We have compiled the following chronology table which serves as a quick reference point to track the circulars and guidance published by HK financial services regulators in relation to COVID-19. We will update the table regularly. Kindly note that the table is not intended to capture all regulatory publications on an exhaustive basis.

Securities and Futures Commission (SFC) Circulars/Guidelines

TITLE

SUMMARY

DATE

LINK

REMARKS

1 Circular to Licensed Corporations and Associated Entities - Anti-Money Laundering / Counter-Financing of Terrorism Publication of the Latest Hong Kong’s Money Laundering and Terrorist Financing Risk Assessment Report

Background

The Government published on 8 July 2022 the latest Hong Kong’s Money Laundering and Terrorist Financing Risk Assessment Report (“the Report”). The Report examines the money laundering and terrorist financing (“ML/TF”) threats and vulnerabilities facing various sectors in Hong Kong and the city as a whole in recent years, as well as assesses the risk of proliferation financing faced by Hong Kong. The updated assessment results facilitate the Government in implementing mitigating measures against the identified risks to ensure that Hong Kong's anti-money laundering and counter-financing of terrorism (“AML/CFT”) regime can address challenges brought by the ever-changing market developments.

The assessment concludes the ML risk of the securities sector remains at medium level, taking into account the ML threat and vulnerability levels for the securities sector which are both assessed to remain at medium level.

The Report notes that the securities sector continues to be exposed to transnational, cross-border as well as domestic ML threats. In particular, it is also exposed to ML threats from social media investment scams in recent years. “Nominee” and dubious investment arrangements which have been exploited for use in schemes to facilitate market misconduct or in concealing the actual beneficial ownership for other illegal purposes are newly identified as key ML vulnerabilities. Furthermore, the increased use of online and mobile trading as well as remote office arrangements during the COVID-19 pandemic also provide opportunities for criminals to abuse the sector for online fraud and theft and related ML activities.

Actions taken and will be taken by the SFC

The SFC has strengthened its risk-based AML/CFT supervision which enables the monitoring of firms’ AML/CFT compliance in a more risk-sensitive and effective manner. These include implementing the Manager-In-Charge regime for eight-core functions including AML/CFT, and launching a revamped Business and Risk Management Questionnaire which gathers more information about firms’ business operations and AML/CFT controls. The SFC will reinforce its capacity building and outreach programmes to enhance the AML/CFT compliance capability of the securities sector to help mitigate the ML/TF risks.

The SFC’s Expectations of LCs and AEs

Licensed corporations (“LCs”) and associated entities (“AEs”) are reminded to identify and assess ML/TF risks to which the firms are exposed and to keep the assessment up-to-date, having regard to the key ML/TF threats and vulnerabilities identified in the Report that are relevant to their own circumstances. LCs and AEs should design and implement adequate and appropriate AML/CFT policies, procedures and controls that are commensurate with the ML/TF risks identified in order to properly manage and mitigate them.

8 July 2022 Click here

For the latest Hong Kong’s Money Laundering and Terrorist Financing Risk Assessment Report published on 8 July 2022, please see here.

The above report has been covered in item 8 in the HKMA circulars/guidelines below and item 3 of the IA circulars/guidelines below.

2 Circular to Licensed Corporations Updated Technical Specifications for OTC Derivatives Trade Reporting

The SFC published a Circular on 29 March 2022 to inform licensed corporations (LCs) of the HKMA’s notice (the “Notice”) about updated technical specifications for over-the-counter (OTC) derivatives trade reporting under the Hong Kong Trade Repository (HKTR) and the postponement of the implementation date of updates to coding schemes to cover “Proprietary rates” due to the current pandemic situation.

LCs that may be subject to mandatory reporting obligation are advised to refer to the Notice.

29 March 2022 Click here Please refer to the HKMA notice “OTC Derivatives Trade Repository of the HKMA Updated Technical Specifications for Reporting” dated 29 March 2022 here (covered in item 18 of the HKMA circulars/guidelines below).
3 Circular to licensed corporations - Managing the risks of business email compromise

The SFC published a Circular on 24 March 2022 to indicate their expectations to licensed corporations (LCs) in relation to business email compromise (BEC) risks, especially at times when remote working arrangements are commonplace.

Background

The SFC has recently received reports from LCs about BEC, a type of cyber fraud whereby fraudsters posing as known business contacts dupe unwary staff into sending them money or sensitive information. These incidents resulted in the leakage of client information which undermined client interests and, in some cases, significant financial losses which the LCs had to bear.

