HONG KONG: SFC Issues Fine of $4m Over Management of Tracker Fund

Monday June 20 2016

The Securities and Futures Commission (SFC) has reprimanded and fined State Street Global Advisors Asia Limited (SSGA) $4 million for its failure to comply with regulatory requirements in the management of Tracker Fund of Hong Kong (Fund).

An SFC investigation found that from 1 December 2008 to 30 June 2013, the cash balances of the Fund that were deposited with State Street Bank and Trust Company’s (SSBT) demand deposit account did not earn any interest because SSBT’s deposit rates on Hong Kong dollars were zero.  SSBT was the Fund’s trustee and an affiliate of SSGA.  SSGA did not check the rate of interest offered by other banks, which had interest rates above zero.

The SFC considers that SSGA had failed to ensure that interest received on the Fund’s Hong Kong dollar cash balances from its connected person was at a rate not lower than the prevailing commercial rate for a deposit of that size and term as required by the Code on Unit Trusts and Mutual Funds (UT Code).

The SFC also found that SSGA’s internal procedures on the management of the Fund’s cash balances were inadequate and that there had been a misrepresentation in six interim and annual reports of the Fund.

In deciding the sanctions, the SFC took into account that SSGA:

• co-operated with the SFC in resolving the SFC’s concerns;
• agreed to make a voluntary payment of $318,315 into the Fund;
• agreed to engage an independent reviewer to conduct an internal controls review of the cash management policy and procedures of SFC-authorized funds managed by SSGA; and
• has a clean disciplinary record in relation to its regulated activities.

Please click on the above link for further information.