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The SFC’s latest fine highlights the need for strong internal controls to avoid reporting errors. The Hong Kong regulator publicly reprimanded Brilliance Asset Management for failure to ensure that accurate short position reports were submitted. The Licensed Corporation failed to submit the reports for four funds under its management in breach of the Securities and Futures (Short Position Reporting) Rules (SPR Rules).
The reasons for the failure to accurately report short positions appear to be simple careless mistakes that could happen to any other licensed corporation reporting short positions. For example, Brilliance failed to include short positions held in a new prime broker signed up. Or in another instance Brilliance used the wrong denominator for calculating their short position percentage (in this case Brilliance included A shares when they were only supposed to use H shares).
Separately it is also worth noting that the SFC acknowledged that whilst the statutory obligation under the SPR Rules fell on the funds instead of the licensed corporation, the licensed corporation was sanctioned in this case because the licensed corporation (Brilliance) was in fact the party preparing and submitting the short positions reports on behalf of the collective investment schemes.
This enforcement case is a timely reminder to fund managers in Hong Kong that are currently reporting short positions for the funds they manage to strengthen their internal processes to ensure that accurate short positions are being reported.
Our regulatory compliance consultants can assist you with enhancing your internal controls and operational procedures in this area. We can also provide you with training to ensure that your staff remain aware of the obligations in this area. Get in touch to find out more.