks associated with money laundering
Through its International Centre for Asset Recovery (ICAR), the Basel Institute on Governance has developed an AML Risk Index that assesses countries’ risk levels regarding money laundering and terrorist financing.
The purpose of the Index is to analyse risk in each country regarding money laundering or terrorism financing, and other related factors such as corruption and political risk.
The Index uses a composite methodology, aggregating 15 variables from third-party sources that deal with anti-money laundering (AML) / counter terrorist financing (CTF) regulations, financial standards, transparency and disclosure, and political risks.
Out of 144 countries on the list, Norway and Estonia were the only ones that ranked as “low risk”, while Iran, Kenya and Cambodia are the three riskiest.
More details: http://index.baselgovernance.org/Index.html#introduction
Hong Kong
Hong Kong regulator bans broker for life
Hong Kong’s Securities and Futures Commission (SFC) has banned Wong Chiu Wan, a former licensed representative of KGI Asia Limited, from re-entering the industry for life for misappropriation of client assets.
An SFC investigation found that, between April and June 2011, Wong conducted unauthorised trades in a client’s securities account at KGI and sold the client’s shares without the consent or instruction of that client.
In an attempt to conceal his acts, the SFC said Wong also forged the client’s signature to falsify an instruction to amend the client’s e-mail address on KGI’s records, to prevent the client from receiving trading statements from KGI.
KGI has compensated the affected client and restored the original stock and cash position in her account. The client’s losses, which amounted to over HK$178,000 including interest, had been repaid by Wong to KGI.
More details: http://www.sfc.hk/sfcPressRelease/EN/sfcOpenDocServlet?docno=12PR45
Hong Kong regulator indicates tougher stance on wrongdoers
The Hong Kong Securities and Futures Commission (SFC) has applied for a review of the sentence imposed on a convicted futures manipulator.
On 30 January 2012, the Eastern Magistracy sentenced Tsoi Bun to six months imprisonment to be suspended for two years, fined him HK$500,000 and ordered him to pay the SFC’s investigation costs.
He had faced five charges of manipulating the calculated opening prices of index futures contracts in the futures market.
According to a statement, the SFC is seeking a review of the sentence because the fine was substantially less than the HK$949,350 in profits that Tsoi earned in committing the offences.
The SFC is arguing that the fine should, at the very least, remove any unjust profits that Tsoi made.
The Court declined to vary the sentence imposed on Tsoi and the SFC is considering appealing the decision.
More details: http://www.sfc.hk/sfcPressRelease/EN/sfcOpenDocServlet?docno=12PR49
Hong Kong tightens criteria for short selling
To reflect developments in the securities market following a review conducted earlier this year, the Stock Exchange of Hong Kong will implement changes to the short selling criteria for designated securities.
According to a statement, the eligibility criterion related to the market capitalisation and turnover velocity will be increased from HK$1 billion (US$129 million) to HK$3 billion, and from 40% to 50% respectively.
The change reflects the fact that the average market capitalisation of listed companies in Hong Kong has grown by around three times and the market turnover velocity has increased from around 40% to over 50% in the past decade.
Had the new short selling eligibility criteria been adopted in the last quarterly review in April this year, 82 out of the existing 646 designated securities would have become ineligible for short selling.
The new regulation for short selling eligibility criteria has been approved by the Securities and Futures Commission and will take effect on 3 July 2012.
More details: http://www.hkex.com.hk/eng/newsconsul/hkexnews/2012/120510news.htm
Hong Kong loosens entry criteria in banking sector
The Hong Kong Monetary Authority (HKMA) is updating and broadening certain market-entry criteria for the domestic banking sector.
The Banking Ordinance (Amendment of Seventh Schedule) Notice 2012 seeks to remove the present licensing requirement under which an applicant for a bank licence must have total customer deposits of not less than HK$3 billion and total assets of not less than HK$4 billion.
In addition, the Notice also seeks to remove some present impediments which restrict foreign banks from entering the Hong Kong market through the establishment of a locally incorporated subsidiary.
A spokesman for the HKMA said: “Some international financial institutions do not take deposits as part of their normal business. The proposed revisions will allow a broader range of qualified domestic and international institutions to participate in our financial markets, without compromising the stability of Hong Kong’s banking system.”
Subject to the negative vetting of the Notice by the Legislative Council, the amendments will take effect on July 12, 2012.
More details: http://www.hkma.gov.hk/eng/key-information/press-releases/2012/20120516-4.shtml
Singapore
Singapore modifies selling requirements on investment products
The Monetary Authority of Singapore (MAS) has announced that it will refine the prescribed list of Excluded Investment Products (EIPs) to include EIP-equivalent investment products listed on foreign exchanges, certain Collective Investment Schemes (CIS), and sub-funds of investment-linked life insurance policies (ILP sub-funds).
This reclassification follows additional consultations with the industry and will take effect in October 2012.
With investment products listed on foreign exchanges, intermediaries are currently required to assess a customer’s investment knowledge and experience before selling a Specified Investment Product (SIP) such as products that contain derivatives or have complex terms and features to the customer.
Under the current regime, all foreign-listed investment products are classified as SIPs. The industry expects to implement a system for foreign-listed investment products in which intermediaries will identify and tag foreign-listed investment products as EIPs or SIPs and will be responsible for ensuring accuracy of the tagging.
