The Securities and Futures Commission of Hong Kong has reprimanded iSTAR International Futures Co Ltd, now known as Rifa Futures Ltd, and fined it HK$3 million (US$385,840) for its failure to comply with anti-money-laundering rules when processing third-party fund transfers.

An SFC investigation found that between January and July 2014 Rifa transgressed when handling third-party deposits and transfers by failing to obtain proper written instructions from clients and by not verifying the identities of third parties before effecting third-party deposits on numerous occasions. Under paragraph 2 of the SFC's guidance note on Suggested Control Techniques and Procedures for Enhancing a Firm’s Ability to Comply with the Securities and Futures (Client Securities) Rules and the Securities and Futures (Client Money) Rules, which it published under section 399 Securities and Futures Ordinance (under which Rifa is licensed) in April 2003, every firm ought to ask its clients to issue written instructions in all their dealings with that firm (except for trade instructions). These should bear the clients' signatures which the firm should in turn match up against those on the clients' account-opening documents. Whenever the instructions provide for acts by a third party on a client’s behalf, the financial firm should verify the identity of the designated third party.

Rifa did not make sufficient enquiries concerning third party deposits and maintain proper records of the findings in accordance with paragraphs 5.10 and 5.11 of the second edition of the Guideline on Anti-Money Laundering and Counter-Terrorist Financing.

The regulator also says that the firm did not make the approval process in respect of third-party deposits effective; it did not provide adequate anti-money-laundering training to its staff; and it had no appropriate or effective compliance function.

The SFC was likewise concerned about Rifa's failure to make appropriate enquiries to help it keep third-party fund transfers consistent with its customers’ known legitimate activities.

On one occasion, Rifa breached the Securities and Futures (Client Money) Rules by effecting a payment from a client’s account to the account of one of its responsible officers. Section 5(3) of the Securities and Futures (Client Money) Rules provides that a licensed corporation may not pay any client money to any of its employees unless that employee is the client on whose behalf such client money is being held.

In deciding the disciplinary sanction, the SFC took into account the fact that Rifa has a clean disciplinary record before the present case. It was also impressed - in a way that the British Financial Conduct Authority would not have been - with the fact that Rifa has since taken some action to remedy its deficiencies; co-operated with the regulator; and agreed to hire an external reviewer to look at its AML controls.