Hong Kong's Securities and Futures Commission has imposed a penalty, of interest to all wealth firms that are subject to the Code of Conduct for Persons Licensed by or Registered with the SFC, on RHB Securities Hong Kong Ltd for ignoring conflicts of interest and failing to supervise its account executives properly.

RHBSHK is licensed in accordance with the Securities and Futures Ordinance to do business in Type 1 (dealing in securities) and Type 4 (advising on securities) regulated activities.

Paragraph 16.7 of the code requires every firm that issues research reports to hold to a set of written policies and control procedures to offset any conflicts of interest that might apply to analysts. The firm's book states that no research report should be issued for a company on the research restricted list, the idea being to avoid conflicts of interest between its investment banking business and its research reports.

In 2015, however, it issued two research reports on a listed company which was on the list. It claimed at the time that this was an oversight on the part of its now-departed head of research, but he (and a former research analyst at the firm) claimed later that nobody ever told him about the policy and that the regulatory compliance of research reports was the responsibility of the supervisory analysts at RHB’s head office in Malaysia.

The written policies and procedures apportion responsibility to the head of research, but the firm has admitted that it did not give the list to him and the compliance department was not involved in the approval of the research reports. An SFC visit uncovered the problem in 2016.

The Code of Conduct also obliges every firm to:

• record order instructions received from HNW clients in writing or on tape;
• devote enough resources to supervising its people;
• do enough to identify the person ultimately responsible for originating an instruction in relation to a transaction;
• not process a transaction for a HNW client unless he has authorised it specifically and in writing beforehand (paragraph 7.1).

During the SFC’s inspection in 2016, RHB was not able to produce the requisite telephone order records for a client's securities trading account. Eventually, RHB claimed that someone had authorised the relevant account executive (by word of mouth) to use his own discretion when trading on the client's behalf when the account was opened in July 2014.