The Securities and Futures Commission of Hong Kong has fined Convoy Asset Management Limited for control failures in respect of the solicitation and recommendation of bonds to HNW clients.

The firm 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.

The SFC says that it referred clients to a third-party platform between March 2015 and January 2017 to execute 30 transactions of bonds listed under Chapter 37 of the Main Board Listing Rules (these are known as "Chapter 37 bonds"), some of which involved solicitations or recommendations made to clients.

In recommending Chapter 37 bonds to clients, the firm failed to:

• conduct proper and adequate "product due diligence" on these bonds before making recommendations or solicitations;
• have an effective system in place to ensure that the recommendation or solicitation in relation to bonds was suitable for and reasonable in all the circumstances;
• keep proper records of the investment advice or recommendation given to its clients and provide each of them with a copy of the written advice; and
• have the right internal controls and systems in place to supervise and monitor the sale of bonds through the third party platform and to ensure its compliance with regulatory rules.

In deciding on the firm's punishment, the SFC took into account the following.

• Convoy failed to build up a system effective enough to ensure that its products were suitable for customers, despite the SFC’s repeated reminders to licensed corporations on the subject of 'suitability' and specific guidelines regarding the selling of fixed income products, complex and high-yield bonds.
• The SFC's desire to make an example of Convoy.
• There is no evidence suggest that Convoy's clients lodged any complaints or suffered losses.
• Convoy has decided to cease selling Chapter 37 bonds to clients.
• It is now under the management of a new team of directors and managers-in-charge.
• It did its utmost to resolve the SFC’s concerns.
• It has an otherwise untarnished disciplinary record.