Tightening the gate: SFC puts cross-border client relationships under the spotlight

The SFC expressed deep concern about serious deficiencies in client onboarding and ongoing monitoring of cross-border investors acquired through overseas intermediaries after conducting a thematic review of 12 licensed securities brokers.  Brokers must now review their KYC files and implement additional measures to prevent their products and services from being used in illegal activities.
 

What is the background?

In November 2025, the SFC urged licenced firms to implement robust and effective measures to detect and prevent layering activities in money laundering after noticing an emerging trend of such activities involving broker accounts.  Six months later, the CSRC and other Chinese Mainland authorities published a joint notice concerning illegal cross-boundary securities, futures and investment fund-related activities.  On the same day, the SFC issued the circular that put brokers on alert.

 
What are the SFC’s key findings?

1. Weak account opening due diligence

• Inadequate verification of client identity and documentation authenticity
• Acceptance of forged or suspicious documents during onboarding
• Failing in assessing whether the residential addresses provided were reasonable

2. Poor ongoing monitoring

• Failure to identify red flags and unusual account behaviour
• Insufficient review of client activities over time

3. Inadequate oversight of cross-border intermediaries

• Weak due diligence on overseas intermediaries and introduced clients
• Failure to assess whether client profiles align with the intermediary’s jurisdiction or business model

The SFC said it has "zero tolerance" for such practices, noting they raise serious money laundering and terrorist financing risks.  It expects brokers to monitor for indicators such as:

• Accounts used purely as fund depositories (no trading activity)
• Suspicious fund flows inconsistent with profile
• Frequent changes in bank accounts
• Shared addresses or bank accounts among unrelated clients
• Client profiles inconsistent with introducer/intermediary characteristics

What are the latest expected standards?

SFC expects firms to strengthen onboarding processes, complemented by ongoing monitoring.  Firms are also expected to implement enhanced controls over cross‑border relationships. Underpinning all of this is strong internal governance, with senior management accountable for effective controls, supported by proper staff training and clear escalation frameworks.

What should I do now?

Firms are expected to act now and implement additional control measures when opening investment accounts for Mainland Chinese investors. The SFC may also request firms to conduct internal look-back reviews from January 2023 to identify accounts opened with questionable or forged documents, as well as dormant or zero-balance accounts.

Firms must also ensure they comply with all relevant legal and regulatory requirements in both Hong Kong and the applicable jurisdictions when serving investors outside Hong Kong.

How can we help?

We can help you interpret the new expectations, perform a gap analysis of existing account-opening, KYC, AML/CFT and ongoing monitoring controls, and conduct look-back reviews to identify any accounts opened with questionable or forged documents or exhibiting red-flag behaviours.

We can also assist in redesigning your onboarding and client lifecycle controls, strengthening due diligence over cross-border correspondent relationships, implementing additional measures for Mainland Chinese investor accounts, updating policies and procedures, enhancing governance and management reporting and delivering customised staff training.

If you need support strengthening your onboarding, AML/CFT or ongoing monitoring controls in line with the SFC expectations, please get in touch with our team.

About the authors

Joanne Hui is a principal consultant at Ocorian specialising in SFC regulations for capital market firms. She has over 20 years’ experience across listing enforcement, IPO policies, forensic accounting, dispute advisory, tax consulting and regulatory compliance in Hong Kong.

Clarissa Lam is the practice lead for Ocorian’s regulatory & compliance team in Hong Kong. She specialises in regulatory compliance for asset managers and banks, advising local and global institutions on AML/CFT, client onboarding, suitability, FMCC and licensing requirements.