SFC licensing and compliance hints

What should be your action items for 2016?

This is our list of hot compliance action items for Hong Kong asset managers and distributors:

• Has your system for conducting corporate professional investor assessments been set up?
• Is the company ready to provide services to HNW individuals or corporate professional investors that fail to meet the assessment when the new professional investor regime starts in March 2016?
• Has the company revised its standard client agreements for new clients?
• Has the company decided whether it should amend or replace agreements with existing clients for the new client agreement requirements?
• Will the company need a Type 11 or Type 12 licence or will it be enough to apply for an expanded Type 9 licence when the OTC derivatives regime kicks in?
• Does your compliance manual need to be updated in view of the forthcoming regulatory changes as well as changes to your business activities?
• Should your existing compliance monitoring plan be updated to cope with recent changes?
• Does your 2016 CPT plan cover the new regulatory changes?
• Does the company need to schedule compliance refresher training for everyone (e.g. AML requirements, Personal Account Dealing)?
• How ready are you for an SFC onsite inspection?

Who doesn’t use WhatsApp?

Many people nowadays “talk” to each other via WhatsApp or some form of instant messaging rather than talking face to face or on the phone. On 23 December 2015, the SFC suspended a licensed person for three months because he received and discussed a client’s order instructions using WhatsApp Messenger on a mobile phone. This breached his company’s internal policies because he conducted business activities using electronic communications that were not supported by the company’s IT department. The licensed company therefore could not monitor the licensed person’s activities to ensure that he was carrying out his activities in compliance with his regulatory obligations.

Compliance manuals usually prohibit the use of mobile phones for client order instructions. However, it is worth reminding staff that such a provision extends to all kinds of electronic communications / applications on mobile phones (even on a device provided by the company) that are not supported by the company. It is also worth amending the compliance manual when new technology is introduced. As we can do so much with our mobile phones these days, if staff conduct business activities using applications that are not supported by the company, the licensed company could face the risk of leaking client information or cyber hacking, as well as not being able to monitor staff activities and retain the records adequately.