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HK regulator fines CGML over unauthorized distribution of investment products in Taiwan

The sales persons of Capital Global Management Limited claimed that they understood sales of investment products in Taiwan were not allowed.

Hong Kong’s Securities and Futures Commission (SFC) today announces that it has reprimanded and imposed a fine of HK$1.5 million on Capital Global Management Limited (CGML) for failures to ensure compliance with local laws and regulations in distributing investment funds and offering investment advice in Taiwan, and to adequately supervise the business activities of its representatives to ensure such compliance.

In August 2015, the Prosecution Office of the Taipei District Court fined George T.W. Chen (George Chen) and Su Hsieh Chen (HC Su), former owners of CGML, NTD2 million and NTD0.5 million respectively for distribution of offshore investment funds and offer of investment advice in Taiwan from 2005 to 2014 without obtaining prior approval, in contravention the Securities Investment Trust and Consulting Act of Taiwan.

Article16 of the Act states:

“No person may, itself or as an agent, engage within the Republic of China in the public offer, sale, or investment consultancy of offshore funds without first obtaining approval from the Competent Authority or effective registration upon filing with the Competent Authority.”

The Competent Authority is the Financial Supervisory Commission R.O.C. (Taiwan).

According to the SFC’s records, HC Su was the owner of the company which wholly owned CGML. CGML’s directors and responsible officers acknowledged that they were recruited by George Chen and HC Su and George Chen was their “boss”.

The SFC’s investigation found that CGML distributed investment products to clients in Taiwan during the period from July 2014 to April 2015. The transactions with clients in Taiwan account for about 96% of CGML’s distribution of investment products during that period.

At the relevant time, CGML’s licensed representatives acted as sales persons and were responsible for the distribution of investment products to the clients in Taiwan. The sales persons claimed that they understood sales of investment products in Taiwan were not allowed, but insisted that they were merely providing the clients with product information and responsible for client relationship management.

The clients in Taiwan say that the sales persons solicited investment business from and offered investment recommendations to them.

The SFC’s investigation shows that CGML’s licensed representatives distributed investment products and provided investment advice to clients in Taiwan, and that they did so with apparently little supervision.

CGML’s operation procedures show that the sales persons were responsible for introducing and promoting investment products to clients. While CGML’s licensed representatives had distributed investment products and provided investment advice to clients in Taiwan, CGML did not have procedures to ensure that its business activities were in compliance with the local laws and regulations in Taiwan. CGML’s guidelines on cross-border activities were not put in place until May 2015 and the guidelines did not provide for the steps to ensure compliance with the local laws and regulations.

CGML’s failures have been found to constitute breaches of General Principle 7, paragraphs 4.2 and 12.1 of the Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission, which require a licensed corporation to comply with, and implement and maintain measures appropriate to ensuring compliance with, the law and applicable regulatory requirements, and to diligently supervise persons employed to conduct business on its behalf.

As a licensed corporation, CGML must ensure its compliance with not only the laws and applicable regulations of Hong Kong, but also those of other jurisdictions in which it conducts business activities.

In deciding to take disciplinary action against CGML, the SFC has taken into account that CGML has no previous disciplinary record with the SFC.

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