SFC routine inspection update

Increased frequency of on-site exams: In an SCMP interview in June, Mr. Eddy Fong (Chairman of the SFC) said that the SFC has increased the frequency of its on-site examinations of fund houses and brokerage firms to check their financial positions and their internal controls. Fund houses which have not been formally inspected by the SFC over the past three years should make sure they are ready for the call.

FRRs: Although under normal accounting principles, assets and liabilities can sometimes be accounted for on a net basis, under the FRRs this is not permitted and in most cases assets and liabilities must be accounted for on a gross basis. As one of the exceptions however, amounts due from a group company to a licensed corporation may be offset against amounts payable to that group company provided such amounts do not arise from the carrying on of regulated activities and the licensed corporation has a legally enforceable right to offset. This will have the benefit of reducing the licensed corporation's ranking liabilities and therefore improving the licensed corporation's liquid capital position.