On 27 May 2021, the SFC reprimanded and fined Ewarton Securities Limited (“Ewarton”) $1.5 million for internal control failings and breaches of the SFC’s Code of Conduct.
This disciplinary action is related to another SFC sanction against Mr. Mung Wai Sun, a licensed representative of Ewarton, for effecting transactions in a client’s account on a discretionary basis without obtaining the client’s prior written authorization and failing to ensure transactions undertaken on behalf of the client were given priority over orders for his own account.
Further, the SFC’s investigation found that Ewarton failed to:-
- Diligently supervise the conduct of Mung and ensure his compliance with requirements under the Code of Conduct concerning the authorization and operation of discretionary accounts; and
- Put in place adequate and effective internal controls to detect unauthorized or improper activities.
In order for a licensed corporation to comply with the requirements, there should be specific guidance that the account executives/dealers must finish placing orders for clients before passing their personal orders to other dealers for execution.
In Ewarton’s case, although Ewarton performed post-trade reviews of employees’ personal account dealings at the end of each trading day, such reviews did not include a comparison of the transactions in the account executives/dealer’s accounts with those in the client accounts under the care of the respective account executives/dealers to detect potential breaches of the client priority principle.
A copy of the Statement of Disciplinary Action is available on the SFC’s website.
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