Compliance Pioneer - Vol. 4
GCC Capital
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We provide a comprehensive overview of the latest regulatory developments and enforcement actions in the Hong Kong financial market, offering insights for compliance professionals and industry stakeholders.
Regulatory
HKEX announces establishment of Integrated Fund Platform Task Force
Hong Kong Exchanges and Clearing Limited (HKEX) has announced the formation of the Integrated Fund Platform (IFP) Task Force, aimed at improving the fund distribution ecosystem in Hong Kong. Supported by the HKSAR Government and the Securities and Futures Commission (SFC), the Task Force will gather insights from key industry stakeholders to finalize the platform's design. HKEX's Co-Head of Markets, Glenda So, emphasized the initiative's goal to enhance Hong Kong's attractiveness as an international financial center by diversifying market offerings and improving access for global investors. The IFP will feature a repository of SFC-authorized products and a centralized network for efficient fund distribution processes. Further details are expected in Q4 2024.
Establishment of direct linkage between Central Moneymarkets Unit of HKMA and Macao Central Securities Depository and Clearing Limited of AMCM
On September 16, the Hong Kong Monetary Authority (HKMA) and the Monetary Authority of Macao (AMCM) announced a direct linkage between Hong Kong's Central Moneymarkets Unit (CMU) and Macao's central securities depository (CSD). This initiative allows investors in both regions to clear, settle, and hold bonds in each other's markets, enhancing financial cooperation and connectivity within the Guangdong-Hong Kong-Macao Greater Bay Area (GBA).
HKMA Chief Executive Eddie Yue emphasized that this move strengthens regional cooperation and boosts Hong Kong's position as an international financial center. AMCM Chairman Benjamin Chan noted that this linkage supports Macao's economic diversification and reinforces its role as a financial gateway between China and Portuguese-speaking countries. Details on the launch date and arrangements will be provided later.
Consultation conclusions on information sharing among Authorized Institutions to aid in prevention or detection of crime
On September 30, 2024, the Hong Kong Monetary Authority (HKMA) published the conclusions of a public consultation regarding information sharing among Authorized Institutions (AIs) to prevent and detect crime. The consultation, initiated on January 23, 2024, aimed to gather feedback on sharing customer account information to combat fraud, money laundering, and terrorist financing.
The HKMA received 18 submissions, mostly supportive of the proposal. Notably, feedback from the Office of the Privacy Commissioner for Personal Data emphasized data privacy concerns, which the HKMA addressed in its conclusions. Moving forward, the HKMA will consider these comments while preparing legislative amendments as part of a broader review of the Banking Ordinance and will continue engaging stakeholders on implementation issues.
HKICPA issues the exposure drafts of two inaugural Hong Kong Sustainability Disclosure Standards for public consultation
On September 16, 2024, the Hong Kong Institute of Certified Public Accountants (HKICPA) announced the release of Exposure Drafts for HKFRS S1 and S2, which focus on sustainability-related financial disclosures and climate-related disclosures. The HKICPA is inviting public comments on these drafts until October 27, 2024, with plans for full convergence with international ISSB Standards by August 1, 2025. This initiative follows extensive stakeholder engagement and aims to strengthen Hong Kong's sustainability disclosure framework, particularly for publicly accountable entities. President Roy Leung emphasized that these standards will enhance the reliability and comparability of sustainability information, fostering connections between global capital and local businesses. The HKICPA is dedicated to collaborating with various stakeholders to establish a robust sustainability disclosure ecosystem in Hong Kong.
AFRC 2024 Oversight Report identifies improvement areas for the HKICPA to support the development of the accounting profession
The Accounting and Financial Reporting Council (AFRC) has released its 2024 Oversight Report evaluating the Hong Kong Institute of Certified Public Accountants (HKICPA) for the period from April 1, 2023, to March 31, 2024. The report identifies five key findings regarding the HKICPA's performance, including high non-compliance rates in continuing professional development (CPD) audits and gaps in quality assurance for CPD courses. It also highlights issues related to the fit and proper assessment for CPA registration. Additionally, the AFRC offers two recommendations to enhance professional standards and improve accessibility for small and medium-sized practices. The report emphasizes the importance of sustainability in accounting and the AFRC's commitment to fostering standards that support sustainable reporting. CEO Janey Lai notes that the report serves as a valuable resource for CPAs and audit firms, aiming to enhance trust and credibility in the profession while sustaining Hong Kong's status as a competitive financial center.
