Hong Kong SFC licensing and compliance hints – year-end review

View PDF

Authored by: Isabella Wong

2021 has been a challenging year: The Covid-19 pandemic has continued to change the way we work and operate businesses, as well as the regulatory approach of the Securities and Futures Commission (SFC). Whilst maintaining Hong Kong’s regulatory standards, the SFC has shown some flexibility towards supervision in 2021. As a year-end review, we have highlighted below the key licensing and compliance initiatives in the past 11 months.

Licensing

• Quarantine exemption scheme: Eligible senior executives of licensed corporations were allowed to apply to the SFC for waiving the compulsory quarantine requirement when returning to Hong Kong. See SFC’s circulars of 28 May 2021, 21 June 2021, 19 July 2021 and 1 November 2021.

• New competency framework: To enhance the competence of industry practitioners, the SFC is changing the entrance and post-licensing training requirements for licensed representatives and responsible officers. Amendments to the Guidelines on Competence and Guidelines on Continuous Professional Training will take effect on 1 January 2022. See SFC’s circular of 9 November 2021 and consultation conclusions of 18 June 2021, and our article of 24 June 2021.

Compliance

• Suggested controls to promote resilient operations: After discussions with the industry, the SFC issued a Report on Operational Resilience and Remote Working Arrangements, in which it suggested some controls measures to help licensed corporations manage the operational risks arising from remote working arrangements.

• Revised AML guidelines: To align with the Financial Action Task Force’s standard, the SFC implemented a revised Guideline on Anti-Money Laundering and Counter-Financing of Terrorism on 30 September 2021, after around one year’s consultation with the public. See our legal update of 28 September 2021.

• Changes to the Fund Manager Code of Conduct (FMCC): The SFC decided to include new requirements (covering governance, investment management, risk management and disclosure) in the revised FMCC to be effective in 2022. It also held various webinars to prepare licensed fund managers for the changes. See the SFC’s Consultation Conclusions on the Management and Disclosure of Climate-related Risks by Fund Managers and circular of 29 October 2021.

2022 outlook

Looking at the outstanding regulatory proposals, we predict 2022 will see developments in the following areas:

• Licensing regime for depositaries of public funds: It has been over two years since the SFC issued a Consultation Paper on the Proposed Regulatory Regime for Depositaries of SFC-authorized Collective Investment Schemes in September 2019. We expect the conclusions of the consultation will soon be issued.

• New digital licensing framework: The Financial Services and Treasury Bureau’s consultation conclusions of 21 May 2021 confirm the intention for the SFC to license virtual asset services providers under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance. The government has reported that the proposals received “general support”. We expect the SFC will now consult the market on its licensing proposals. The government targets to introduce an amendment bill in the 2021 – 2022 legislative session.

• Over-the-counter (OTC) derivatives regulations: The OTC derivatives clearing, reporting and record-keeping requirements have been implemented in phases. Although the OTC derivatives licensing requirements are ready to take effect, the post-licensing financial resources and conduct requirements have not yet been finalised. We expect additional consultations will follow to finalise the OTC derivatives compliance requirements.