Content of Penalty:
The Securities and Futures Commission (SFC) has publicly reprimanded and fined Noah Holdings (Hong Kong) Limited (Noah HK) HK$5 million over Noah HK’s internal system and control failures in its sale and distribution of investment products.
In particular, Noah HK had failed to comply with various regulatory requirements on know-your-client, product due diligence, suitability assessment, information for clients, and sales supervision and controls (Note 1).
The SFC’s disciplinary action followed an SFC inspection and an independent review jointly agreed by the SFC and Noah HK, which found that between January 2014 and June 2016 (Note 2):
- Noah HK’s risk profiling questionnaires for assessing clients’ risk appetite and risk tolerance level were defective in certain areas;
- Noah HK failed to ensure the features and risks of certain investment products were sufficiently considered when assigning a risk rating to the product as part of the product due diligence process;
- Noah HK had sold clients potentially unsuitable investment products as a result of its deficient risk profiling questionnaires and product risk rating framework (Note 3);
- Noah HK did not require its sales staff to document the rationale underlying the investment advice or recommendations prior to March 2016, nor did it require them to provide clients with copies of such information; and
- Noah HK did not have an adequate supervision and control mechanism in place for monitoring the sale of investment products.
In reaching this resolution, the SFC took into account all relevant circumstances, including that Noah HK:
- engaged an independent reviewer to conduct an independent review to address the SFC’s regulatory concerns and review its internal systems and controls;
- agreed to reimburse the affected clients (Note 4);
- took remedial actions to strengthen its internal systems and controls and proactively engaged an external consultant to assist in the process;
- undertook to provide the SFC with a report prepared by an independent reviewer within 12 months confirming that all the identified concerns have been properly rectified;
- cooperated with the SFC in resolving its concerns; and
- has no disciplinary record with the SFC.