Hong Kong’s securities regulator imposed a fine of HK$348.3 million ($44.6 million) on Citigroup for “serious regulatory failures” when executing stock trades for clients between 2008 and 2018, citing deficiencies in internal controls, compliance and management oversight for the “pervasive dishonest behaviour.”
The Securities and Futures Commission reprimanded Citigroup’s Asian markets unit for allowing trading desks under its cash equities business to make misrepresentations to institutional clients, according to a
The U.S. bank’s failures in Hong Kong “exposed a culture that encouraged chasing revenue at the expense of basic standards of honesty,” Ashley Alder, chief executive of the SFC, said in the statement. The “unrelenting” pressure to gain more business and increase market share meant “deceptive practices were deployed at the expense of clients’ best interest and to the detriment of market integrity,” he said.
“We have fully cooperated with the SFC’s investigation and have implemented significant remedial measures to strengthen our compliance and internal controls,” James Griffiths, a spokesman for Citigroup in Hong Kong, said in a statement. “Fostering a culture of ethical behaviour has also been and continues to be a top priority for Citi.”
Independent reviewer
The SFC statement noted Citigroup Global Markets Asia has taken steps to rectify and strengthen its internal controls, including the appointment of an independent reviewer to review and validate its controls framework.
Citigroup, home to one of the world’s biggest investment banks, was already under pressure to improve its controls.
The Bank of England hit the New York-based lender with a record
Citigroup ousted a team of Hong Kong stocks traders in early 2019 after a sweeping internal investigation, Bloomberg reported at the time. One of the key issues was whether traders were properly disclosing the bank’s financial interest in certain stock trades. The lender had “multiple opportunities” since at least 2014 to identify the wrongdoing but failed to do so until a SFC on-site inspection in late 2018, the regulator said.
Citigroup employees sent clients false “indications of interest” about stocks to drum up interest, according to the SFC statement. They made “misleading statements” to the customers about how trades would take place, sometimes indicating that the bank would execute the trade on a so-called agency basis rather than as a principal.
Investors generally prefer agency trades, when a brokerage acts solely as an intermediary matching buyers and sellers, the SFC said. That compares with principal trades, when the brokerage buys stocks from a client, taking the position on to its balance sheet, and then sells them to another, hoping to gain from the difference.
By misrepresenting principal trades as agency trades, Citigroup “could avoid losing a trade to a competitor,” according to the Hong Kong regulator.
“The prevalence of the misconduct among the desks over a period of more than 10 years indicates serious and systemic lapses,” the SFC said.
