The Securities and Futures Commission (SFC) has reprimanded and fined Asia Research & Capital Management Limited (ARCM) $1.75 million for failures relating to its non-compliance with the European Union’s short selling reporting requirements (EU Regulation) and to promptly notify the SFC of its material regulatory breaches (Note 1).
The SFC has also banned Mr Billy Wong Yim Chi, ARCM’s former Head of Compliance and Operations and Manager-In-Charge (MIC) for Compliance for two months from 10 October 2022 to 9 December 2022 (Note 2). This is because ARCM’s failures to comply with the EU Regulation were directly attributable to Wong’s failure to discharge his duties as ARCM’s MIC for Compliance and a member of its senior management during the material time.
On 14 October 2020, the UK’s Financial Conduct Authority (FCA) published a final notice of its enforcement action against ARCM for ARCM’s failures to disclose its net short position in London Stock Exchange-listed Premier Oil plc (Premier Oil) to the FCA and the public between 22 February 2017 to 3 December 2019 (Note 3).
The SFC’s investigation, conducted after the conclusion of the FCA’s enforcement action, found that ARCM failed to:
- implement adequate systems and controls in its compliance framework to monitor and ensure its short position in Premier Oil was properly reported to the FCA and disclosed to the public as required under the EU Regulation (Note 4);
- seek legal advice on its reporting obligations under the EU Regulation before it established a short position in Premier Oil even though ARCM was investing in a new jurisdiction and unfamiliar with the EU market (Note 4); and
- notify the SFC immediately upon becoming aware that it had materially breached the EU Regulation, and only did so after a delay of around two months (Note 5).
The SFC also considers Wong’s conduct fell short of the standard required of him as the MIC for Compliance and a member of ARCM’s senior management at the material time (Note 6).
In deciding the disciplinary sanctions, the SFC took into account all relevant circumstances, including:
- the remedial actions taken by ARCM to enhance its systems and controls on regulatory disclosure;
- the cooperation of ARCM and Wong in resolving the SFC’s concerns; and
- ARCM and Wong have otherwise clean disciplinary records.
- ARCM is licensed under the Securities and Futures Ordinance to carry on Type 9 (asset management) regulated activity.
- Wong was ARCM’s Head of Compliance and Operations from 2 February 2012 and the MIC for Compliance from 28 June 2017 to 30 April 2020. He was also licensed as a representative under the Securities and Futures Ordinance and accredited to ARCM to carry out Type 9 (asset management) regulated activity between 16 March 2012 and 30 April 2020. Wong took medical leave from ARCM from April to October 2019.
- The FCA found that ARCM failed to make a total of 155 notifications to the FCA and 153 public disclosures of its net short position in Premier Oil in breach of the EU Regulation (Regulation (EU) No 236/2012 of the European Parliament and of the Council of 14 March 2012 on short selling and certain aspects of credit default swaps). The FCA imposed a financial penalty of £873,118 on ARCM for its breaches of the EU Regulation.
- General Principle 2 (Diligence) of the Code of Conduct for Persons Licensed by or Registered with the SFC (Code of Conduct) requires a licensed person to act with due skill, care and diligence in conducting its business activities. General Principle 7 (Compliance) and paragraph 12.1 (Compliance: in general) of the Code of Conduct require licensed corporations to comply with, and implement and maintain measures appropriate to ensure compliance with relevant regulatory requirements.
- Paragraph 12.5 (Notifications to the Commission) of the Code of Conduct provides that a licensed corporation should report to the SFC immediately upon the occurrence of any material breach, infringement or non-compliance with the requirements of any regulatory authority which apply to the licensed corporation, or when it suspects any such breach, infringement or non-compliance.
- General Principle 9 (Responsibility of senior management) of the Code of Conduct requires the senior management of a licensed corporation to bear primary responsibility for ensuring the maintenance of appropriate standards of conduct and adherence to proper procedures by the firm. Paragraph 14.1 (Responsibility of senior management) of the Code of Conduct further provides that the senior management of a licensed corporation should properly manage the risks associated with the firm’s business, and where appropriate, seek all necessary advice on the business.