From October 2012, intermediaries that can identify EIP-equivalent investment products listed on foreign exchanges will be allowed to treat these products as EIPs.
MAS will require intermediaries to warn retail customers of the possible risks prior to the customer’s first purchase of a foreign-listed investment product and to obtain the customer’s acknowledgement on the risk warning disclosure.
MAS will provide guidance on the content of the risk warning disclosure statement.
For collective investment schemes and investment-linked life insurance policies, all CIS, including those with a mandate to invest in EIPs, are currently classified as SIPs. Fund managers have provided feedback that there could be a need to develop simple CIS products that do not engage in securities lending or derivatives.
With effect from October 2012, MAS will classify a CIS as an EIP if its investment mandate permits investments only in EIPs, and prohibits it from engaging in securities lending or repurchase transactions.
MAS will also classify an ILP sub-fund as an EIP if it satisfies the same requirements. A customer is not required to undergo the Customer Knowledge Assessment if they wish only to invest in such ILP sub-funds.
More details: http://www.mas.gov.sg/news_room/press_releases/2012/
Singapore regulator reprimands UOB
The Monetary Authority of Singapore (MAS) has reprimanded United Overseas Bank (UOB) for allowing three individuals to provide financial advisory service on its behalf before they were duly notified to the regulator as appointed representatives for the relevant type of financial advisory service.
According to a statement, UOB has contravened section 99B (3)(a) of the Securities and Futures Act (SFA) and section 23(B)(3)(a) of the Financial Advisers Act (FAA).
Section 99B(3) of the SFA provides that a principal shall not permit any individual to carry on business in any type of regulated activity on its behalf unless the individual is an appointed representative, provisional representative or temporary representative in respect of that type of regulated activity.
Section 23B(3)(a) of the FAA stipulates that a principal shall not permit any individual to provide any type of financial advisory service on its behalf unless the individual is an appointed representative or provisional representative in respect of that type of financial advisory service.
UOB has confirmed with MAS that it has put in place policies and procedures to prevent future recurrence.
More details: http://www.mas.gov.sg/news_room/enforcement/2012/United_Overseas_Bank_Limited.html
Singapore reviews requirements for unlisted margined derivatives
The Monetary Authority of Singapore (MAS) has issued a consultation paper on proposed enhancements to the regulatory requirements for unlisted margined derivatives, which seeks to give better protection to retail investors.
The proposals aim to address the specific risks posed by unlisted margined derivatives such as contracts for differences (CFDs) and leveraged FX products (LFX), which are currently available to retail investors.
According to a statement, retail investors who trade in CFDs and LFX are exposed to considerable risks, given the leveraging effect of margin trading on potential losses. Investors are also exposed to the creditworthiness and operational risks of the derivative product dealer.
In the event of a default, they may not have recourse to transfer their positions or recover their money in their trading accounts.
The proposed measures aim to:
More details: http://www.mas.gov.sg/news_room/press_releases/2012/
China
China to reduce A-share trading fees
China’s securities regulator is reducing A-share trading fees with the aim of promoting the development of the country’s domestic capital market.
According to the statement by the China Securities Regulatory Commission (CSRC), the rule will reduce the trading fees of A-shares by 25% to 0.0087% of turnover at both the Shanghai and Shenzhen stock exchanges.
With the expansion of the country’s capital markets, the CSRC said that a great number of listed companies and lots of trading volume have laid a solid groundwork for future development – and that this reduction in transaction costs will improve market efficiency.
The new rule will take effect on June 1.
More details: http://www.csrc.gov.cn/pub/newsite/bgt/xwdd/201204/t20120430_209433.htm
India
Indian central bank to use consultant to help supervise banks
The Reserve Bank of India (RBI) has decided to use a third-party consultancy firm to help it incorporate global best practices in its supervisory role, and prepare the risk ratings for various banks in the country, according to a local news source.
The RBI currently conducts supervision of banks through an annual inspection of them and their offsite monitoring. But The Economic Times has revealed that it has now decided to use the services of an outside agency to assist in its supervisory role in the wake of a sharp growth in the Indian banking sector in the past few years.
The consultant will help RBI benchmark the global best practices in supervisory processes, develop risk profile templates and risk ratings of commercial banks, and prepare a supervisory manual for conducting risk-based supervision system.
More details: http://articles.economictimes.indiatimes.com/2012-05-06/news/31597535_1_supervisory-processes-commercial-banks-risk-rating
Thailand
Thai government pressured to push AML laws
The Thai government has been pressured by key business organisations to promulgate new anti-money-laundering (AML) laws, after the country was added to an international "Dark Grey List" in February, according to news sources.
Twatchai Yongkittikul, secretary general of the Thai Bankers Association, told a news conference that since the Financial Action Task Force on Money Laundering (FATF) put Thailand on the list in February this year – because of the lack of such laws – the Thai business sector had experienced negative consequences.
Thailand was on the Grey List in 2010 and the subsequent failure to follow up on enacting new laws countering terrorism financing and money-laundering led to the FATF's latest decision to downgrade the country.
The Board of Trade, the Federation of Thai Industries, and the Federation of Capital Market Associations are several key organisations pushing for government action.
More details: http://www.asiaone.com/News/AsiaOne%2BNews/Asia/Story/A1Story20120505-343982/3.html
