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Hong Kong SFC Fines Noah Holdings $640,000 for Mismatch Transactions and Defective Risk Profiling

Hong Kong’s Securities and Futures Commission (SFC) has fined Noah Holdings $640,000 (HK$5 million) for regulatory breaches.  Noah HK, one of Hong Kong’s leading wealth management firm had lapses in control failures that led to incidents such as 1,243 potential mismatch transactions involving $532 million and defective Risk Profile Questionaires (RPQ).

” Hong Kong SFC Fines Noah Holdings $640,000 for Regulatory Breaches “

Following an SFC inspection by an independent review jointly agreed by the SFC and Noah HK between 2014 to 2016, Noah HK had failed to comply with various regulatory requirements on know-your-client, product due diligence, suitability assessment, information for clients, and sales supervision and controls.

Noah HK had engaged an independent reviewer to conduct an independent review, and have agreed to reimburse the affected clients, strengthened its internal systems.



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Findings:

  • Noah HK’s risk profiling questionnaires for assessing clients’ risk appetite and risk tolerance level were defective in certain areas;
  • Noah HK failed to ensure the features and risks of certain investment products were sufficiently considered when assigning a risk rating to the product as part of the product due diligence process;
  • Noah HK had sold clients potentially unsuitable investment products as a result of its deficient risk profiling questionnaires and product risk rating framework.
  • Noah HK did not require its sales staff to document the rationale underlying the investment advice or recommendations prior to March 2016, nor did it require them to provide clients with copies of such information; and
  • Noah HK did not have an adequate supervision and control mechanism in place for monitoring the sale of investment products.

Notes:

  • The independent reviewer identified that a total of 1,243 transactions worth about US$523 million, involving 757 clients, were affected by the identified concerns.  All of these affected clients were classified by Noah HK as “professional investors” as defined in the SFO and its subsidiary legislation.
  • In respect of each affected client who had redeemed the investment with a net realised loss or who is still holding the investment, Noah HK agrees to reimburse the client for the realised loss and/or make an offer to redeem or sell the client’s holding and reimburse the client for any loss resulting from the redemption or sale (as the case may be).

Source: SFC

 

About Securities and Futures Commission (SFC) 

The Securities and Futures Commission (SFC) is an independent statutory body set up in 1989 to regulate Hong Kong’s securities and futures markets.

We derive our investigative, remedial and disciplinary powers from the Securities and Futures Ordinance (SFO) and subsidiary legislation. Operationally independent of the Government of the Hong Kong Special Administrative Region, we are funded mainly by transaction levies and licensing fees.



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