ICAC chief calls on support for ‘Beijing Consensus’ at UN’s global anti-graft meeting to deepen law enforcement co-operation
ICAC Commissioner Mr. Woo Ying-ming emphasized the importance of international collaboration in combating corruption during the recent meetings of the Global Operational Network of Anti-Corruption Law Enforcement Authorities (GlobE Network) in Beijing. The meetings, attended by approximately 400 members from 105 countries, culminated in the adoption of the “Beijing Consensus,” which aims to enhance law enforcement cooperation and deny safe havens for corrupt individuals. Mr. Woo, alongside other ICAC officials, highlighted the need for partnerships and shared efforts, referencing the Commission's ongoing international cooperation, including recent agreements with multiple countries. He also advocated for closer ties between the GlobE Network and the International Association of Anti-Corruption Authorities, which he leads, to further strengthen global anti-corruption initiatives. During the event, the ICAC delegation engaged in discussions with UNODC officials and representatives from various nations to explore collaborative efforts against corruption.
HKMA and DFSA hold joint conference to strengthen sustainable finance collaboration
The Hong Kong Monetary Authority (HKMA) and the Dubai Financial Services Authority (DFSA) held their first Joint Climate Finance Conference on September 16, focusing on building a "Net-Zero Asia – Middle East Corridor." The event gathered over 240 participants to discuss transition finance needs and collaboration opportunities between the two regions. They signed a Memorandum of Understanding (MOU) to strengthen their strategic partnership in sustainable finance, enabling enhanced dialogue and joint research. Both authorities emphasized the importance of collaboration in addressing climate change and mobilizing capital for green growth.
Adjustment of Base Rate
On September 19, the Hong Kong Monetary Authority (HKMA) announced a new Base Rate of 5.25%. This rate, which serves as the foundation for Discount Rates on repurchase transactions, is determined by a formula that considers the US federal funds rate and the average of Hong Kong Interbank Offered Rates (HIBORs). Following a recent 50-basis point decrease in the US federal funds rate, the Base Rate is now set at 5.25%, as it is higher than the HIBOR average of 3.21%.
SFC-HKMA joint survey shows strong rebound in sales of investment products in 2023
A joint survey by the SFC and HKMA found a 14% increase in non-exchange-traded investment product transactions, reaching $4,338 billion in 2023. Improved market sentiment and a growing number of firms (380) contributed to this growth, with 68% reporting higher sales. Key drivers included collective investment schemes, debt securities, and structured products, with money market funds making up 76% of the top schemes. Online sales rose to 12% of total transactions. The findings indicate a strong recovery in Hong Kong's investment market and highlight the need for investor protection.
Composite Interest Rate: End of August 2024
On September 20, 2024, the Hong Kong Monetary Authority (HKMA) reported a decrease in the composite interest rate to 2.52% at the end of August 2024, down from 2.58% in July. This decline was attributed to lower weighted funding costs for deposits and interbank funds. Historical data for the composite interest rate is available on the HKMA website.
NDRC’s Department of Foreign Capital and Overseas Investment and HKMA jointly hold seminar on “Supporting Mainland enterprises’ cross-border financing in Hong Kong”
On September 24, the National Development and Reform Commission (NDRC) and the Hong Kong Monetary Authority (HKMA) held a seminar in Hong Kong focused on supporting Mainland enterprises in cross-border financing. Mr. Zheng Chiping from the NDRC highlighted the importance of Hong Kong as a leading offshore financing hub and discussed recent initiatives, including a Memorandum of Understanding signed in October 2023 to promote offshore debt issuance. The seminar, attended by around 200 participants, featured policy briefings and a roundtable discussion on the offshore debt market. Both Mr. Zheng and HKMA Chief Executive Eddie Yue emphasized collaboration to enhance financing opportunities and support the internationalization of the Renminbi. They stressed the need for ongoing cooperation to foster a transparent and efficient financing environment for Mainland enterprises.
HKMA commences Phase 2 of e-HKD Pilot Programme and expands Project e-HKD to explore new forms of digital money
On September 23, the Hong Kong Monetary Authority (HKMA) launched Phase 2 of the e-HKD Pilot Programme, now renamed Project e-HKD+, to explore innovative use cases for digital money, including e-HKD and tokenized deposits. Eleven firms across various sectors will investigate themes such as settlement of tokenized assets, programmability, and offline payments. This phase aims to address practical challenges in creating a digital money ecosystem for both individuals and corporations.
The HKMA will also establish an e-HKD Industry Forum for collaborative discussions and create industry-led working groups focusing initially on programmability issues. An e-HKD sandbox will facilitate prototyping and testing of use cases over the next year, with insights expected to be shared publicly by the end of 2025. HKMA's Chief Executive, Eddie Yue, emphasized the commitment to digital money innovation and a use-case driven approach in collaboration with industry participants.
