New financial return form in 2021 will require even more information

On 26 June 2020, Hong Kong’s Securities and Futures Commission (SFC) issued a circular publishing in draft new versions of the financial return forms for SFC licensed corporations (LCs). The SFC is planning to revise the existing forms in order to collect additional data from LCs to “enable the SFC to identify risks in a timely manner, take prompt supervisory action and protect investors”. It is expected that the forms will be gazetted without significant amendment.

Although the revised forms will not need to be used until after 1 July 2021, LCs should start familiarizing themselves with the new forms and start collecting the newly required data well before then so that they have enough time to enhance their systems as required.

We list out below the five key additional pieces of information that will need to be provided in the revised forms:

1. 

Breakdown of proprietary investments. In addition to providing lump-sum market value and liquid capital figures for proprietary positions, LCs will also need to:

a. 

group their proprietary investments as categorised into one of the four product types: listed shares, debt securities, investment funds and others; and

b. 

provide the product details (e.g. name, nature, code) in respect of individual proprietary positions with a market value that is over 10% of the firm’s excess liquid capital (in note 6 of Form 1).

2. 

Bank details. LCs will need to provide the details of the top five banks (e.g. name, geographical location, whether it is an affiliate of the licensed firm) used by the firm to hold its money (in note 4 of Form 1).

3. 

Group company management fees. LCs already need to disclose the total management fees they receive from and pay to group companies, but with the new forms they will also need to categorise those fees based on the basis of computation (e.g. trading profit/loss sharing, expense recharge) (in notes 5 and 7 of Form 7).

4. 

Analysis of clients by geographic location and client type. LCs will need to categorise active clients by geographic location (based on correspondence address provided by the client) and type (i.e. institutional professional investors, corporate professional investors, individual professional investors and others) (in part A of Form 12). The client type categorization should be based on the results of the latest assessment.

5. 

AUM analysis by investment strategy and account type. Currently, Type 9 LCs only need to divide AUM between authorised unit trusts and mutual funds, other collective investment schemes and “others” but the revised form will require an analysis of the AUM figure by investment strategy and a sub-categorization of the accounts that are now categorised as “others” into specific account types (in part B of the Form 12). Specifically, LCs will need to divide the AUM between hedge fund, private equity, passive index tracking and other strategies. Also, five new specific account type categories will be added: SFC-authorised open-ended fund companies, open-ended fund companies that are not authorised by the SFC, discretionary accounts held by directors, shareholders, employees or group affiliates of the LC, discretionary accounts held by other individuals and other discretionary accounts.