Hong Kong’s Securities and Futures Commission (SFC) has reprimanded and fined Hang Seng Investment Management Ltd. (HSIM) HK$3 million (US$384,600) for failure to comply with regulations related to the deposit of cash from its funds with “connected persons”.
HSIM is the asset management arm of local lender Hang Seng Bank.
The disciplinary action followed an independent review jointly agreed by the SFC and HSIM, according to a May 31 statement from the regulator.
The review found that “HSIM-managed funds maintained substantial cash deposits with connected persons” from 2010 to 2016, “but the interest received on these cash deposits was at a rate lower than the prevailing commercial rate”, SFC says.
Under SFC regulations, asset managers are barred from depositing cash that is part of their funds’ assets with a connected person unless interest is paid at a rate that’s no less than prevailing commercial rates.
If HSIM had complied with the rule, the company would have earned interest of about HK$875,648 from the cash deposits, according to the regulator.
“Although HSIM had procedures in place to check the interest rate offered by other banks, it did not apply the procedures to deposits placed in the funds’ current accounts maintained with The Hong Kong and Shanghai Banking Corporation Limited (HSBC) as it had inadvertently and mistakenly presumed that those accounts were non-interest bearing,” SFC says.
HSBC is the Hang Seng Bank’s parent group.
The regulator considers HSIM’s internal controls and procedures on cash management of the funds to have been inadequate, and that the company failed to minimise conflicting interests between investors and the connected persons.
It’s not clear how many companies have been caught for breaching the deposit rule.
According to a Hong Kong-based stock analyst who spoke with Asia Asset Management on condition of anonymity, a number of asset managers have been fined in the past for depositing their funds’ cash with their trustees without earning interest “but this kind of violation is not very common”.
Meanwhile, HSIM says in a separate statement that it accepts the regulator’s decision and will voluntarily pay the outstanding interest to the 39 funds that were affected.