Statistics of Stored Value Facilities (SVF) Schemes Issued by SVF Licensees
The Hong Kong Monetary Authority (HKMA) reported on 20 September 2024 that, by the end of Q2 2024, there were 75.36 million active Stored Value Facility (SVF) accounts, a 2.4% increase from the previous quarter. SVF transactions reached approximately 2.0 billion, up 1.0%, with a total transaction value of HK$173.8 billion, reflecting a 4.6% rise. Key transaction categories included HK$42.8 billion in point-of-sale spending, HK$26.0 billion online, HK$15.1 billion in P2P transfers, and HK$89.9 billion for adding value. Compared to Q2 2023, active accounts grew by 14.5%, and total float and deposits increased by 8.2%. Year-on-year, transaction numbers rose by 0.4% and values by 3.3%.
HKMA and SFC conclude on further proposals to enhance Hong Kong’s OTC derivatives reporting regime
On September 26, the Hong Kong Monetary Authority (HKMA) and the Securities and Futures Commission (SFC) released a conclusions paper on enhancing the over-the-counter (OTC) derivatives reporting regime. This follows a consultation launched in March 2024, aimed at aligning with international standards, including the use of Unique Transaction Identifiers and reporting Critical Data Elements. Respondents generally supported the proposals, which aim to improve global data standardization. The finalized list of mandatory reporting elements will be implemented in September 2025.
Treasury Markets Summit 2024
The Treasury Markets Summit 2024, organized by the Hong Kong Monetary Authority (HKMA) and the Treasury Markets Association (TMA), took place on September 27 in Hong Kong. Keynote speaker Eddie Yue emphasized initiatives to enhance Hong Kong's status as a leading offshore renminbi hub, while TMA Chair Darryl Chan highlighted the association's achievements. The event featured panels on the China economic outlook, Decentralized Finance (DeFi) and the Metaverse, and Central Bank Digital Currency, moderated by industry experts. Over 300 participants, including treasury market professionals and executives, attended the summit.
HKMA Quarterly Bulletin and Half-Yearly Monetary and Financial Stability Report (September 2024 Issue)
On September 27, 2024, the Hong Kong Monetary Authority (HKMA) released its Quarterly Bulletin and Half-Yearly Monetary and Financial Stability Report. The Quarterly Bulletin features an article on the regulatory framework for stablecoin issuers in Hong Kong. The Half-Yearly Report analyzes global and local economic conditions, monetary stability, and assesses the performance and risks within the local banking sector. Both reports are available for viewing and download on the HKMA website.
New public fund depositaries regime comes live on 2 October 2024
The Securities and Futures Commission (SFC) has released updated codes and guidelines for the new Type 13 regulated activity (RA 13) regime for public fund depositaries, effective October 2, 2024. This change requires depositaries of SFC-authorized collective investment schemes in Hong Kong to be licensed or registered with the SFC. The SFC will grant RA 13 licenses to 19 depositaries affiliated with major banking or insurance groups and over 300 staff members on the launch date. This initiative aims to enhance regulation, align with international practices, and improve investor protection, according to SFC CEO Julia Leung. The updated regulatory materials are available on the SFC website.
Risk Associated with Third-party IT Solutions
The HKMA has issued a reminder to financial institutions following a global IT incident linked to a faulty update from a cybersecurity provider. The incident highlighted issues such as inadequate testing, automatic updates without user control, and poor third-party risk management. In response, the HKMA is engaging with major institutions to gather insights on improving risk management practices. It emphasizes that senior management should incorporate industry best practices alongside existing HKMA guidance to enhance operational resilience against third-party IT failures.
Research Paper on Generative Artificial Intelligence in the Financial Services Sector
A new research paper on Generative Artificial Intelligence (GenA.I.) in the financial services sector has been published, focusing on its transformative potential for operational efficiency, risk management, and customer engagement. Produced under the Hong Kong Monetary Authority's "All banks go Fintech" initiative, the paper discusses the current state of GenA.I. adoption, key applications, and challenges faced by financial institutions. It highlights critical risk management issues such as data privacy and algorithmic bias, offering recommendations for governance and responsible integration. Authorized Institutions are encouraged to review the paper and explore testing GenA.I. through the new GenA.I. Sandbox. For questions, contact the HKMA.
