Hong Kong SFC Finds Serious Account-Opening Failures at 12 Brokers

The securities regulator found questionable or forged documents, weak customer due diligence and inadequate monitoring of relationships with overseas intermediaries.

Hong Kong’s Securities and Futures Commission (SFC) has identified significant deficiencies after reviewing the account-opening practices of 12 licensed securities brokers.

The regulator found inadequate due diligence on account-opening documents and weaknesses in the assessment and ongoing monitoring of cross-border correspondent relationships with overseas intermediaries.

Some brokers accepted questionable or forged documents from customers and failed to identify irregularities involving overseas intermediaries. Several affected accounts were later used for suspicious fund transfers without any securities trading activity.

The SFC did not name the 12 brokers.

Regulator orders internal reviews

All licensed corporations have been instructed to conduct internal reviews as soon as practicable to determine whether questionable or forged documents were accepted during customer onboarding.

Accounts opened using such documents must be closed.

The SFC identified several warning indicators, including:

• Accounts used only to receive and transfer funds;
• Accounts becoming inactive after all funds were withdrawn;
• Frequent changes to customers’ bank accounts;
• Unrelated customers sharing bank accounts or addresses; and
• Customer profiles inconsistent with an overseas intermediary’s jurisdiction or usual client base.

Additional requirements for mainland investors

Most of the questionable or forged documents identified during the review involved accounts belonging to mainland Chinese investors.

The SFC introduced additional measures for opening and managing these accounts. Brokers must close accounts opened with questionable or forged documents, as well as qualifying zero-balance dormant accounts.

For new accounts, brokers must obtain written declarations from investors. Deposits, withdrawals and settlement payments must be made exclusively through eligible bank accounts held in the customer’s own name.

Licensed firms providing services to customers outside Hong Kong must comply with regulatory requirements in both Hong Kong and the relevant overseas jurisdictions.

The SFC said non-compliant firms could face external look-back reviews, restrictions on business activities, licensing conditions or enforcement action. Senior management remains responsible for account-opening controls and compliance with applicable requirements.