Conviction for Marketing of Brokerage Services in Hong Kong Without Appropriate License

Like regulation in general, financial regulation and licenses apply only in the jurisdiction of the respective regulations and a license under these regulations is only valid in said jurisdiction.

By Rolf Haudenschild, Country Head Singapore, BRP (Asia) Pte. Ltd.

On 21 September 2017, the Hong Kong Securities and Futures Commission once again demonstrated that financial institutions are not dispensed of licensing when they act cross-border. The Eastern Magistrates’ Court convicted ETRADE Securities (Hong Kong) Limited for actively marketing US brokerage services provided by E*TRADE Securities LLC to the Hong Kong public without the required license in Hong Kong.

ETRADE Securities (Hong Kong) Limited had marketed the brokerage services of E*TRADE Securities LLC in Hong Kong for more than four years through newspapers, magazines, on the public transport, television, radio and online.

The Second Case

ETRADE Securities (Hong Kong) pleaded guilty to aiding and abetting E*TRADE Securities LLC in holding itself out as an entity licensed by the HK SFC when it was not. As a result, the Eastern Magistrates Court fined ETRADE Securities (Hong Kong) Limited HKD 20,000 and ordered it to pay the investigation cost of the HK SFC.

This conviction is the second case of the HK SFC publishing action against unlicensed cross-border activities. In 2015, the SFC had reprimanded and fined Kingston Securities Limited HKD 500,000 for fitness and properness concerns.

Travel to Macao

An employee of Kingston Securities Limited had travelled to Macao where he opened accounts for Macao residents and took orders and payments from these clients without a license in Macao.

The Monetary Authority of Macao had fined the firm for its breach of regulations in Macao. In addition, the HK SFC considered that this breach of laws of Macao cast doubt on Kingston Securities Limited’s reputation, character and reliability and thus ultimately on its fitness and properness.

Others Keep a Silent Eye

With the conviction of ETRADE Securities (Hong Kong) Limited, the HK SFC has proven that it continues to actively pursue cross-border activities without the required license. While the HK SFC makes its actions regarding unlicensed cross-border activities public, other regulators appear to keep a silent eye on such activities.