Large exposures: revised SPM modules and banking returns
The Hong Kong Monetary Authority (HKMA) has finalized revisions to several Supervisory Policy Manual (SPM) modules and banking returns in response to industry consultations. The updated modules, effective January 1, 2025, include guidelines on concentration risks and large exposures, among others, and are intended to implement the Banking (Exposure Limits) (Amendment) Rules 2023 (BELAR). Key changes involve retaining certain exposure limit descriptions and amending disclosure items in return templates. The revised banking returns will be available via the STET software starting early January 2025, with submissions required from March 31, 2025. For technical queries, institutions can contact the STET helpdesk or the Banking Policy team.
Generative Artificial Intelligence Sandbox
The Hong Kong Monetary Authority (HKMA) invites Authorized Institutions (AIs) to apply for the Generative Artificial Intelligence (GenA.I.) Sandbox initiative, launched in August 2024. This Sandbox provides a controlled environment for AIs to develop and test AI solutions in banking. AIs will have access to Cyberport's computing power and receive supervisory feedback during trials. The HKMA encourages diverse AI applications focused on risk management, anti-fraud, and customer experience, and promotes collaboration with Fintech firms. Applications for the first cohort are open until November 15, with selected projects expected to start by December and conclude within six months. Regular progress updates and a final report are required from participants.
Banking Sector’s Support for Implementation of Severe Weather Trading
The HKMA's circular from June 18, 2024, outlines the banking sector's readiness for the Severe Weather Trading (SWT) arrangements set to launch on September 23, 2024. Authorized institutions (AIs) have confirmed their technical and operational preparedness, including:
The HKMA acknowledges potential operational challenges during SWT's initial phase and emphasizes the need for robust contingency plans and clear customer communication. Post-implementation, AIs should review customer feedback to evaluate SWT effectiveness. The HKMA will collaborate with relevant authorities to provide ongoing guidance.
Circular to Licensed Corporations, SFC-licensed Virtual Asset Service Providers and Associated Entities - Anti-Money Laundering / Counter-Financing of Terrorism United Nations Sanctions (Democratic Republic of the Congo) Regulation 2019 (Amendment) (No. 2) Regulation 2024
The circular issued on September 20, 2024, updates licensed corporations and SFC-licensed virtual asset service providers on anti-money laundering and counter-terrorism financing regulations. It announces the United Nations Sanctions (Democratic Republic of the Congo) Regulation 2019 (Amendment) (No. 2), which implements decisions from UN Security Council Resolution 2738, including an arms embargo, travel bans, and financial sanctions. Recipients are reminded to review Chapter 6 of the AML/CFT Guideline for compliance measures.
Circular to Licensed Corporations, SFC-licensed Virtual Asset Service Providers and Associated Entities - Anti-Money Laundering / Counter-Financing of Terrorism United Nations Sanctions (Democratic People’s Republic of Korea) Regulation
An updated list of individuals and entities subject to UN sanctions on North Korea was published on 18 September 2024, following a prior circular from 16 April 2024. Licensed corporations and SFC-licensed virtual asset service providers are reminded to follow the Anti-Money Laundering and Counter-Financing of Terrorism guidelines and to screen their client lists against the updated designations. They must report any relevant transactions or relationships with designated persons or entities to the Joint Financial Intelligence Unit.
Hong Kong’s securities industry extends earnings growth into first half of 2024
Hong Kong's securities industry experienced significant growth in net profits for the first half of 2024, reaching $19 billion—a 50% increase from the previous six months and a 29% rise year-on-year. This growth was driven by higher average daily market turnover and a record number of active cash and margin clients, totaling about 4.87 million. Despite flat overall income due to reduced asset management and corporate finance advisory fees, lower non-interest overheads boosted profits. The report also highlighted the emergence of virtual assets trading, generating $77 million in revenue. The industry is showing resilience and diversification, adapting to shifting investor sentiments and expanding product offerings.
Enforcement
SFC reprimands and fines Profitech Securities Limited $3.99 million for regulatory breaches
The Securities and Futures Commission (SFC) has fined Profitech Securities Limited $3.99 million for failing to comply with financial regulations. Key violations included not maintaining the required liquid capital of $3 million from February to June 2021 and since July 2022, improperly repledging client securities for 17 months without proper authority, and providing $15.6 million in financial accommodation to new clients without adequate credit controls. Additionally, Profitech failed to notify the SFC about changes in its holding company's structure. The SFC considered these breaches' seriousness, Profitech's repeated failures, its cooperation in addressing the issues, and its previously clean record when imposing sanctions.
