Published On: Mon, Mar 4th, 2013

HK SFC Reprimands and Fines Manulife Asset Management for Internal Control Failings

Mark Steward HK SFC Enforcement

Mark Steward HK SFC Enforcement

The Securities and Futures Commission (SFC) has issued a reprimand to Manulife Asset Management (Hong Kong) Limited (Manulife Asset Management) and fined it HK$24 million for inadequate internal controls in relation to the distribution of Manulife Global Fund from 2007 to 2012.

The decision follows an SFC investigation into the distribution of the Manulife Global Fund by Manulife Asset Management in which the SFC found a number of serious deficiencies in the way the Manulife Global Fund was distributed between 2007 and 2012.

The SFC’s findings focus on Manulife Asset Management’s systems and processes for understanding its customer’s financial situation, investment experience, and investment objectives in soliciting or recommending the sale of the Manulife Global Fund to them.

The SFC found that between 2007 and 2009, Manulife Asset Management obtained this information by performing an investor profile for each customer. However, 73% of the customers in 2009 were not profiled or their information was either incomplete or outdated for at least 12 months.

After 2010, Manulife Asset Management introduced a questionnaire to assess each customer’s risk profile. By February 2012, the new process had not been fully implemented to all customers and Manulife Asset Management still had not secured a completed risk profile questionnaire from 70% of its Manulife Global Fund customers.
Together with concerns about the quality and extent of Manulife Asset Management’s record-keeping, these failures have jeopardised Manulife Asset Management’s capacity to ensure that recommended securities are suitable for each customer.

Despite these failures, there has been no default in any of the sub-funds of the Manulife Global Fund nor has any customer complained about the performance or suitability of the fund. Moreover, Manulife Asset Management has a clean record and has co-operated with the SFC in resolving this matter, including agreeing to conduct an independent review of its distribution system for funds and to enhance its complaint handling procedures to resolve, in a fair and reasonable manner, all client complaints arisen from this matter.
The SFC’s Executive Director of Enforcement, Mr Mark Steward, said: “Intermediaries are obliged to ensure a product which they recommend is suitable for the customer. This cannot be done in a vacuum and is only effective if it is based on accurate, up-to-date information about the customer’s financial situation, needs and objectives. Manulife Asset Management failed to implement proper processes to comply with this most basic obligation for intermediaries.”

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