Compliance vs Ethics

SFC has recently banned several licensed representatives of broker firms for life from re-entering into the industry. Such disciplinary actions typically reflected serious misconducts regarding integrity.

In one case, the licensed representative had used client accounts and related accounts to conduct her personal securities trading in securities. To settle the unauthorised trades, she sold clients’ stock holdings without the clients’ instructions and misappropriated cheques issued by her employer and its clients. She concealed the unauthorised trading and misappropriation of client assets by falsifying statements of accounts and lied to the clients that statements of accounts were only issued semi-annually for environmental reasons.

In another case, the licensed representative had manipulated the share price of a listed company. He lied to the SFC investigators by blaming his clients for the manipulation, and by asking those clients to lie about this to his employer and to SFC. He told one of those clients that SFC would not take any action against her but it would revoke his licence, in order to coax her into assuming the responsibility for the manipulative orders. As a result, he was prosecuted for market manipulation and his clients were prosecuted for misleading SFC.

Compliance and ethics are a bit different. Non-compliance means you fail to follow the rules of the game, which may or may not be a moral problem. But the subjects in the above cases are obviously unethical and deserve the "ban for life" penalty.

The role of compliance officers is to ensure compliance with regulations but not to maintain ethical standards of adults. I don't believe in any compliance training which can transform a devil into an angel.

(I will be out of town from 27 to 30 Nov. Will blog again on 1 Dec.)