A Morgan Stanley unit has been fined HK$18.5 million ($2.4 million) by Hong Kong’s securities regulator over internal control failures. The control failures — covering a period between 2013 and 2016 – were also related to position limits, said the regulator, which reprimanded the U.S.-based investment bank as well, according to Bloomberg.
Morgan Stanley fined for internal control failures
In a statement on Wednesday, the Securities and Futures Commission (SFC) said Morgan Stanley Hong Kong Securities Ltd. hasn’t been able to avoid conflicts of interest, did not meet disclosure requirements related to short-selling orders and did not comprehensively document elements of its electronic trading systems. Also Morgan Stanley failed to report about 29,000 short-selling transactions from January to November 2014. The SFC said the Morgan Stanley unit cooperated in resolving its regulatory concerns.
“The unit also agreed to engage an independent reviewer to conduct a forward-looking review of its internal controls to ensure compliance with the relevant regulatory requirements,” the regulator said.
Under SFC rules, firms should avoid apparent and potential conflicts of interest by establishing and maintaining adequate “Chinese Walls.” This will help them keep the dealers that handle discretionary orders separate from those that handle principal accounts.
SFC has strict rules for banks
Over the past year, the SFC has been aggressively clamping down on operational and control failures in banks’ trading businesses. A couple of months ago, two Bank of America units were publicly censured by the Hong Kong regulator, which found them guilty of breaches of the city’s takeover codes in two deals last year. In February, the SFC found Goldman Sachs guilty of infringing on parts of the takeover code when it acted as a financial adviser to Wing Hang Bank Ltd in a $5 billion offer for the Hong Kong lender in 2014, says Reuters.
In December 2015, a fine of HK$30 million was imposed on JPMorgan Chase for regulatory breaches by the firm’s institutional equities unit between 2010 and 2013. The regulatory breaches included breaking a ban on so-called naked short-selling, notes Bloomberg. In August 2015, the commission imposed a fine of HK$15 million on BNP Paribas SA’s local unit for breaking rules for operating dark pools. Later, the French bank shut down its trading venue, says Bloomberg.
At 11:08 a.m. Eastern, Morgan Stanley was up 0.91% at $31. Year to date, the stock is down almost 4%. The stock has a 52-week high of $35.74 and a 52-week low of $21.16.