SFC reprimands and fines China Industrial Securities International Asset Management Limited $6.8 million for failing to properly identify and address red flags in dubious arrangements and other failures in managing private fund

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27 Jul 2026 The Securities and Futures Commission (SFC) has reprimanded and fined China Industrial Securities International Asset Management Limited (CISIAM) $6.8 million for failing to discharge its duties as the fund manager of a private fund (Fund) between August 2019 and September 2020 (Note 1).

The SFC’s investigation found that CISIAM established the Fund for Tahoe Life Insurance Company Limited (Tahoe Life), an authorized insurer in Hong Kong, and acted as the Fund’s manager. At the request of Tahoe Life’s Chief Investment Officer, CISIAM entered into a series of investment arrangements for the Fund, including the purchase of structured notes linked to debt instruments issued by Tahoe Life’s related company and the subsequent transfer of the structured notes to another fund managed by a different manager. These arrangements were unnecessarily complex, introduced additional costs and increased risks, lacked a clear commercial rationale, and gave rise to concerns about the potential concealment of asset movements or connected party transactions (Notes 2 and 3).

Asset managers should have procedures and controls in place to identify and consider whether a proposed private fund arrangement or transaction is dubious, and should a proposed arrangement or transaction be determined to be dubious, the asset manager should only decide to proceed with the arrangement or transaction once they are satisfied that their concerns have been sufficiently addressed (Note 4).

However, despite multiple red flags calling into question the legitimacy or propriety of the investment arrangements, CISIAM failed to exercise independent investment discretion or conduct adequate due diligence, and did not identify and address the red flags.

The SFC also found that CISIAM failed to ensure the Fund’s investments complied with its stated investment restrictions or aligned with its investment objectives. Additionally, CISIAM did not implement effective measures to identify, manage, and monitor the risks to which the Fund was exposed.

The SFC considers that CISIAM’s failures constitute breaches of various regulatory requirements applicable to asset managers (Note 5).

The SFC’s Executive Director of Enforcement, Mr Michael Duignan, said: “Fund managers must remain vigilant and must not allow their services to be used as a conduit for facilitating misconduct. Before proceeding with a proposed fund arrangement, a fund manager should critically assess an investor driven proposal for potential red flags and ensure that any legitimate concerns have been satisfactorily addressed. Those who fail to make reasonable enquiries may face serious regulatory consequences.”

In deciding the sanction, the SFC has taken into account all relevant circumstances, including:

CISIAM’s failures could potentially facilitate misconduct or other improper activities by its clients or other entities, thereby undermining public confidence and compromising the integrity of the market;

CISIAM received management fees of approximately $1.9 million from the Fund in respect of the period from August 2019 to September 2020;

CISIAM’s remedial actions, including updates to its policies and procedures for risk management and handling dubious investment arrangements, and compliance training sessions for its officers and employees;

CISIAM’s cooperation with the SFC in resolving the SFC’s concerns; and

CISIAM’s otherwise clean disciplinary record.

End

Notes:

CISIAM has been licensed under the Securities and Futures Ordinance to carry on Type 4 (advising on securities) and Type 9 (asset management) regulated activities since 27 April 2012 and Type 5 (advising on futures contracts) regulated activity since 3 June 2013.

The SFC’s investigation followed the request of the Insurance Authority (IA) for assistance in relation to information concerning certain investments made by Tahoe Life, as well as subsequent inspections carried out by the SFC on several licensed fund managers, which revealed that the assets in question held by Tahoe Life had been channelled into financial instruments linked to a related party on the Mainland. The SFC has already taken disciplinary action against another licensed fund manager involved in December 2023. Please see the press release issued by the SFC on 4 December 2023 and the joint press release issued by the SFC and the IA on 26 July 2024.

On 2 September 2025, the IA announced that it had issued a public reprimand to Tahoe Life and imposed a fine of $10 million, to be borne by its shareholders’ fund, in connection with related party transactions involving Tahoe Group Global (Co.) Limited performed by Tahoe Life between July 2019 and April 2020 without the IA’s prior consent. Please see the press release issued by the IA on 2 September 2025

Asset managers are reminded to refer to (a) the circular to licensed corporations - Dubious private fund and discretionary account arrangements or transactions issued by the SFC on 21 November 2019, which provides guidance on identifying and handling dubious private fund arrangements or transactions; and (b) the circular to licensed corporations engaged in asset management business issued by the SFC on 9 October 2024, which outlines deficiencies and substandard conduct noted in the management of private funds and discretionary accounts.

Please refer to the Statement of Disciplinary Action for the relevant regulatory requirements.

A copy of the Statement of Disciplinary Action is available on the SFC website Page last updated 27 Jul 2026