The Securities and Futures Commission has acted against two investment firms operating on its turf.

A Hong Kong watchdog has fined Asia-based businesses of Schroders and State Street a total of HK5.8 million ($747,000) for regulatory infractions. It also reprimanded both organisations.

Schroder Investment Management (Hong Kong), part of UK-listed wealth and investment house Schroders, was fined HK$1.8 million, and reprimanded by the Securities and Futures Commission, for failing to disclose all notifiable interests in Hong Kong-listed shares.

In the other matter, the SFC reprimanded and fined State Street Global Advisors Asia Limited HK$4 million for its failure to comply with regulatory requirements in the management of Tracker Fund of Hong Kong (Fund).

In the Schroders case, the SFC said an investigation found that from August 2005 to January 2013, Schroder failed to disclose to the Stock Exchange of Hong Kong (SEHK) and the relevant listed companies all notifiable interests in Hong Kong-listed shares held in client portfolios and managed by Schroders and certain of its subsidiaries where they did not have or were unable to exercise proxy voting rights.

Schroder is responsible for preparing and filing the notices disclosing all notifiable interests in Hong Kong listed shares for the Schroder entities to SEHK and the relevant listed companies, the watchdog said.

Although legal advice obtained by Schroder advised that an “interest” in shares was broadly defined and was not confined to the exercise of a voting right, Schroder failed to properly follow the advice, the regulator continued.

According to Schroder, the SFC said, it discovered the disclosure failures in November 2012 when it was preparing to implement a new global system for the monitoring and reporting of disclosable interests in shares. In February and March 2013, Schroder filed a total of 236 substantial shareholders notices to the SEHK to correct the disclosure notices filed for the Schroder entities from July 2010 to January 2013.

In deciding the penalty, the SFC took into account the duration and extent of Schroder’s disclosure failings, Schroder’s self-report to the SFC upon discovery of its disclosure failings, Schroder’s co-operation with the SFC’s investigation and disciplinary process and that the firm has taken steps to improve its global system for monitoring and disclosing shares in Hong Kong-listed companies, as well as its clean disciplinary record.

As for State Street, the SFC said that from 1 December 2008 to 30 June 2013, the cash balances of a fund that were deposited with State Street Bank and Trust Company’s (SSBT) demand deposit account did not earn any interest because SSBT’s deposit rates on Hong Kong dollars were zero.  SSBT was the fund’s trustee and an affiliate of SSGA.  SSGA did not check the rate of interest offered by other banks, the SFC said.

“The SFC considers that SSGA had failed to ensure that interest received on the fund’s Hong Kong dollar cash balances from its connected person was at a rate not lower than the prevailing commercial rate for a deposit of that size and term as required by the Code on Unit Trusts and Mutual Funds,” it said.

The SFC said it also found that SSGA’s internal procedures on the management of the fund’s cash balances were inadequate.  

The regulator said that in setting the sanctions, it took account that SSGA co-operated with it in resolving concerns, agreed to make a voluntary payment of HK$318,315 into the fund, agreed to engage an independent review of internal controls, and had a clean disciplinary record over regulated activities.