The Hong Kong Securities and Futures Commission has reprimanded and fined China Industrial Securities International Asset Management Limited HKD 6.8 million for failing to discharge its duties as manager of a private fund set up for Tahoe Life Insurance Company Limited between August 2019 and September 2020. The regulator found that, at the request of Tahoe Life’s chief investment officer, the firm entered into a series of unnecessarily complex arrangements involving structured notes linked to debt instruments issued by a Tahoe Life related company and the later transfer of those notes to another fund managed by a different manager. The arrangements added costs and risks, lacked a clear commercial rationale, and raised concerns about possible concealment of asset movements or connected party transactions. The SFC found that multiple red flags should have prompted closer scrutiny, but the firm did not exercise independent investment discretion, conduct adequate due diligence, or address those concerns. It also failed to ensure the fund’s investments complied with stated investment restrictions and objectives, and did not put in place effective measures to identify, manage and monitor the fund’s risks. In setting the sanction, the SFC cited the potential for the failures to facilitate misconduct or other improper activities, the approximately HKD 1.9 million in management fees earned during the period, and mitigating factors including remedial policy and procedure updates, staff compliance training, cooperation with the investigation and an otherwise clean disciplinary record.

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