Hong Kong SFC Fines Zheng Da Over AML & Trading Control Failures

Key Takeaways

• Zheng Da Fined $899,000: Hong Kong’s SFC reprimanded and fined Zheng Da approximately $899,000 (HK$7 million) over AML/CFT and other regulatory failures.
• 160 Client Trading Systems Went Untested: The firm conducted no due diligence or testing on customer-supplied systems used by 160 clients to place futures orders between December 2021 and September 2023.
• Suspicious Trading Went Undetected: Zheng Da failed to detect 176 instances in which the same client placed buy and sell orders for the same futures contract within the same second and at the same price.
• Client Deposits Raised AML Concerns: Deposits into 8 client accounts were inconsistent with their declared financial profiles, while Zheng Da lacked records demonstrating that it had properly investigated them.
• Responsible Officer Suspended: The SFC suspended responsible officer Zhong Hao for 7 months after attributing the firm’s failures to his failure to discharge his duties as a responsible officer and member of senior management.

Deep Dive

Hong Kong’s Securities and Futures Commission has fined Zheng Da International Financial Holding approximately $899,000 (HK$7 million) and suspended one of its responsible officers after finding failures in the firm’s anti-money laundering controls, client monitoring and oversight of electronic trading systems.

The SFC said that Zheng Da failed to conduct due diligence or testing on customer-supplied systems used by 160 clients to place futures orders between December 1, 2021, and September 30, 2023. The regulator also suspended responsible officer Zhong Hao for 7 months, from September 28, 2026, through April 27, 2027.

The failures left Zheng Da unable to properly assess and manage the money laundering, terrorist financing and other risks associated with the systems, according to the SFC. The regulator said inadequate controls also exposed the firm to risks including unlicensed activity, money laundering, nominee account arrangements and unauthorized access to client accounts.

The customer-supplied systems, known as CSSs, were trading software developed or designated by clients. They connected through an application programming interface to Zheng Da’s broker-supplied system, allowing clients to conduct electronic trading.

For the 160 clients using them, the SFC found Zheng Da had performed no due diligence or testing. The regulator’s investigation also found problems in the way the firm monitored money moving through client accounts. Deposits into 8 accounts were inconsistent in amount and frequency with the financial profiles those clients had declared in their account-opening documents.

Zheng Da told the SFC that Zhong would make inquiries with selected clients to understand their latest financial circumstances and the reasons behind their deposits and transactions. But the firm had no records supporting those inquiries. The absence of documentation meant Zheng Da could not demonstrate that it had properly investigated the deposits or satisfactorily addressed the associated money laundering and terrorist financing risks, the SFC said.

The SFC found that Zheng Da had failed to establish an effective ongoing monitoring system capable of detecting and assessing suspicious trading patterns in client accounts. The 8 accounts identified by the regulator recorded frequent and large numbers of trades during the period under investigation. Among them were 176 instances in which the same client placed buy and sell orders for the same futures contract within the same second and at the same price. Zheng Da failed to detect those trades.

That pattern carries particular significance under the SFC’s Guideline on Anti-Money Laundering and Counter-Terrorist Financing. The guideline identifies matching buy and sell orders in particular securities or futures contracts as an example of activity that might give rise to suspicion of money laundering or terrorist financing because it can create the illusion of active trading and may indicate market manipulation.

The SFC concluded that Zheng Da’s systems and controls were inadequate and ineffective and that the firm had failed to ensure compliance with Hong Kong’s Anti-Money Laundering and Counter-Terrorist Financing Ordinance, the AML Guideline and the regulator’s Code of Conduct.

It also traced those failures to the firm’s senior management. Zhong had been accredited to Zheng Da and approved as a responsible officer for Type 2 regulated activity, dealing in futures contracts, and Type 5 regulated activity, advising on futures contracts, since January 15, 2020.

His responsibilities inside the firm extended well beyond those roles. Zhong became Zheng Da’s Manager-In-Charge of Overall Management Oversight in March 2020 and of AML/CFT, Compliance and Information Technology in July 2020. He took on Finance and Accounting in May 2023 and Operational Control and Review and Risk Management in October 2024.

The SFC said Zheng Da’s failures were attributable to Zhong’s failure to discharge his duties as a responsible officer and member of the firm’s senior management. In determining the sanctions, the regulator pointed not only to what Zheng Da failed to do, but to how long it continued doing business without addressing the problem.

The firm continued allowing clients to place orders through customer-supplied systems without conducting due diligence even after the SFC had taken multiple enforcement actions against licensed corporations for similar violations during the same period. The regulator said those cases had been accompanied by repeated reminders that such failures were unacceptable.

Zheng Da did not stop accepting new CSS applications and disable all existing customer-supplied systems until August 2025, nearly 2 years after the period examined in the SFC investigation ended.

The regulator said Zheng Da’s failure to diligently monitor client activity and maintain adequate and effective AML/CFT systems and controls could undermine public confidence in the financial market and its integrity. The SFC also considered mitigating factors. Zheng Da and Zhong cooperated with the regulator in resolving its concerns, and both otherwise had clean disciplinary records.

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