Hong Kong’s Securities and Futures Commission (SFC) on Friday fined Citigroup Global Markets Asia Limited (CGMAL) $45 million for serious lapses and deficiencies in its cash equities business from 2008 to 2018.
The commission also reprimanded the company for failing to supervise its traders who “mislabelled” Indications of Interest (IOIs) and made misrepresentations to institutional clients when executing their trades. The review looked into interactions with clients on transactions where Citi acted in a principal capacity, rather than just broking a transaction between different parties.
Further, the watchdog has launched disciplinary proceedings against some former senior managers at the bank, but it didn’t reveal their identity nor how many people were involved.
Since 2014, the local unit of Citigroup, the third-largest US bank by assets, had multiple opportunities to identify and rectify the failures in its internal controls. However, the subsidiary failed to do so until the misconduct was discovered during an SFC on-site inspection in late 2018.
In that year, Citigroup’s Hong Kong trading desk fired eight traders and suspended three others after an internal investigation found that they had misled clients. The firing come in the wake of several investigations by the SFC, which found that Citi traders had taken the other side of client trades using the bank’s own balance sheet. The practice had effectively made Citigroup’s facilitation desk a principal in the trades, when the clients were told their trades would be executed on an agency basis, matching orders with those of other clients.
The SFC sanctioned Citigroup in part for not using an efficient market surveillance program to identify potential violations of trading rules earlier or independently verify the valuations of the mismarked positions.
SFC CEO Ashley Alder comments: “The severity of CGMAL’s failures exposed a culture that encouraged chasing revenue at the expense of basic standards of honesty. As a result, in the face of unrelenting commercial pressure to solicit more business and increase CGMAL’s market share, deceptive practices were deployed at the expense of clients’ best interest and to the detriment of market integrity.”
The SFC reviewed 174 sample trades executed by CGMAL’s various trading desks from January 2014 to December 2018. Out of this figure, the regulator found that in 127 cases, the heads and traders of the desks gave incorrect information to the client or took steps to conceal the principal nature of the trade.
“This resolves an issue relating to Citigroup Global Markets Asia Limited activities dating back to 2018. We have fully cooperated with the SFC’s investigation and have implemented significant remedial measures to strengthen our compliance and internal controls,” a Citi spokesman said.
