Interactive Brokers Hong Kong Fined $4.2 Million by SFC for Client Asset Breaches

Interactive Brokers Hong Kong fined $4.2M by SFC for regulatory breaches in client asset handling due to expired authorities. No client loss reported.

Key points:

• IBHK used expired authority to loan client securities due to a programming error.
• The SFC fined IBHK $4.2M, acknowledging no client loss and IBHK’s cooperation.

The Securities and Futures Commission (SFC) has today announced a reprimand and a $4.2 million fine levied against Interactive Brokers Hong Kong Limited (IBHK) for regulatory breaches concerning the handling of client assets.

An SFC investigation revealed that between December 3, 2017, and October 23, 2020, IBHK improperly relied on the expired standing authority of 7,911 clients. Furthermore, this resulted in the company loaning its securities, listed on the Stock Exchange of Hong Kong Limited, under a securities borrowing and lending agreement without valid authorization.

Interactive Brokers Hong Kong Fined $4.2 Million by SFC for Client Asset Breaches

The SFC’s findings indicate that this lapse occurred due to a programming error within IBHK’s systems, which led to the failure to send timely renewal notices for the standing authority to the affected clients during the relevant period.

The regulator stated that IBHK’s oversight constitutes breaches of the Securities and Futures (Client Securities) Rules (CSR) and the Code of Conduct, which are in place to safeguard client assets and ensure proper operational procedures by licensed corporations.

In determining the disciplinary action, the SFC considered several factors. These included IBHK’s proactive remedial measures taken to rectify the issue and the company’s self-reporting of the breach to the SFC.

The SFC acknowledged that IBHK’s conduct was not intentional and that there is no evidence to suggest any financial loss suffered by the clients as a direct result of these unauthorized securities loans. Furthermore, the regulator noted IBHK’s cooperation throughout the investigation and its acceptance of the SFC’s findings and the imposed disciplinary sanction.

This action serves as a reminder to all licensed corporations in Hong Kong of the critical importance of maintaining robust internal controls and ensuring the proper handling of client assets in full compliance with regulatory requirements.

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