SFC routine inspection update

SEC registrants: One of the questions SFC licensees who are also SEC registrants sometimes ask is how to ensure that their internal policies and procedures are “ready” for a possible inspection by different regulators. There is no easy answer to this question. The documents need to be reviewed by lawyers in each relevant jurisdiction to ensure that all the relevant local requirements are covered. Our general approach in terms of how to manage the drafting of a compliance manual for an SFC licensee, with a view to minimising time spent while maintaining consistent high standards across jurisdictions will depend on whether:

• it is part of a larger group (whether containing an SEC registrant or not) – we try to use the group's existing compliance manual and only supplement with Hong Kong specific requirements where really necessary;
• it is a newly established Hong Kong business, seeking SEC registration at the same time as SFC licensing– in principle we would suggest trying to use one set of policies and procedures (typically the more comprehensive requirements) but amending these so that they work for both jurisdictions; or
• it is an existing standalone SFC licensee, seeking SEC registration – in principle we would suggest trying to use the existing SFC compliance manual and just supplementing that with the SEC specific requirements.

The SEC expects a registrant to review its policies and procedures and the effectiveness of their implementation at least annually. Any compliance matters that arose during the year should be documented in a yearly compliance review. According to the SEC's paper earlier this year entitled “Examination Priorities for 2013”, its examination focuses include fraud prevention, corporate governance, technology, safety of assets, conflicts of interest related to compensation arrangements, allocation of investment opportunities and marketing and performance advertising.