Managing the Risks of Client Supplied System: Lessons Learned from a Regulatory Breach

Client Supplied Systems (“CSSs”) refer to trading software developed or designated by clients that enable them to conduct electronic trading through various electronic channels, such as the internet and mobile phones. While these systems can provide benefits like increased efficiency and flexibility, they also introduce new risks and challenges that require careful management.?

The SFC's annual report for 2022-2023 revealed that fines total HK$41.70 million were imposed, with over 25% of the fines resulting from non-compliant CSSs. ?A notable example of the risks associated with CSSs occurred in the finance markets in Hong Kong. Rifa Futures Limited was fined $9 million for failures to comply with know-your-client, anti-money laundering and counter-terrorist financing (AML/CFT), and other regulatory requirements with its non-compliant CSSs.

Heinbro’s mock audits can help LCs identify any weaknesses or vulnerabilities in its compliance function. These audits also provide valuable insights into the effectiveness of the LC's internal controls and procedures for managing the risks associated with CSSs. ?

For more information about Heinbro’s mock audits, please do not hesitate to contact us. ?

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