Title: Announcement regarding issuance of Disciplinary Board Resolution No. (34/2023) Disciplinary Board (22/2023) Authority and imposition of a fine against: EFG-Hermes IFA Brokerage Company for violating the Provisions of Module Sixteen of the Executive Bylaws of Law No. 7 of 2010 and their Amendments
Announcement regarding issuance of Disciplinary Board Resolution No. (34/2023) Disciplinary Board (22/2023) Authority and imposition of a fine against:
EFG-Hermes IFA Brokerage Company
for violating the Provisions of Module Sixteen of the Executive Bylaws of Law No. 7 of 2010 and their Amendments
For the following reasons:
1- Violating the Provisions of Article (3-5) of Module Sixteen of the Executive Bylaws of Law No. 7 of 2010 and their Amendments, which stipulates the following:
“A Licensed Person must take all steps necessary to obtain valid and full data on the client, his financial situation and investment objectives……………”.
It was proven to the Authority that the Company did not accurately determine the source and value of income and wealth from clients in a way that would enable them to apply the process of verifying the suitability of the transactions carried out by clients to their financial situation, and that the investment objectives of clients were not met, as was shown by examining the selected sample of clients, the following notes regarding the form: Know your client for these clients:
- The form does not include a clause related to the client’s investment objectives.
- The Company’s use of ranges does not accurately determine the annual income and wealth value, and some forms did not include a wealth item, while other forms included wealth ranges that did not include a range that covers whether the client’s wealth is from (1 KD - 100 thousand KD).
- The categories mentioned in the items for politically exposed persons do not include senior administrative positions in an international organization (such as directors, vice directors, and members of the board of directors).
In addition to not providing correct and complete data about some clients and their financial situation.
2- Violating the Provision of Items (2) and (3) of Article (3-18) of the same Module which stipulates the following: “Apart from the risk factors set out in Article (3-16) of this Chapter, the following are considered high risk types of clients:
2. Any person (including companies and other financial institutions) from or in countries which do not or insufficiently apply the FATF recommendations, for example countries designated as such by the FATF;
It was proven to the Authority through the assessment submitted by the Company that it did not correctly classify the geographical risks of clients, as follows:
- Clients from high-risk countries are not classified as high-risk if the client lives in a low-risk country.
- Clients living in high-risk countries are not classified as high-risk if the client is from a low-risk country.
Inspection of the selected sample of clients also revealed that the Company did not classify some clients from or in countries that do not implement or insufficiently implement the recommendations of the Financial Action Task Force as high-risk clients.
It was also revealed, after reviewing the client's risk assessment matrix, that the client's geographic risks are moderate, even though the client is from a high-risk country.
In addition, the Company does not classify some clients from the category of politically exposed persons as high-risk clients.
3- Violating the Provision of Item (2) of Article (3-19) of the same Module which stipulates the following:
“A Licensed Person must perform enhanced due diligence on higher risk clients. Among the measures to be applied as a minimum:
2. Obtaining additional information on the purpose and reasons for opening the account, business or employment background, source of funds, identification data of the client and beneficial owner and on the intend nature of the business relationship.”.
Through examining a sample of clients, the Authority proved that the Company did not take any of the strict due diligence measures for some high-risk clients.
4- Violating the Provision of Module (4-1) of the same Module which stipulates the following:
“Data collected under CDD must be kept up-to-date, accurate and relevant. The Licensed Person must undertake a periodical and continuous review ……”
Through reviewing a sample of clients, the Authority confirmed that the Company did not update some of the data obtained under due diligence procedures towards one of its clients.
Noting that these violations are procedural and not substantive.
The Resolution included the infliction of the following penalty: -
“Levying a fine on EFG-Hermes IFA Brokerage Company in an amount of KWD 5,000 (five thousand Dinars) for the attributed violations due to correlation”.
In this regard, the CMA emphasizes the implementation of CMA Law and its Executive Bylaws on all persons dealing in securities activities, and urges them to comply with these Laws in order to promote investors' confidence, create a sound investment environment, and implement the Law according to the principles of fairness, transparency, and integrity in line with the best international practice.