Hong Kong SFC licensing and compliance hints – February 2024

View PDF

Authored by: Jennifer Baccanello

SFC unveils strategic priorities 2024-2026: navigating global finance dynamics

In response to the evolving landscape of global finance and the unique challenges facing Hong Kong’s financial markets, the Securities and Futures Commission (SFC) has released its strategic priorities for the years 2024-2026 (Strategic Priorities). The Strategics Priorities focus on bolstering market resilience, enhancing global competitiveness, driving financial market transformation through technology and ESG (environmental, social, and governance), and fortifying institutional resilience and operational efficiency, and are set out as follows:

• Maintaining market resilience and mitigating serious harm

The SFC stresses the importance of maintaining market resilience posed by geopolitics, cybersecurity and technology risk; and will prioritise prompt risk management, enhanced capabilities and tech-driven investigation and enforcement, with close collaboration with other regulators.

• Enhancing the global competitiveness and appeal of Hong Kong capital markets

Hong Kong aims to sustain its position as an international financial centre and a financial hub and therefore needs to deepen connections with the mainland’s capital markets and expand overseas networks by actively participating in international standard-setting initiatives.

• Leading financial market transformation through technology and ESG

The SFC recognises the transformative potential of technology and the growing importance of ESG considerations in shaping financial markets, and will continue to embrace financial innovation through its steady flow of guidance in respect of virtual assets.

On the ESG side, the SFC has been vocal in its support for advancing sustainable finance initiatives such as the development of a code of conduct for voluntary adoption by ESG ratings and data products providers providing products and services in Hong Kong.

• Enhancing institutional resilience and operational efficiency

The SFC is acting in-line with regulators and financial institutions worldwide that are increasingly investing in digitalisation, automation, and cybersecurity measures to enhance operational efficiency, reduce costs, and mitigate operational risks amidst growing complexities in financial markets.

Concluding remarks and impact on licensed corporations

The Strategic Priorities reflect a transparent and proactive approach to address emerging challenges and capitalise on opportunities in the global financial landscape. By fostering resilience, embracing innovation, and promoting sustainability, Hong Kong aims to reinforce its position as a leading international financial centre poised for sustainable growth and development.

It is clear from the Strategic Priorities that the SFC expects organisations to foster a culture that prioritises regulatory compliance, integrity, and transparency at all levels of operation; this can be achieved through two key measures:

• Establish clear lines of supervision and accountability to mitigate the risks associated with overreliance on individual persons.

• Leverage appropriate technological tools to enhance operational efficiency, risk monitoring, and compliance processes.

April 2024 deadline for submitting BRMQ: applicable to licensed corporations with year-end 31 December

As the deadline approaches on 30 April 2024 for licensed corporations (with a year end of 31 December) to submit their Business Risk Management Questionnaire (BRMQ), it is crucial to remember the significant changes mandated by the SFC which we discussed in our newsletter of January 2023. One notable addition in the updated BRMQ is Question 20 of Section A9 (Risk Management), which focuses on the presence of an exit plan within the corporation’s framework. This emphasises the necessity for licensed corporations to develop a comprehensive strategy for the orderly closure of business in any regulated activity, regardless of whether an exit is currently anticipated.

4 key tips for completing the BRMQ:

1. Understand the purpose: The BRMQ serves as a tool for licensed corporations to assess their risk management practices. Approach the questionnaire with the understanding that it helps identify and mitigate potential risks within your operations.

2. Engage key stakeholders: Involve key stakeholders from various departments within the organisation, including compliance, risk management, and senior management. This ensures a comprehensive understanding of your organisation’s risk profile is captured in the responses.

3. Proactive risk identification and mitigation: Use the BRMQ as an opportunity to identify potential areas of risk within the organisation. Develop strategies to mitigate risks effectively, which may involve implementing new policies, procedures, or controls where necessary.

4. Document, document, document: Proper documentation of risk management practices is essential. Maintain detailed records of your risk management processes, including policies, procedures, risk assessments, and mitigation strategies. This documentation demonstrates compliance and serves as a valuable resource for internal review and routine inspections by the SFC.