The latest compliance news: regulatory developments, punishments, guidance, permissions and new product and service offerings.

China
Chinese stock markets have halted processing at least 60 initial public offering applications as regulators investigate intermediaries in the deals, including Deutsche Bank’s Chinese securities venture, Reuters reported on Friday last week. 

The newswire said exchange disclosures last Wednesday showed that there were 12 IPO plans in Shanghai's tech-heavy STAR Market and 48 in Shenzhen's start-up market ChiNext were suspended. 

Each had hired one or more of three companies being investigated by securities regulators – Zhong De Securities Co, accountancy firm SineWing and law firm King & Wood Mallesons – the exchange filings said. Zhong De is a joint venture between Shanxi Securities and Deutsche Bank.

All three companies advised Leshi Internet Information and Technology, which the China Securities Regulatory Commission (CSRC) last March said conducted accounting fraud between 2007 and 2016.

Beijing is cracking down on securities and accounting fraud, seeking to attract more money into capital markets to fund innovation and economic growth. At the same time, China is also tightening controls on a number of business sectors such as technology and education, ostensibly to reduce inequalities in education and to curb the allegedly damaging impact of excess video game use.

Securities and Futures Commission
Hong Kong’s Securities and Futures Commission has fined and reprimanded Citigroup Global Markets Asia Limited (CGMAL) the sum of HK$348.25 million ($44.64 million).

The penalty was imposed because the firm allowed various trading desks under its cash equities business to disseminate mislabelled Indications of Interest and make misrepresentations to institutional clients when executing facilitation trades from 2008 to 2018.

The watchdog said “such pervasive dishonest behaviour would not have continued but for serious lapses and deficiencies in its internal controls, compliance function and management oversight,” it said in a statement.

The SFC said CGMAL’s failures and misconduct were attributable to the failures by certain former members of its senior management to discharge their supervisory duties. The SFC will commence disciplinary proceedings against these individuals in due course.

CGMAL has taken remediation steps and enhancement measures to rectify and strengthen its internal controls in respect of IOIs and client facilitation activities, including the appointment of an independent reviewer to review and validate its controls framework, the SFC said.

Since at least 2008, CGMAL’s equities sales trading desk had sent IOIs tagged as “Natural,” “In Touch With” and/or “P:1” to clients when there was no genuine client interest or specific client that CGMAL was in touch with. 

The mislabelled IOIs, which were generated with reference to a certain percentage of the average daily volumes of selected blue-chip stocks in the market, were designed to provoke client enquiries with the purported belief that traders would be able to find natural opposite flows to cross with the client order given the active trading of the stocks and the size of CGMAL’s trading platform.