XHK Limited was criticized and fined HK$2.5 million by the Hong Kong Securities and Futures Commission for violating regulatory rules.

The Securities and Futures Commission of Hong Kong (SFC) has condemned XHK Limited (XHK) and imposed a fine of HK$2.5 million, citing regulatory deficiencies in the preparation of financial statements, maintenance of prescribed liquid capital, handling of client funds, and handling of non-client funds. The disciplinary action by the SFC was initiated following a self-report from XHK. The investigation by the SFC found that XHK had made multiple accounting errors in its financial statements submitted to the SFC under the Securities and Futures (Financial Resources) Rules, leading to overstatements and underreporting of liquid capital during the period from January 2020 to June 2021. After correcting the errors, XHK was found to have been deficient in liquid capital for four months during the aforementioned period, with amounts ranging from HK$3.6 million to HK$32.3 million, in violation of the Financial Resources Rules. XHK failed to ensure the accuracy of these financial statements, primarily due to the lack of competency, knowledge, and experience of the external service providers appointed to prepare the financial statements. Additionally, XHK employees were not familiar with the provisions of the Financial Resources Rules and thus failed to identify errors before submitting the financial statements to the SFC. The SFC also found that from March to April 2021, XHK violated the Securities and Futures (Client Money) Rules by transferring up to HK$206 million of client funds from its segregated account to an overseas broker's account without written instructions or standing authorizations from the clients. Furthermore, the SFC found that from February 2019 to October 2021, XHK failed to promptly transfer non-client funds (including approximately HK$38 million in commissions and interest earned on client funds) out of its segregated account within one business day after discovering they were not client funds, contravening the Client Money Rules. In addition, these deficiencies by XHK constitute a breach of the Code of Conduct. When deciding on the disciplinary measures mentioned above, the SFC considered all relevant circumstances, including: - the duration and extent of XHK's deficiencies; - XHK's remedial measures taken to improve its financial statement preparation and segregation of client funds procedures and processes; - no clients suffered losses due to XHK's deficiencies; - XHK's previous record of no disciplinary actions; - XHK's cooperation and acceptance of the SFC's investigation results and disciplinary actions, facilitating the prompt resolution of the matter.