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SFC reprimands and fines Ruifeng Securities Limited $5.2 million for fund management and account opening failures and suspends its responsible officer

Issue date: 2023-12-04 16:44:11

The Securities and Futures Commission (SFC) has reprimanded and fined Ruifeng Securities Limited (RSL) HK$5.2 million over failures relating to its fund management activities and account opening procedures (Note 1).

The disciplinary action follows an SFC investigation into RSL when it acted as an investment manager of a Cayman-incorporated fund between 1 July 2019 and 10 December 2020.  The investigation found that as of May 2020, RSL invested about 90 per cent of the fund’s US$94.5 million net asset value into financial instruments linked to a Mainland property developer even after identifying various downside factors in its own analysis.  It had also failed to make adequate disclosure of material information about the fund.

The SFC has also suspended the licence of Mr Fang Zhi for 10 months from 1 December 2023 to 30 September 2024 for failing to discharge his duties as a responsible officer of RSL in charge of its fund management activities (Note 2).

Specifically, RSL failed to:

• have sufficient risk management measures to ensure the fund was not exposed to excessive risks, and ensure that its decisions to invest in certain fixed income products for the fund were reasonable and in the fund’s best interest in light of all relevant factors;
• make adequate disclosure of information about the fund’s investment holdings which were necessary for the fund investors to be able to make an informed judgment about their investment into the fund;
• identify, prevent, manage and minimise the conflict of interest arising from its underwriting activities and disclose the conflict to the fund’s investors; and
• ensure the accuracy of a representation made on behalf of the fund to a notes issuer in a subscription agreement (Note 3).

The SFC’s investigation also found that RSL had failed to adopt acceptable account opening procedures for verifying the identities of clients who opened their accounts on a non-face-to-face basis through RSL’s mobile application between 26 November 2018 and 31 July 2020 (Note 4).

The SFC considers that RSL’s failures in relation to the management of the fund are attributable to Fang’s failure to discharge his duties as a responsible officer and a member of the senior management of RSL.

In deciding the sanctions, the SFC took into account all relevant circumstances, including RSL’s remedial actions, RSL and Fang’s cooperation with the SFC in resolving the SFC’s concerns and their otherwise clean disciplinary record.

End

Notes:

1. RSL is licensed to carry on Type 1 (dealing in securities), Type 4 (advising on securities) and Type 9 (asset management) regulated activities under the Securities and Futures Ordinance.
2. Fang has been approved by the SFC to act as a responsible officer of RSL in respect of its Type 1 (dealing in securities) and Type 4 (advising on securities) regulated activities since 9 October 2018 and Type 9 (asset management) regulated activity since 12 December 2018.
3. In April 2020, RSL procured the fund to enter into a subscription agreement to purchase senior notes issued by a special purpose vehicle (SPV) wholly owned by a Mainland property developer (Company).  In the subscription agreement signed by Fang on behalf of the fund, the fund represented that the acquisition of the senior notes was not and would not be financed directly or indirectly by any related party of the SPV or the Company.  However, the source of funds used for purchasing the senior notes in fact came from an investor of the fund, which was a related party of the Company and the SPV.  At the material time, the Company, the SPV and the investor were ultimately owned and controlled by the same individual, who also served as the chairman of all three companies.
4. Please see the SFC’s website for the acceptable account opening approaches.

Source: SFC