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Red flag case

Joe opened a stock trading account with ABC brokerage firm introduced by his friend Adam a few years ago. Since Adam had dealt with the firm for over a decade, Joe believed that it was trust worthy. However, two months ago when Joe received the monthly statement, he found that it was not issued by ABC brokerage. He then looked into some past trade documents and spotted the same issue. Though Joe felt a bit strange, he didn't probe further because of his trust in ABC brokerage.

This is a typical red flag and Joe should have taken prompt follow-up action. In fact, even if your brokerage firm has been dealing with you for many years, you should always be cautious and not pull all your trust in it.

Here are smart tips to help you protect your interests by detecting red flags when dealing with your brokerage firm:

Know your brokerage firm

  • Verify if the name of your brokerage firm stated in the trade document is its full name on the licence issued by the Securities and Future's Commission (SFC). The full name of the brokerage firm is available under the "Public register of licensed persons & registered institutions" on the SFC’s website. Always check with the designated responsible officer/complaints officer/back office staff for any questions, but not your account executive, and contact the SFC immediately if necessary.
  • Be wary if your brokerage firm offers you savings or fixed deposit service. A brokerage firm which does not have the relevant licence from a banking regulator (eg HKMA) is not allowed to conduct banking business such as taking deposits.

Know where your assets go and monitor your account

  • You should only deposit money to the bank account of the brokerage firm, but not to its related corporation or account executive. Check and verify the name and number of the bank account before depositing money at the bank.
  • Should you deposit cheques or physical scrips at the brokerage firm’s office, you should pass such cheques or physical scrips to the back office staff instead of your account executive for handling. You should also ensure that all cheques are crossed and made payable to the brokerage firm.
  • Instead of having your securities deposited with your brokerage firm, you may choose to open an Investor Participant Account directly with Hong Kong Securities Clearing Company Limited in the Central Clearing and Settlement System (CCASS) to keep track of your securities transactions in that account.
  • Review all trade documents for potential red flags. Check if the deposit of money or securities in your account is timely reflected in your daily/monthly statements. To know more, please refer to "Keep a close eye on your account".

Safeguard your personal information

  • If you receive email or phone calls from your brokerage firm asking for personal information and your account passwords, you should stay vigilant and verify the request directly with the responsible officer/complaints officer of your brokerage firm. Make sure you know who is getting your personal information, and ask why it is needed, how it will be safeguarded and the consequence of not sharing. If such request is really necessary, you should only provide your personal information to an authorized staff of the brokerage firm.
  • For protecting your personal data online, you must only access genuine and secure websites, ie do not enter a brokerage's website via links embedded in search engine, e-mail and suspicious pop-up window. The SFC's "Public register of licensed persons & registered institutions" contains the website addresses of our licensed corporations (if provided). To know more about keeping your personal information secure online, you can refer to the article "Benefits and risks".
  • If you discover that your personal data is misused, contact your brokerage firm at once for explanation, and report the case to the relevant regulator and the Police.

To conclude, when you are looking for a brokerage firm to deal with your investment, the first thing to do is to check the brokerage firm’s licence from the relevant regulators. You can know more about licence checking from the article "Finding an intermediary".

However, with a licensed brokerage firm to handle your investment does not mean that you are free from frauds and scams. To avoid being the next victim, you should keep an eye and be cautious on the potential frauds and scams. You can refer to the articles to know more how to deal with scams and frauds.