Hong Kong SFC enforces Employee dealing non-compliance


The Hong Kong Securities regulator - The Securities and Futures Commission (SFC) has suspended the licence of a former licensed representative of Mason Securities Limited (MSL), previously known as GuocoCapital Limited, for misconduct, for 12 months from 28 October 2020 for failing to obtain approval to maintain a securities trading account with an external brokerage, and trading on that account without permission, approval and therefore breaching Mason Securities Personal Account Dealing policy. You can read more on that here.

Summary of Case

This employee traded 66 times in this non-disclosed employee trading account, without getting permission to do so, she also declared falsely that she did not have any other external personal trading accounts, thus breaching the SFC Conduct rules and internal policy. This conduct deprived her employer to be able to monitor her trading activity and prevent potential market abuse and uphold market integrity. This conduct is clearly dishonest, and is against all Fitness and Propriety regulations in current markets and thus the SFC determined to suspend the license of this employee and licensed representative (Type 1 - Dealing in Securities license). 

Employee Personal Account Dealing compliance is critical to all firms that are dealing in securities, futures. The SFC sets out its conduct requirements for managing employee trade compliance within paragraph 12.2 of the SFC Code of Conduct for Persons Licensed by or Registered with the SFC. Licensed Firms, such as Mason Securities Limited are required to have policies & procedures for managing trading activity of their employees. 

What should you do now to improve your Employee Trade Processes? 

ONE - Look to Regtech - If you haven't already, you should look to RegTech for managing your Personal Employee Trading Activity matters. Firms as small as 5 or 10 employees have come to MyComplianceOffice to automate this often time consuming compliance activity. 


TWO - Review your Conduct Policies - Review your internal policies and procedures related to Employee Conduct. Are you ensuring you complete all of the SFC's requirements each year? Or going above and beyond their requirements? 

THREE - Implement Training - If you haven't already got a Code of Conduct eLearning that includes Conflicts of Interest and Personal Account Dealing compliance, we suggest you look to create or purchase an off-the-shelf e-learning course for re-educating your staff of the importance in complying and being honest on their trading activities. 

How can MyComplianceOffice help you manage your Personal Account Dealing processes? 

MyComplianceOffice is the market leading platform for managing Personal Account Dealing compliance in Asia-Pacific, with a number of customers based in Hong Kong, China, Singapore, Japan, and Australia. 

As was the case in this scenario, firms are able to use MyComplianceOffice for:

  • New Employee Onboarding Attestation/Certification

New Employees to a firm should declare all their Accounts and Holdings when they commence at a new firm. This enables the compliance function to review these accounts and determine if the securities need to be sold or the account closed to uphold the market and conduct of the industry. 

The onboarding attestation should also request for the staff to attest to their willingness to comply with all relevant policies in the firm. 

  • Annual Attestation/Certification

On at least an Annual basis employees should certify or attest that their Employee Trading Accounts (and potentially those of their spouse/close personal relationships) are true, accurate and complete. The employee should again attest to their compliance with policies including the employee dealing and personal trading policies. 

  • Regular Trade and Holding Attestation and Certification

The Hong Kong SFC requires firms to at least semi-annually declare their trades and holding activity of their licensed employees. In other regions, like in the US, SEC registered firms must complete this quarterly at least. Through this regular trade and holding attestation, firms are able to check against firm trading, client trading, or holding/position activity whether the trades have complied with their policy, and thus upheld the market. 

  • New Employee Trading Account Declaration

When a New Employee Trading account is opened (or that of their spouse or close family), it is common practice to request approval from your management. In some instances, trading outside the firm is not allowed by policy. A workflow should be available within your RegTech platform to manage the new account declaration. The Firm should thus give consent for the employee to maintain the employee trading account. 

  • Submit Statements of Trading Activity

Securities firms don't send you statements for fun. Securities firms send you either Daily Statements/Contract Notes, and Monthly statements to enable you to have a clear view of the trading activity you perform. In addition, your Employer, when they are licensed, are required to obtain duplicate copies of these statements to perform Personal Account Dealing, Insider Trading and Market Abuse checks of your trading activity.


Hong Kong Securities & Futures Commission - Employee Dealing Regulation

As at 1 September 2020 

12.2 Employee dealings
(a) A licensed or registered person should have a policy which has been communicated to employees in writing on whether
employees are permitted to deal or trade for their own accounts in securities, futures contracts or leveraged foreign
exchange contracts. For purposes of paragraph 12.2, the term “employees” includes directors (other than nonexecutive directors) of a licensed or registered person.

(b) In the event that employees of a licensed or registered person are permitted to deal or trade for their own accounts in
securities, futures contracts or leveraged foreign exchange contracts:
(i) the written policy should specify the conditions on which employees may deal for their own accounts;
(ii) employees should be required to identify all related accounts and report them to senior management. For
purposes of paragraph 12.2, the term “related accounts” includes accounts of their minor children and accounts
in which the employees hold beneficial interests; (iii) employees should generally be required to deal through
the licensed or registered person or its affiliates; (iv) if the licensed or registered person provides services in
securities or futures contracts listed or traded on a recognized stock market or a recognized futures market
June 2012 28 or in derivatives, including over-the-counter derivatives written over such securities or futures contracts, and its employees are permitted to deal through another dealer, in those securities or futures contracts, the licensed or
registered person and employee should arrange for duplicate trade confirmations and statements of account to be provided to senior management of the licensed or registered person;
(v) any transactions for employees’ accounts and related accounts should be separately recorded and clearly
identified in the records of the licensed or registered person; and
(vi) transactions of employees’ accounts and related accounts should be reported to and actively monitored by
senior management of the licensed or registered person who should not have any beneficial or other interest in
the transactions and who should maintain procedures to detect irregularities and ensure that the handling by the
licensed or registered person of these transactions or orders is not prejudicial to the interests of the licensed or
registered person’s other clients.

(c) A licensed or registered person should not knowingly deal in securities or futures contracts for another licensed or
registered person's employee unless it has received written consent from that licensed or registered person. 

About MyComplianceOffice

MyComplianceOffice can assist you in automating and managing Conflicts of Interest, including Employee Conflict, Personal Account dealing, Outside Business Activities, Client, Third Party and Deal/Transaction Conflicts. Implementing our single integrated yet modular solution helps companies around the world to successfully identify and manage workplace conflicts and can assist when employees are working from home. Contact us today or click here to learn more about our solutions.