Business email compromise

A BEC scheme typically involves one or more of the following actions by the fraudsters:

  • forging an email address which looks like that of a genuine client contact for communicating with the target LC;
  • impersonating client contacts and making apparently legitimate requests such as asking for copies of statement of accounts, adding or altering authorised signatories, applying for user accounts or placing trade orders; and
  • issuing fund transfer instructions, usually to bank accounts under their control at multiple receiving banks, some of which are located overseas, to maximise their chances of receiving the funds.

In most cases where fraudsters succeeded, the identities of the email senders were either not verified or were checked improperly. For example, an LC staff simply called the phone number provided by the fraudster and followed the confirmation to process the fund transfer instructions.

In addition, many red flags were ignored by the LCs. In one incident, fund transfers were rejected or withheld by some banks. Instead of promptly investigating the irregularities, the LC proceeded to act on the transfer instructions to other banks. Eventually, a number of fund transfers were effected, inflicting financial losses on the LC.

LCs should take note of the examples of BEC provided in the Annex.

The SFC’s expectations

The SFC expects LCs to have internal control procedures and financial and operational capabilities which can be reasonably expected to protect their operations and clients from financial losses arising from theft, fraud and other dishonest acts, professional misconduct or omissions. The SFC reminds LCs of its circular titled “Circular to licensed corporations Management of cybersecurity risks associated with remote office arrangements” dated 29 April 2020 (item 19 below), to vigilantly monitor and effectively manage BEC risks, especially at times when remote working arrangements are commonplace.

Control mechanisms

LCs should establish effective policies and procedures to provide guidance to their staff for managing BEC risks. In addition, LCs should strengthen internal controls in the following aspects:

(a) Client contact information

  • Establish true identities of the clients and their authorised representatives during the account opening process.
  • Periodically review and update the official records to keep client contact information accurate and up-to-date.

(b) Amendment of client particulars

  • Request written instructions when a client asks to amend his or her particulars (including updating authorised representatives), and verify the requestor’s identity and specimen signature.
  • Verify email requests using contact information on LCs’ official records, rather than the email address or phone number provided in the email. Consider arranging a video conference or a physical meeting with the client if needed.
  • Issue acknowledgement notifications to the clients’ registered address, email or mobile phone when amendments are requested and when they are made.

(c) Email requests for order placing or fund transfer

  • Implement effective confirmation procedures for the requests with the amounts over a reasonable threshold.
  • Rather than responding directly to email requests, use alternative channels and contact information from LC’s original records to contact and verify client’s requests.
  • Consider using surveillance tools to filter spoofed email addresses and detect unauthorised access to internal networks and systems.

(d) Red flags

  • Stay alert and handle with extra care when email requests are inconsistent with the client’s normal practices. Promptly follow up irregularities, such as significant payments to overseas bank accounts, requests for immediate payments and repeated transfer rejections by banks.
  • Foster a strong risk culture to encourage staff to report and follow up on red flags. Engage supervisors, IT administrators and compliance staff in a timely manner to formulate appropriate responses to suspicious email instructions.

Senior management responsibility

It should be noted that the above control measures and techniques are by no means exhaustive. The SFC suggests that each LC review its own circumstances and ensure that appropriate and effective control procedures are put in place and effectively enforced. It is the responsibility of the senior management to oversee LCs’ implementation of internal control policies and procedures for the effective management of BEC risks, and ensure that adequate resources for such control functions are allocated and proper checks and balances are in place.

LCs should provide regular training to staff to enhance their vigilance in watching out for email scams and ensure that they understand the appropriate handling procedures. LCs’ staff should carefully examine email addresses, prudently verify the authenticity of requests, diligently investigate red flags and promptly escalate issues according to internal protocols.

LCs are also advised to make reference to the SFC’s guidance on the control measures and techniques for managing cybersecurity risks and guarding against email scams.

Annex to the circular provides examples of BEC.

24 March 2022 Click here

Please refer to the SFC’s circular “Circular to licensed corporations Management of cybersecurity risks associated with remote office arrangements” dated 29 April 2020 here (covered in item 19 below).

Annex – “Examples of business email compromise (BEC)”

4 Circular to licensed corporations - SFC-HKMA joint product survey 2021: extension of submission deadline

The SFC published a Circular on 11 March 2022 regarding the SFC-HKMA joint product survey 2021. In light of the latest COVID-19 situation, the SFC understands that licensed corporations may need more time to complete the survey. Accordingly, the deadline for submitting the survey questionnaire has been extended from 11 March 2022 to 19 April 2022.

