The former head of Citigroup Global Markets Asia Co., Ltd. (hereinafter referred to as "Citigroup Global Markets") was banned by the Hong Kong Securities Regulatory Commission for ten years.
On March 6, the Hong Kong Securities Regulatory Commission announced that Philip John Shaw, the former head of Citigroup Global Financial Services, a member of the board of directors, and head of Pan-Asia Executive Services, was prohibited from practicing for ten years. The penalty period will start from March 4, 2023 to March 3, 2033. .
Last year, the Hong Kong Securities Regulatory Commission issued a huge fine of 350 million Hong Kong dollars to Citigroup Global Markets Asia, which sparked heated discussions in the market.
What was disclosed yesterday is the inside story about this fine.
Failure to perform duties
The Hong Kong Securities Regulatory Commission's investigation found that Shaw, the former head of Citigroup Global Financial, introduced a new mechanism within the company in 2015 to facilitate the stock sales and trading counters to prepare a large number of incorrectly marked purchase intentions, which also involved the most actively traded blue chip stocks in the market.
These purchase intentions do not have any potential transaction instructions or intentions from specific customers behind them, but are marked as "natural" and "in contact" in order to trigger customer inquiries.
Shaw once described these purchase intentions as "the fakes (that is, false intentions)" and "fake flow (that is, false circulation)", showing that he does not believe that they are correctly labeled.
The so-called "purchase intention" refers to the organization's promotion or statement to customers, so as to find potential customers who are interested in trading.
In agency trading, licensed institutions look for counterparties (ie, natural liquidity) as agents, and match orders for customers' trading instructions.
In facilitated transactions, licensed institutions, as principals, use corporate funds to buy/sell securities from clients. After receiving inquiries from clients, if traders fail to find natural liquidity through agency methods, the convenience service counter of Citigroup Global Markets will step in to provide liquidity.
Although falsely labeled purchase intentions have been complained by many customers, Shaw has not stopped publishing mislabeled purchase intentions, and indicated to customers that they have been classified according to the standard framework of the European Financial Market Association and the Investment Association.
Under the framework, an "in contact" intent to purchase can be issued if a particular client can reasonably be expected to be interested in a transaction, and the resulting transaction is expected to be risk-free in nature.
On one occasion, after a trader told a client that Citigroup Global Markets was using "natural" interest to advertise liquidity, Shaw directed the trader not to come clean with the client about the source of liquidity behind the interest and to report to The client misrepresented in order to perpetuate the illusion created by the mislabeled offer.
In addition, since at least 2015, Shaw himself and his associates have committed misconduct including: providing customers with information that is not true or taking active steps to conceal the nature of the principals of the transactions; making misleading statement that the client may interpret the statement as an agency transaction, or remain silent even though there are indications that the client believes the transaction is an agency transaction; silence or Failing to indicate this to the client and failing to obtain the client's consent before forwarding the client's transaction instruction to the convenience counter for execution, etc.
Clarify the determination of the Hong Kong Securities Regulatory Commission
Regarding the misbehavior of Citigroup Global Financial executives who disregarded the interests of customers, the Hong Kong Securities Regulatory Commission stated that it must send a strong signal to the industry that such misconduct will never be tolerated.
"One of the major concerns of the (Hong Kong) SFC is that Shaw, through his misconduct, advocated within Citigroup Global Markets a standard of sacrificing client interests and basic integrity," said Christopher Wilson, executive director of the SFC's Enforcement Division. A culture of profit-seeking. In the circumstances, his conduct fell far short of the standard expected of a member of the senior management of a licensed intermediary, and sanction is warranted.”
The above findings revealed that Shaw failed to ensure that Citigroup Global Markets maintained appropriate standards of conduct and adhered to appropriate procedures, including ensuring that adequate policies and system controls were in place to monitor the issuance of subscription intentions and facilitate client activities, and to provide traders with appropriate training.
The SFC believes that Shaw's misconduct was willful and dishonest, and breached the licensee's primary duty to act in the best interests of its clients.
Had he properly discharged his management and supervisory responsibilities, Citigroup Global Markets' serious internal control deficiencies and regulatory violations could not have persisted for more than a decade.
At the same time, despite Shaw's experience and qualifications, he denies any wrongdoing and attempts to shift all responsibility to other managers and the compliance function of Citigroup Global Markets, reflecting that he does not understand himself as a responsible officer and senior management. Members of the hierarchy, without remorse.
"The disciplinary action against Shaw also demonstrates the (Hong Kong) SFC's determination to hold the company's failing senior management accountable, which is extremely important in pushing intermediaries to change their culture and behaviour," Wei Hongfu said.
As a result, the Hong Kong Securities Regulatory Commission announced that Shaw will be banned from practicing for ten years, and the penalty period will start from March 4, 2023 to March 3, 2033.
Citigroup Global Markets was fined HK$350 million
On January 28, 2022, the Hong Kong Securities Regulatory Commission publicly reprimanded Citigroup Global Markets and imposed a fine of HK$348.25 million.
At that time, the Hong Kong Securities Regulatory Commission stated that such widespread dishonesty would not have continued for ten years if it were not for Citigroup Global Markets' serious failures in internal controls, compliance and management oversight.
The Hong Kong Securities Regulatory Commission also believes that the failure and misconduct of Citigroup Global Markets can be attributed to the failure of some of its former senior managers to perform their supervisory duties and will initiate disciplinary proceedings against these individuals.
It is not difficult to see that the "former senior executives" mentioned earlier are Shaw in the press release on March 6.
Citigroup Global Markets subsequently took disciplinary action against employees involved in the misconduct and terminated them immediately, according to a statement from the SFC at the time.
Citigroup Global Markets has taken remedial steps and improvement measures to correct and strengthen internal monitoring measures for subscription intentions and customer facilitation activities, including appointing an independent review agency to review and verify its monitoring framework.
According to a combination of two press releases, Shaw was fired by Citigroup Global Financial in 2019.
"The severity of Citigroup Global Markets' failures reveals that the company has a culture that promotes profit rather than honesty. Therefore, when employees are faced with a market that attracts more business and promotes Citigroup Global Financial When there was pressure on market share, fraudulent tactics were adopted at the expense of the interests of clients. This is all because the management of Citigroup Global Markets did not meet the professional standards of a licensed intermediary.”
Olida also emphasized that the punishment of Citigroup Global and its executives demonstrates the SFC's zero-tolerance attitude and determination to eradicate misconduct by licensed intermediaries.