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Authored by: Connie Chan
Information related to virtual asset-related activities required in revised financial return form, analysis of client assets for associated entity and audit questionnaire
On 25 May 2023, Hong Kong’s Securities and Futures Commission (SFC) issued a circular publishing the revised versions of the financial return form, analysis of client assets for associated entity and audit questionnaire. The revised forms / questionnaire require additional information on virtual asset-related activities, and need to be used in respect of any period ending on or after 1 December 2023. We list out below three additional pieces of information that will need to be provided to the SFC:
A reminder on ongoing liquid capital monitoring and the consequences of misleading the SFC: another disciplinary action on window-dressing liquid capital positions
The SFC recently banned the director of two former licensed firms from the industry for life in connection with his role in window-dressing the firms’ liquid capital positions. The director orchestrated the fund movements in the bank accounts of the two former licensed entities to window-dress their liquid capital positions prior the grant of their licences, by depositing funds into and subsequently withdrawing the same funds from the bank accounts. After obtaining the licences, the director also withdrew funds from the bank accounts for his own use which resulted in their liquid capital deficits, and failed to ensure that the firms notified the SFC on the liquid capital deficits within the specified timeframe.
The various breaches committed by the concerned individual should be a stark reminder that the SFC does not tolerate attempts to mislead the regulator, as well as licensed firms’ ongoing obligation to comply with the requirements in the Securities and Futures (Financial Resources) Rules (Financial Resources Rules).
A licensed firm’s “liquid” capital must always exceed its “required” liquid capital under the Financial Resources Rules and it must formally notify the SFC “as soon as reasonably practicable and in any event within one business day of becoming aware”, if, amongst other things, its liquid capital ever falls below 50% of the liquid capital reported in its last submitted return or 120% of the required minimum amount.
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