It happens that Mr Liu was also a Responsible Officer (RO) of the Licensed Corporation in question and its Manager in Charge (MIC) with Overall Management Oversight and the MIC for the relevant Key Business Line.
On its face this is a significant development, given that Mr Liu is said to be the first MIC to face disciplinary action, with the potential to provide insight into how the SFC intends to approach holding senior management accountable for a Licensed Corporation’s compliance failures under the MIC regime. However, a review of the Statement of Disciplinary Action reveals that, at least for the time being, it is BAU.
The SFC action was born out of an investigation into a badly mishandled share placement. The Statement of Disciplinary Action details a litany of internal control failures, breaches of the Code of Conduct, breaches of the Placing Guideline and even AML breaches, which surrounded the handling of client applications. Add into the mix the fact that the firm’s RO and the ‘key decision-maker in Fulbright’s acceptance of the Applications’ was Mr Liu, the outcome would not be any different had it happened pre-MIC regime. Indeed, one has to read in as far as page 6 of the Statement before mention is made of Mr Liu’s MIC status.
In summary, the enforcement action against Mr Liu does not tell us anything we did not know already. In particular, this action provides other MICs with no insight into how heavily they might lean on delegation to qualified and competent colleagues as a defence for compliance breaches of the Licensed Corporation. Expectant MICs will need to await future enforcement actions or the outcome of the SFC’s thematic reviews relating to MICs. For more information, please refer to the documents published by SFC:
- SFC announces thematic review of remote booking, operational and data risk management practices
- SFC Compliance Bulletin: Intermediaries
To recap the MIC regime is intended as a regulatory tool to incentivise managers to take a greater direct interest in how effectively his or her team are carrying out tasks delegated to them. If the delegates perform inadequately – for example, because they do not fully understand their role or because the chain of responsibility was unclear – then the buck stops with the MIC. This means that an MIC may be punished for something of which s/he had no knowledge because the regulator deems that MIC could and should have done more.
The question that is begging an answer is: at what point and/or in what circumstances can the MIC safely say s/he has done enough and that ignorance of the misconduct is excusable. We are waiting to see what the SFC considers those circumstances might be in practice. Disciplining an RO and MIC with personal knowledge and/or direct involvement with the compliance breach in question reveals little. The first true enforcement action against an MIC has yet to happen.
Further details can be found here.
