The Securities and Futures Commission of Hong Kong has reprimanded and fined wealth manager Potomac Capital Ltd for breaking the Securities and Futures (Financial Resources) Rules.

Section 6(1) of the rules stipulates that a licensed corporation such as Potomac Capital must, at all times, keep the requisite amount of liquid capital, i.e. the amount by which its liquid assets exceed its ranking liabilities.

According to financial returns that Potomac submitted to the SFC, it had an excess liquid capital of more than HK$5 million between November 2016 and May 2017. A major component of its liquid capital, i.e. “other assets arising from asset management”, was comprised solely of account receivables from two clients. Potomac had included in its liquid assets certain fees receivables from the clients outstanding and accumulated since around April 2013, which fall outside the length of period (i.e. 1 or 3 months depending on whether the fee receivable has been accrued, billed or fallen due for payment) prescribed under section 35(a) of the rules, which the regulator believes Potomac to have misinterpreted. Had Potomac excluded these aged receivables, as they are called, the regulator says that its liquid capital would have been much lower.

Potomac has HK$2 billion mandated in AuM.