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Thursday, July 11, 2019 - SFC fines Celestial Commodities for mishandling client money
Celestial Commodities Ltd / 時富商品有限公司
Source - https://www.regulationasia.com/sfc-fines-celestial-commodities-for-mishandling-client-money/?utm_source=Regulation+Asia+Subscription+-+Member&utm_campaign=6c01dcdce1-11Jul2019-RA&utm_medium=email&utm_term=0_d30b640721-6c01dcdce1-116647129&ct=t(11Jul2019-R
Where - Hong Kong, Special Administrative Region of the People's Republic of China
Cost - 6,300,000 HKD
Business line - Retail Brokerage

Celestial Commodities Limited may have been using client money to pay commission rebates for up to 20 years for the sake of operational convenience.

Hong Kong’s SFC (Securities and Futures Commission) has reprimanded and fined Celestial Commodities Limited and Celestial Securities Limited – subsidiaries of financial services conglomerate CASH Financial Services Group – for regulatory breaches and internal control failures related to mishandling of client money.

The SFC found that Celestial Commodities transferred approximately HKD 44 million (USD 5.6 million) from client accounts to pay monthly commission rebates to account executives on about 180 occasions between 2009 and 2016. The amounts involved in each transfer ranged from HKD 249,000 to over HKD 1 million.

Celestial Commodities typically replenished the client accounts within days, though the SFC found that on one occasion it took 41 days. The practice was said to be intended for operational convenience, and appeared to have commenced at least seven years ago, with some evidence suggesting it may have prevailed for more than 20 years.

The SFC also found that Celestial Securities transferred HKD 40 million from its client trust accounts into Celestial Commodities client trust accounts to meet various margin calls on time.

Both companies did not have proper controls in place to safeguard client money and supervise its staff, effectively giving free reign for accounting and treasury staff to handle client money with little supervision, instructions or guidance, the SFC said.

Though there was no evidence of client loss from the breaches, they were only discovered in the course of SFC inspections. Self reporting is usually a mitigating factor when the Hong Kong regulator issues penalties.

Celestial Commodities and Celestial Securities were fined HKD 4.9 million and HKD 1.4 million, respectively.

A copy of the statement of disciplinary action is available here.

In May, the SFC fined China Merchants Securities HKD 5 million for 800 incidents where it used funds from client trust accounts for purposes not allowed under the rules for handling client money.