The Securities andFutures Commission has fined XHK Limited HK$2.5 million for regulatory breachesrelating to financial reporting, capital adequacy, and client money handling.XHK operates as theHong Kong regulated entity associated with the EXANTE trading group, amulti-asset brokerage offering trading services across securities, futures, FX,and CFDs through regulated entities in different jurisdictions.XHK Hit Over Capital BreachesThe disciplinaryaction followed an SFC investigation triggered by self-reports from XHK. TheSFC found accounting errors in financial returns submitted under the Securitiesand Futures Rules, resulting in both overstatements and understatements ofliquid capital between January 2020 and June 2021.After corrections,XHK’s required liquid capital was found in deficit for four months, rangingfrom HK$3.6 million to HK$32.3 million, in breach of the rules.XHK Faces Segregation Rule BreachesThe SFC said theissues were due to failures in overseeing external service providers preparingfinancial returns. The firm did not ensure they were competent or sufficientlyexperienced. Staff were also not familiar with FRR requirements and failed to identifyerrors before submission.The regulator alsofound that between March and April 2021, XHK transferred up to HK$206 millionof client money from segregated accounts to overseas brokers without writtendirection or standing authority, as required under client money rules.In addition, betweenFebruary 2019 and October 2021, XHK failed to transfer non-client money,including about HK$38 million in commissions and interest, out of segregatedaccounts within one business day after identifying it as such. This breachedthe Client Money Rules.The SFC said thesefailures also constituted breaches of the Code of Conduct.No Client Losses Reported SFCIn deciding thepenalty, the SFC considered the duration and extent of the failures, remedialmeasures, absence of client losses, clean disciplinary record, and cooperationwith the investigation, which facilitated early resolution.An XHK spokespersonsaid:“We accept the SFC's findings and apologise to our clients and stakeholders.These were serious operational failures. Importantly, based on ourinvestigations to date, we have found no evidence of financial loss to clientsas a result.” “We are in the processof developing a comprehensive remediation plan — including enhancements to ourprocesses and controls — and are committed to its full and timely execution.”This article was written by Tareq Sikder at www.financemagnates.com.