SFC raises the bar for client onboarding – would your process stand up to scrutiny?

On 22nd May, the SFC published a circular setting out the findings from a recent review of the onboarding processes of 12 Hong Kong brokers. The findings are stark – the SFC found that forged documents had been accepted, and clear red flags and irregularities had been missed, in a material number of cases.

A particular area of focus of the review was overseas and Mainland clients, with the SFC setting out additional guidelines for opening accounts on behalf of Mainland clients as a result of its findings. This coincides with a planned crackdown from the CSRC on firms they believe are unlawfully providing services cross-border to Mainland clients, with Tiger Brokers (NZ) Limited, Futu Securities International (Hong Kong) Limited and Longbridge Securities (Hong Kong) Limited named as being in breach. The CSRC also set out plans to eradicate all such unlawful cross-border business within 2 years.

The SFC have advised all relevant LCs to conduct an internal review of their onboarding practices, with the possibility of mandatory reviews by external consultants in certain circumstances. As such, all LCs should take steps now to ensure that:

• Their onboarding process is clearly documented, and aligns with the SFCs guidelines

• Document review processes are suitably robust, and have clear routes for challenge/escalation of suspicious documentation

• The approach to mainland and overseas and Mainland clients is clearly documented, with a legal or regulatory opinion for each jurisdiction where potential clients may be serviced

• Regular file reviews are performed by compliance or external advisors to provide assurance of the process

• Monitoring is in place to detect suspicious account activity (e.g. deposit and withdrawal with no trading activity, indicative of potential layering).

If you are concerned about the SFC findings, ComplyCraft can help:

• We can provide an independent review of your onboarding process and associated oversight/governance, to ensure you are aligned to the SFCs expectations

• We routinely assist firms with onboarding file reviews, to provide assurance of the effectiveness of the process

• We can provide guidance on the cross-border regulatory frameworks for most major jurisdictions (i.e. rules on servicing/soliciting clients)

• We help firms to build a comprehensive risk assessment for Financial Crime, allowing resources to be effectively targeted and mitigation strategies efficiently designed.