Hong Kong Regulator Penalizes Kylin International for Fund Governance Failures

Key Takeaways

• Three Years of Fund Management Failures: The Securities and Futures Commission fined Kylin International about $1.15 million (HK$9 million) for misconduct spanning August 2018 to July 2021 while managing six private fund sub-funds.
• Conflicts of Interest Left Unchecked: Kylin failed to manage and disclose conflicts tied to loans it or its director extended to several sub-funds, raising concerns about investor protection and transparency.
• Breakdowns in Core Fund Oversight: The firm did not carry out regular asset reconciliations or valuations and failed to appoint an independent auditor to review fund financial statements.
• Compliance Controls Fell Short: The SFC found deficiencies across KYC, suitability assessments, and record-keeping for AML and counter-terrorist financing compliance.
• Senior Management Held Accountable: The regulator said the misconduct stemmed from failures by senior management, with responsibility attributed to former CEO Steven Wong Yung and director Zhu Hong.

Deep Dive

Hong Kong’s securities regulator has taken disciplinary action against Kylin International, fining the firm about $1.15 million (HK$9 million) for a series of compliance and governance failures tied to its management of private funds.

The Securities and Futures Commission said on February 9 that the misconduct occurred over a three-year period, from August 2018 to July 2021, while Kylin was acting as an investment manager or consultant to six sub-funds of a Cayman-incorporated fund.

According to the regulator, the problems were not isolated lapses but reflected deeper weaknesses in how the firm ran its fund management and compliance functions.

One of the most serious issues involved conflicts of interest. The SFC found that Kylin, or one of its directors, had extended six loans to four of the sub-funds, yet failed to properly manage or disclose the resulting conflicts to investors.

The regulator also pointed to basic breakdowns in fund administration. Kylin did not conduct monthly reconciliations or regular valuations of the sub-funds’ assets and failed to appoint an independent auditor to review the funds’ financial statements.

Beyond fund operations, the SFC said Kylin’s internal controls were inadequate in several core compliance areas. The firm lacked effective systems for know-your-client checks and suitability assessments, failed to keep proper records to demonstrate compliance with anti-money laundering and counter-terrorist financing requirements, and incorrectly told investors it was exempt from suitability obligations because they were classified as professional investors.

The case also highlighted senior management accountability. During the relevant period, Mr. Steven Wong Yung served as a responsible officer and chief executive officer, while Ms. Zhu Hong was a director and manager-in-charge of several core functions. The SFC concluded that Kylin’s misconduct stemmed from failures by both individuals to properly discharge their duties as senior management.

Wong was held responsible for all of the firm’s failures, while Zhu was found accountable for issues related to the loans and Kylin’s AML and counter-terrorist financing compliance. The regulator has previously taken separate disciplinary action against Wong in March 2025 and against Zhu in August 2025.

In setting the penalty against Kylin International (HK) Co., Limited, the SFC said it weighed several factors, including the risk that the misconduct posed to market integrity and public confidence, as well as the need to send a strong deterrent message to the wider asset management industry.

The regulator also noted that Kylin took remedial steps after a limited SFC review in late 2020, has since exited regulated activities, and had no prior disciplinary history.

Kylin was licensed to carry on Type 9 (asset management) regulated activity from April 2014 until January 2025. It ceased regulated activities at the end of 2023, and its licence was formally revoked last year following its application.

The SFC said the penalty reflects both the seriousness of the misconduct and the need for deterrence, while also taking into account Kylin’s subsequent remedial measures, the firm’s exit from regulated activities, and its previously clean disciplinary record.

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