As announced on 4 Mar 2013, SFC reprimanded Manulife Asset Management (Hong Kong) Limited (MAM) and fined it HK$24 million for inadequate internal controls in relation to the distribution of Manulife Global Fund (authorized by SFC) from 2007 to 2012.
SFC's findings focus on MAM's systems and processes for understanding its customer’s financial situation, investment experience, and investment objectives in soliciting or recommending the sale of the Fund to them.
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 However, 73% of the customers in 2009 were not profiled or their information was either incomplete or outdated for at least 12 months.
Needless to say, "not profiled" is more severe than "incomplete" which is in turn more severe than "outdated". However, SFC gave only the total percentage (73%) of all these deficiencies but did not provide the breakdown.
After 2010, MAM introduced a questionnaire to assess each customer's risk profile. By Feb 2012, the new process had not been fully implemented to all customers and MAM still had not secured a completed risk profile questionnaire from 70% of the Fund's customers.
Together with concerns about the quality and extent of its record-keeping, these failures have jeopardised MAM's capacity to ensure that recommended securities are suitable for each customer.
Despite these failures, SFC said there has been no default in any of the sub-funds of the Fund nor has any customer complained about the performance or suitability of the fund. Then how did SFC come up with such a huge amount of penalty? Of course, MAM is a big firm. If it was a small IFA incurred with the same deficiencies, I don't think SFC could impose a fine of $24 million.
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