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SFC secures conviction against ETRADE Securities (Hong Kong) Limited for marketing of unlicensed US brokerage services in Hong Kong

 

SFC secures conviction against ETRADE Securities (Hong Kong) Limited for marketing of unlicensed US brokerage services in Hong Kong

22 Sep 2017

Breaking News - SFC secures first criminal conviction for the offence of actively marketing in Hong Kong without a licence. 

 

In an important press release on 21 September 2017 the SFC advised that  the Eastern Magistrates’ Court today convicted ETRADE Securities (Hong Kong) Limited (ETrade HK) for actively marketing to the Hong Kong public US brokerage services provided by E*TRADE Securities LLC (ETrade US) which was not a licensee of the SFC. ETrade US is and was a broker-dealer registered with the U.S. Securities and Exchange Commission that provides online trading services in U.S. securities to its customers.  ETrade US was not licensed with the SFC during the relevant period. 

This is the first criminal conviction secured by the SFC against an entity for the offence of actively marketing in Hong Kong regulated activities carried out outside Hong Kong without a licence under the SFO. Under section 115 of the SFO, if (a) a person actively markets, whether by himself or another person on his behalf and whether in Hong Kong or from a place outside Hong Kong, to the public any services that he provides; and (b) such services, if provided in Hong Kong, would constitute a regulated activity, then (i) the provision of such services so marketed shall be regarded for the purposes of section 114(1)(a) as carrying on a business in that regulated activity; and (ii) the person’s marketing of such services shall be regarded for the purposes of section 114(1)(b) as holding himself out as carrying on a business in that regulated activity.

ETrade HK pleaded guilty to aiding and abetting ETrade US in holding itself out as a SFC licensee when it was not.  ETrade HK was fined $20,000 and ordered to pay the SFC’s investigation costs.

The SFC alleged that ETrade HK had continually marketed the brokerage services of ETrade US for more than four years from around 11 May 2009 to 31 January 2014 through newspapers, magazines, and on the MTR, television, radio and online.

As a result of the marketing initiatives and services provided to ETrade US’s Hong Kong-based clients, ETrade HK had received revenue from ETrade US.

While this is a specific set of facts and it is certainly aggressive for a firm to be marketing the services of an overseas affiliate to the public, the SFC has a long history of asking questions about this during both licensing and inspections about this area (including particularly for asset managers how they can deal with Hong Kong based professional investors who may wish to engage the services of an overseas affiliate of the Hong Kong T9 licence holder).  We note that the FAQ on active marketing has not yet been updated since 2003 despite numerous questions from the industry about the exact meaning of this term.  We hope that the SFC takes the opportunity to consult with the industry more broadly on this important point.  In the meantime, if you have any concerns,  please contact Philippa Allen (philippa.allen@complianceasia.com) or Alex Duperouzel (alex.duperouzel@complianceaasia.com) or Steve Bai (steve.bai@complianceasia.com).

 
 

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