SFC reprimands and fines Credit Suisse (Hong Kong) Limited and Credit Suisse AG $2.8 million for regulatory breaches

The Securities and Futures Commission (SFC) has reprimanded and fined Credit Suisse (Hong Kong) Limited (CSHK) and Credit Suisse AG (CSAG) (collectively, Credit Suisse) $2.8 million over their failures to comply with the disclosure requirements when they published certain research reports on Hong Kong-listed securities (Notes 1 to 4).

The SFC found that CSHK and CSAG failed to disclose their investment banking relationships with subject companies in certain research reports on Hong Kong-listed securities published between 2006 and 11 August 2016.  This was caused by an information technology (IT) logic issue in one of Credit Suisse’s IT system feeds and it was rectified on 11 August 2016.

In addition, an update by Credit Suisse in August 2016 to revise the market maker disclosure in its research reports led to an inadvertent exclusion of that disclosure from a disclosure template for its research reports.  As a result, certain research reports on Hong Kong-listed securities distributed by CSHK or CSAG between August 2016 and 31 May 2017 did not disclose that CSHK was a market maker.  This issue was fully rectified on 31 May 2017.

The SFC takes the view that CSHK and CSAG have failed to put in place effective systems and controls to ensure compliance with the disclosure requirements and timely detection of the disclosure failures.

In deciding the penalty, the SFC took into account that:

• CSHK self-reported the two incidents to the SFC;
• CSHK and CSAG have cooperated with the SFC in resolving the SFC’s concerns; and
• Credit Suisse has taken remedial measures to rectify the failures and strengthen its internal controls and systems.

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Notes:

1. CSHK is licensed under the SFO to carry on business in Type 1 (dealing in securities), Type 2 (dealing in futures contracts), Type 4 (advising on securities), Type 5 (advising on futures contracts), Type 6 (advising on corporate finance) and Type 9 (asset management) regulated activities.
2. CSAG is registered to carry on business in Type 1 (dealing in securities), Type 4 (advising on securities), Type 6 (advising on corporate finance) and Type 9 (asset management) regulated activities.
3. In respect of CSAG, the failures in question concerned the business activities of the Hong Kong branch of CSAG.
4. Paragraph 16.5(b) of the Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission (Code of Conduct) requires that a firm that makes, or will make, a market in the securities in respect of the issuer or the new listing applicant should disclose that fact in the research report.  Paragraph 16.5(d) of the Code of Conduct provides that a firm that has an investment banking relationship with the issuer or the new listing applicant should disclose that fact in the research report.