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Exchange’s Disciplinary Action against Three Former Directors of National Arts Group Holdings Limited (Delisted, Previous Stock Code: 8228)
The Relevant Directors of the Company approved the acquisitions of two target companies holding property units under construction in Malaysia, making full upfront payments valued at $108.8 million by issuing new shares. The vendors agreed to take on the target companies' outstanding payment obligations, and collateral was provided, including guarantees. Acquisition 1 included a lock-up arrangement for the vendor's shares, while Acquisition 2 allowed a put option for the vendor without a lock-up. However, after the acquisitions, the Company relied on vendors’ updates regarding construction and payments. The lock-up for Acquisition 1 was modified, allowing the vendor to deposit shares in exchange for a personal guarantee, but the Company's directors did not evaluate the individual's financial stability, leading to the vendor selling shares without consent. Similarly, Vendor 2 sold its shares soon after Acquisition 2. Ultimately, the Company was wound up by the Hong Kong Court in June 2023, with its shares delisted by August 2023, and none of the property units were delivered.
Finds of Breach
The GEM Listing Committee determined that the Relevant Directors violated their duties by failing to exercise reasonable skill, care, and diligence in protecting the company's interests during certain acquisitions. Despite the company's poor financial condition, the directors believed the acquisitions would yield good returns but neglected to address significant risks, such as the vendors' potential inability to meet payment obligations and the risk of construction delays. They were aware of similar problems faced by another listed issuer but did not conduct sufficient due diligence on the vendors' financial stability or monitor project progress adequately. Additionally, they relied on unverified oral updates from vendors and lost contact with them, failing to implement necessary safeguards against the sale of shares by one of the vendors. Overall, their lack of proactive risk management and oversight contributed to the breaches of duty.
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SFC seeks share repurchase order for independent minority shareholders of LET Group Holdings Limited and Summit Ascent Holdings Limited
The Securities and Futures Commission (SFC) has filed legal proceedings against Mr. Lo Kai Bong, chairman and controlling shareholder of LET Group Holdings Limited and Summit Ascent Holdings Limited, for alleged misconduct that led to trading suspensions of the companies’ shares. The SFC is seeking a court order for a share repurchase from independent minority shareholders and a disqualification order against Lo. The allegations include his disregard for Listing Rules and the Takeovers Code in relation to planned asset disposals in Russia, failure to disclose critical information, and ignoring legal advice and regulatory concerns, which resulted in significant governance issues and the resignation of other directors.
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SFC suspends Wilson Cheung Kin for nine months over sponsor failures
The Securities and Futures Commission (SFC) has suspended Mr. Wilson Cheung Kin, a former responsible officer and director of Ever-Long Securities Company Limited, for nine months from September 17, 2024, to June 16, 2025, due to breaches of the SFC’s Code of Conduct and Sponsor Guidelines during his oversight of a listing application from 2016 to 2018. The SFC determined that Cheung failed to exercise due skill, care, and diligence, did not adequately supervise his subordinates, and did not ensure that appropriate standards of conduct were maintained by Ever-Long. The decision to impose a suspension took into account Cheung's cooperation with the SFC and his otherwise clean disciplinary record.
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SFC bans Dennis Cheng Chung Sing for six months
The Securities and Futures Commission (SFC) has suspended Dennis Cheng, a former Goldman Sachs trader, from the industry for six months due to misconduct. On August 24, 2020, Cheng mistakenly entered an order for 232,000 shares instead of 2,232,000, leading to a significant under-execution. He delayed reporting the error and attempted to cover it up by arranging a facilitation trade without client consent and misrepresenting the situation to colleagues. The SFC found Cheng's actions to be dishonest and in breach of conduct regulations, though he admitted his mistake, did not gain financially, and has no prior disciplinary issues.
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SFC secures first-of-its-kind settlement to compensate public shareholders of Combest Holdings Limited
The Securities and Futures Commission (SFC) has settled with three respondents—Mr. Ng Kwok Fai, Mr. Liu Tin Lap, and Mr. Lee Man To—requiring them to pay approximately $192 million to Combest Holdings Limited for distribution to its independent public shareholders. This settlement, subject to court approval on April 2, 2025, would mark a record in compensation for delisted companies. If approved, shareholders would receive $0.066 per share, significantly higher than the last trading price. The SFC's investigation into Combest's operations led to its share suspension in May 2019 and eventual delisting in December 2020.
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Upcoming Webinars
Our updated webinar schedule for the coming months features a comprehensive lineup of topics, including compliance, anti-bribery, marketing regulations, ESG, and more. These webinars are thoughtfully designed to provide you with critical insights and practical knowledge to help you navigate today's fast-evolving regulatory landscape.
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