The Securities and Futures Commission (“SFC”) issued a circular to licensed corporations (“LC”) on 28 June 2021 warning against unsatisfactory practices in the operation of bank accounts of LCs (the “Circular”). The requirements set out in the Circular cover the LC’s house bank accounts and client bank account, but not LC’s account at execution brokers or bank accounts established and maintained by the LC’s clients in the clients’ name.
The SFC expects LCs to develop and implement effective policies and internal controls in relation to the operation of their bank accounts to properly safeguard client money, promptly discharge their liabilities and fully comply with the financial resources requirements under the Securities and Futures (Financial Resources) Rules (FRR) at all times.
The SFC noted there are cases where LCs did not have adequate arrangements in place to ensure that the LC’s responsible officers (“RO”) or managers-in-charge of core functions (“MIC”) have sufficient control over LC’s cash resources. Some examples given in the Circular include:-
- LC’s house or client bank accounts were operated solely by a shareholder or a director or their nominees who were not ROs, MICs or proper delegates, which means the authorised signatory of the bank accounts was not subject to proper oversight with regards to the operation of LC’s bank accounts.
- Deficiencies in bank account operations and controls such that authorised signatories were not accountable to any ROs or MICs.
- Authorised signatories were not physically present in LC’s office in the normal course of business.
- Deficiencies in bank account operations and controls such that withdrawals from house bank accounts for transactions unrelated to regulated activities could be effected without approval or knowledge of any ROs, MICs or their delegates.
- Lack of timely, effective, and direct access to information for ROs and MICs except for monthly bank statements.
The Circular goes on to set out the expected standards of LCs in the below categories.
Senior Management Responsibilities
- The LC’s board of directors should delegate sufficient authority to the ROs and MICs to (a) implement and operationalise policies, procedures, and internal controls they consider necessary, including for the operation of bank accounts; and (b) ensure that all authorised signatories are subject to proper oversight and accountability with respect to the operation of the LC’s bank accounts.
- The ROs and MICs should have the authority to hold each authorised signatory to account for any operation of LC bank accounts which is inconsistent with internal policies.
Authorised signer arrangements
- The SFC expects that the authorised signatories for effecting any form of payments out of an LC’s house bank accounts should be: (a) ROs, MICs or their delegates; or (b) any other person(s), provided that they can only effect payment jointly with ROs, MICs or their delegates.
- The SFC expects that the authorised signatories for effecting any form of payments out of an LC’s client bank accounts should only be ROs, MICs or their delegates.
Timely and effective access to information in relation to bank accounts
- ROs or MICs should have timely and effective access to all information about the operation and activities of LC’s house and client bank accounts at all times.
- For online banking accounts, each user’s access credentials should not be disclosed to another person and must be capable of being uniquely identified for the purpose of detecting unauthorised transactions.
- An LC should adopt a formal document, approved by the board of directors, clearly setting out the firm’s management structure and their roles, responsibilities as well as accountability.
The SFC expects LCs to critically review their existing policies and internal controls for full compliance with the Circular, and expects that LCs to implement the expected standards by 3 January 2022.
The SFC stressed that the ROs and MICs who are responsible for managing an LC’s core functions and day-to-day operations play a critical role in the LC’s compliance with its regulatory obligations, which in turn has a direct bearing on the LC’s ongoing fitness and properness to remain licensed.
We recommend that any LC bank account signatories who are not ROs or MICS be properly delegated with the power to operate those bank accounts, and be subject to appropriate supervisions by ROs and/or the relevant MICs. We can assist with suitable delegation and supervision policies for this purpose.
Contact us today to find out more about the SFC’s expected standards regarding the operation of LC bank accounts.