This Circular should be read in conjunction with the circular entitled “Circular to intermediaries - SFC-HKMA joint product survey 2021” issued by the SFC on 10 December 2021, which provides information about the survey and the reporting timetable.

11 March 2022 Click here Please see “Circular to intermediaries - SFC-HKMA joint product survey 2021” here.
5

Circular to licensed corporations

Importance of business continuity planning amidst latest COVID-19 situation

The SFC published a Circular on 7 March 2022 to again remind licensed corporations to review and update their business continuity plan (BCP). As the HKSAR Government has announced its intention to implement a Compulsory Universal Testing (CUT) scheme, albeit its timing and details have not been announced yet, licensed corporations should start preparing now considering the number of actions that may need to be taken in advance.

Steps for Licensed Corporations to take in light of CUT

Specifically, licensed corporations should critically assess the impact of sudden disruptive events such as the scenarios of temporary staff shortages or reduced service offerings by essential vendors and service providers, as a result of positive cases identified before or during the CUT scheme, and take steps to manage associated risks to ensure that their business operations and client interests are not unduly affected.

Licensed corporations should:

  • review each function of their business operations, including those performed by third party vendors or service providers (e.g. IT network, system operators or custodians), to identify the ones that are essential;
  • prepare for and keep track of staff being tested positive or identified as close contacts of positive cases, particularly those identified as essential, and put in place contingency measures to allow continued delivery of services to their clients (such as backups or alternative staffing arrangements and temporary outsourcing of trades to another execution broker); Licensed corporations should:
  • maintain close communication with the essential third party vendors and service providers identified to understand if, and how, their BCP would impact the licensed corporations’ activities and operations and put in place contingency measures, including support from other vendors and service providers;
  • be mindful that the operations of banks have been impacted, with temporary branch closures or reduced service hours, that may affect, among other things, the availability and the efficiency of processing cheque deposits;
  • review their operations and consider alternative channels of payment to ensure timely settlement of transactions if licensed corporations themselves or their clients rely on physical cheques and/or visits to bank branches to settle payments;
  • adopt measures to mitigate the risk of financial loss arising from potential forced liquidation of positions by licensed corporations themselves or the clearing houses as a result of delays in settlement of margin calls by clients; and
  • promptly communicate with and notify their clients in situations where business operations and services to clients are unavoidably affected, delayed or disrupted.

The SFC will continue close dialogue with licensed corporations and, so far as legally permitted (and consistent with market integrity and investor protection principles), afford regulatory flexibility where necessary to address unavoidable operational constraints arising from the COVID-19 situation.

Resources and Updates for Licensed Corporations

Licensed corporations should take note of the SFC’s dedicated webpage, which provides updated information published by the SFC in relation to the COVID-19 situation. Recent updates include Frequently Asked Questions on time extensions for licensing examination and additional Continuous Professional Training hours issued on 2 March 2022 and the circular on the submission of scanned copies of licensed corporations’ audited accounts issued on 4 March 2022.

7 March 2022 Click here Please see “Information for firms and market on COVID-19” here.
6 Circular to Licensed Corporations Measures to deal with disruptions caused by financial distress and insufficient responsible officers

The SFC published a Circular on 4 March 2022 on measures to deal with business operation disruptions caused by COVID. In the Circular, the SFC reiterates various existing obligations on licensed corporations (LCs) and explains the SFC’s regulatory approach and expected standards focussing on 6 areas to mitigate the risks and impact of an abrupt discontinuation of business of licensed corporations (LCs) and how to cope with stress events.

Information about all controllers and the shareholding structure of an LC

An LC is required to keep the SFC informed of the identity and details of “any person in accordance with whose directions or instructions [the LC] is, or [the LC’s] directors are, accustomed or obliged to act” (Controller). During a stress event, an LC’s Controllers can be understood as any persons who can influence the prospects of the LC as a going concern. The SFC would be in communication with an LC’s Controllers as well as its senior management to manage a contingent situation in an efficient and timely manner.

Where relevant and necessary, the SFC will:

(a) ask a corporate licence applicant for the identity and background of its Controllers for assessment.

(b) seek confirmation of the identities of an LC’s Controllers from any of its directors, responsible officers (ROs) or other management personnel.

