We employ various tools, including on-site reviews and off-site monitoring, in supervising licensed corporations. Our focus is on their financial risks and how they conduct business.
On-site reviews
On-site reviews of licensed corporations are a key tool we employ in our supervisory work. Such reviews help us achieve a high-level understanding of a firm's business operation, risk management and internal controls and gauge their degree of compliance with relevant laws and regulatory requirements. The four types of on-site review are routine inspection, special inspection, thematic inspection and prudential visit.
Off-site monitoring
Off-site monitoring primarily entails maintaining on-going interactions with the licensed corporations to understand their business activities and risks and performing regular sensitivity or stress tests and detailed analyses of financial and non-financial intelligence. We also follow up on complaints and self-reported breaches and consider applications for subordinated loans and rule modifications or waivers.
Non-compliance with laws and regulations
In the event of non-compliance with applicable laws and regulations, control deficiencies, or failure to properly manage financial risks, we communicate such findings and/or concerns to the licensed corporation, which will be required to take prompt and effective remedial actions.
Where major breaches have been identified, we may conduct further inquiry or investigation and, where appropriate, take disciplinary actions, which include reprimands, revocation or suspension of licences and fines.
In cases where internal controls are poor and client assets may be exposed to misappropriation risks, we may require the firm to appoint external consultants to conduct internal control review or circularisation of clients' balances and positions. We may also impose appropriate licensing conditions and when investors' interests are at imminent risk, expeditious actions will be taken to preserve client assets and to contain the damage as much as possible. These actions can include issuance of a notice to restrict the way the firm conducts its business or deals with its property1.
Communicating with the industry
Where issues identified during our supervisory work are considered useful for sharing with the industry, we may issue a report, circular or answers to frequently asked questions to remind the industry of particular legal or regulatory requirements and/or to better communicate the expected standards.
Information pertaining to our supervisory activities during the reporting year can be found in our Annual Report.
1 Sections 204 to 210 of the Securities and Futures Ordinance empower us to impose a prohibition or requirement in respect of any licensed corporation to restrict the way the firm conducts its business or deals with its property.
Last update: 7 Aug 2012