Topic Update Date

Amendments to AML Guidelines

In light of the Financial Action Task Force (FATF) guidance for a risk-based approach for the securities sector published in 2018, the SFC is expected to implement amendments in line with the FATF’s standards to facilitate the securities industry’s implementation of anti-money laundering/counter-financing of terrorism (AML/CFT) measures using a risk-based approach for institutional risk assessments and third-party deposits and payments.

The proposed amendments will also address areas where smaller licensed corporations (LCs) may be able to improve their AML/CFT measures, as identified in the FATF Mutual Evaluation Report of Hong Kong published in 2019. These include (1) deepening the understanding of money laundering/terrorist financing risks posed by cross-border financial flows and high-risk customers and implementing risk mitigating responses; (2) strengthening AML/CFT measures for foreign politically exposed persons, non-resident customers and customers who have sanction exposure; and (3)  putting in place more effective suspicious transaction monitoring systems.

The consultation paper can be found here.

NOTE: This is still in a consultation phase and could significantly change.

Published Date: September 2020

Effective Date: 2021 (TBD)

Proposed Guidelines for Securities Margin Financing (SMF) Activities

The guidelines aim to clarify, codify and standardize risk management practices expected of brokers conducting SMF activities (“SMF brokers”). The SFC expects that SMF brokers should control their total margin loans based on the size of their capital as high leverage may pose significant financial risks to SMF brokers if SMF risks are not properly managed.  However, the SFC clarifies that IPO loans would not be treated as margin loans due to their different risk characteristics. The SFC also expanded on the need to avoid potential buildup of excessive exposure to securities collateral (either individual securities or connected securities).

The consultation conclusion can be found here.

Published Date: April 2019

Effective Date: Six months from the gazettal date (definitive date to be confirmed)

Proposed Management and Disclosure of Climate-Related Risks by Fund Managers

In September 2018, the SFC announced a strategic framework around the development of environmental, social and governance (ESG) related finance throughout Hong Kong. Given the emergence of environmental protection awareness and the collaboration of different regulators domestically and globally, the SFC proposed to amend the Fund Managers Code of Conduct to ensure certain regulated entities will take into considerations ESG-related risk factors as part of their overall investment process.

At an initial stage, the proposed requirements cover four elements: (1) governance; (2) investment management; (3) risk management; and (4) disclosure.

The proposed disclosure requirements would only be applicable to fund managers responsible for the overall operation of funds and the SFC has proposed a two tier system for the requirements: a more robust approach for fund managers who manage HKD $4 billion  and less stringent standards for other fund managers below that threshold.

The SFC expects that fund managers will establish and revise their governance models, including policies, procedures and related controls to align with the proposed requirements and applicable disclosures in a phased approach.

  • A 9-month and 12-month transition period is expected for large fund managers to comply with the baseline requirements and enhanced standards respectively
  • A 12-month transition period is expected for other fund managers to comply with the baseline requirements

The consultation paper can be found here.

NOTE: This is still in a consultation phase and could significantly change.

Published Date: October 2020

Effective Date: Pending consultation conclusion (definitive date to be confirmed)

Proposed Investor ID Regime for Hong Kong Securities Market

At present, the only information an exchange participant inputs for an order is captured by the trading system used by the Stock Exchange of Hong Kong. Therefore, if suspicious activities arise, trying to then identify the underlying client (or investor) can create significant costs, both financially as well as with respect to time and effort required.

The SFC proposed that when an order is submitted or arranged to be submitted to the exchange, trading for execution (on-exchange order) or where an off-exchange trade is reported to the exchange, the  licensed corporations or registered institutions submitting the order or reporting the trade would be required to include a unique identification code assigned to the underlying client (investor). This would enhance market surveillance by identifying the originators of the orders and trades.

This is still in a consultation phase and could significantly change.

The consultation conclusion can be found here.

Published Date: December 4, 2020

Effective Date: Q1 2022 (the earliest) 

Proposed Enhancements to the Competency Framework for Intermediaries and Individual Practitioners 

The SFC is updating and aligning their competency requirements and standards to ensure consistency with other global regulators for licensed corporations, responsible officers and licensed representatives.

As a result, the SFC proposed certain amendments and enhancements to the existing competence guidelines and continuous professional training (CPT) guidelines including but not limited to:

  1. Raising the minimum academic qualification requirements for individuals and broadening the scope of recognized academic qualifications
  2. Elaborating on the relevant industry experience requirements
  3. Clarifying the management experience requirements for responsible officers (ROs)
  4. Specifying 10 CPT hours per calendar year as the minimum requirements for licensed representatives and 12 hours for ROs

In addition, certain changes are expected to further assist the industry by introducing exemptions for temporary licensed applicants and refine the conditional exemptions for HKSI papers.

The consultation paper can be found here.

NOTE: This is still in a consultation phase and could significantly change.

Published Date: December 11, 2020 

Effective Date: Six months after publication of the revised competence guidelines on or no later than December 31, 2021 (definitive date to be confirmed)

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