The Process Review Panel for the SFC (PRP) (an independent panel established in 2000) issued its latest annual report on the workings of the SFC on 30 October 2018. This 57 page document is akin to a negotiated internal audit report on the SFC, so it is well worth reading in full. We have however highlighted below for our clients those changes the SFC has committed to make in terms of its licensing and inspection processes as a result of PRP recommendations. The report is relevant to both new market entrants as well as existing intermediaries.
The role of the PRP is to help the SFC improve its processes and procedures (which means at least once a year the boot is on the other foot) by making practical recommendations. Each month the SFC submits lists of completed and discontinued cases and PRP members select cases from those lists for review. The bulk of the cases reviewed by the PRP this time were from the Enforcement Department but the PRP’s other main stated area of focus was the licence application process. The PRP therefore reviewed eight licensing cases with processing times ranging from six months to 15 months.
In order to enhance the efficiency of the licensing process and for better resources management, the SFC has agreed to make the following changes.
1. “Flatter” case team structure – Managers (who only handle complex cases) and Assistant Managers (who only to handle routine cases) since May 2018 all report directly to the Senior Managers. By eliminating one level, the SFC wants Senior Managers and Directors to provide more guidance to junior staff and be involved in applications at an earlier stage.
2. Staff specialisation – The SFC introduced an “Application Pointers” arrangement in September 2017 to facilitate the more efficient deployment of resources. Team leaders now need to first assess and identify the key risk areas of an application and then assign staff who already have appropriate knowledge and experience to handle the applications. The SFC has “assured” the PRP that the new arrangement, whereby complex cases are brought to the attention to the relevant Case Director for closer monitoring and guidance would help ensure that complex cases receive adequate management oversight.
3. “Refining” licensing assessment approach – The SFC has agreed to take a more risk-based and outcome-oriented approach as part of its revamping of the licensing process but other than as described above no further details were provided.
4. Revising SFC publications and licensing forms – The report does contain any detail but again as part of the revamp of the licensing process the SFC said it will be revising its “publications and licensing forms”.
5. Time to issue letters of deficiencies – In the report the PRP “reminded” the SFC that the industry expects the SFC to “complete the inspection work quickly” and “invited” the SFC to review the resources it allocated to inspections. The SFC however simply responded that it was already conducting regular reviews in this regard and explained that to ensure efficiency it was already taking the following steps so it would appear that no changes are planned in this regard for the time being at least:
a) conducting several inspections concurrently with each inspection typically at different stages to allow efficient and effective use of resources;
b) identifying key risk areas in advance of onsite visits so that the inspection team could focus on key risk areas during the visit; and
c) deploying advanced data analytics to facilitate the analysis of high volume trading data with a view to reducing the time required for the inspection.
6. Complaints against the SFC – Although the PRP had recommended clearer guidance around whether a complaint against the SFC generally or a particular staff member be classified as “minor” or “serious”, the SFC has rejected this suggestion on the basis that the nature of complaints varied too much for such a prescriptive approach.
7. Enhanced collaboration with other regulators – The SFC has to engage with other regulators in connection with inspections, approving licences and investment product applications and the PRP has advised the SFC to take steps to better collaborate with those other regulators. Accordingly, the SFC has now entered into more MOUs which the SFC says has greatly improved the level of cooperation especially with the CSRC and expedited the licensing approval process.
8. Other – The PRP also wants the SFC to take steps tominimise the impact of personnel changes and adopt more technology.