(c) ask a corporate licence applicant or an LC to provide information regarding its shareholding structure and notify the SFC of subsequent changes, and additional information or documents, such as certain licensing forms completed by the Controllers or any entities or persons identified in the shareholding chart, where necessary.

Maintenance of a sufficient number of ROs

A corporate licence applicant or an LC should critically assess the possibility and impact of its inability to maintain a sufficient number of ROs (one of whom must be an executive director (ED)) given the requirements under section 125(1)(b) of the Securities and Futures Ordinance (SFO) and incorporate such a scenario into its business continuity and exit plans.

(a) Appoint additional ROs and EDs

LCs, in particular those having only two ROs or one ED in respect of any regulated activity for which it is licensed, should implement risk mitigation measures including the following:

i. identify potential RO and ED candidates, such as experienced licensed representatives at the firm or other ROs within its group, who are willing and eligible to become additional ROs and EDs of the firm within a short period of time;

ii. review notice periods for termination in the employment contracts of existing ROs to reduce the risk of an insufficient number of ROs; and

iii. resources permitting, appoint additional ROs and EDs for that regulated activity.

(b) Applicable to sole-shareholder / sole-director firms

Where a corporate licence applicant or an LC is wholly owned by an individual, who also acts as the sole director of the firm, the SFC expects that the firm put in place control measures, such as appointing a reserve director or additional directors, in order to mitigate the risk that the firm becomes incapacitated in the event of the sudden unavailability of the sole director (due to illness, death or other circumstances) and the firm has no shareholder to appoint new directors. Where applicable, the SFC may seek information from a corporate licence applicant or an LC about how the firm will effectively manage the key person risk concerning its operations.

(c) Temporary shortfall of ROs or EDs

When an LC becomes aware that it will have less than two ROs or no ED in respect of any regulated activity for which it is licensed, it should immediately activate its business continuity plan and notify the SFC of the situation. It should also provide information regarding its remedial actions to appoint additional ROs or EDs, with a concrete timeframe. Whilst the LC should submit related RO applications to the SFC as a matter of urgency, the competence of the RO candidates should not be compromised and the quality of the application materials should comply with all the relevant application requirements.

(d) Exit plan

If an LC lacks a concrete and feasible solution to maintain the minimum number of ROs required, it should initiate its exit plan to ensure an orderly closure of business and submit the plan to the SFC.

Maintenance of adequate financial resources

Applicable to corporate licence applicants

(a) A corporate licence applicant is required to submit a projection of its major operating expenses to the SFC to illustrate that its existing financial resources are reasonably adequate to run its proposed business for at least six months (without taking into account any projected income). If the applicant’s excess liquid capital (ELC) cannot cover its projected total major operating expenses for at least six months, it is required to submit a funding plan, together with supporting documents relating to additional liquidity sources, to demonstrate its financial strength to operate should it be licensed. The funding plan must be approved by the applicant’s board of directors and endorsed by its substantial shareholders (SSH) and Controllers. The plan must also clearly set out the sources of additional funds and the identity of the sponsoring parties as detailed in Appendix A to the Circular.

(b) The SFC may impose conditions on an SSH to reflect the SSH’s funding commitments to the applicant. Depending on the circumstances of each case, conditions may be imposed in the following areas:

i. provision of financial support and other resources to the LC for maintaining its ongoing operations;

ii. notification to the SFC regarding stress events or other circumstances which suggest the potential for the support to be discontinued; and

iii. provision of information to the SFC upon request.

Applicable to LCs

(a) The SFC monitors the adequacy of each LC’s liquid capital on an ongoing basis. Adopting a risk-based approach and taking into account the LC’s business activities, client interests and other specific circumstances, the SFC may make enquiries with an LC when it has not been generating sufficient income to cover its operating expenses for a period of time and its ELC is projected to run out in less than 12 months. The SFC may ask the LC, its SSHs and Controllers to improve the LC’s financial position by, for example, injecting share capital and adopting cost-cutting and risk mitigation measures. If the financial position of the LC continues to deteriorate, the LC will be asked to provide a detailed funding plan (see Appendix A to the Circular), a detailed exit plan (see Appendix B to the Circular) or both, approved by its board of directors and endorsed by its SSHs and Controllers. (b) Depending on the situation, the SFC may ask an LC, its management, SSHs and Controllers to provide written confirmation and undertakings for the purposes of risk mitigation and to protect client interests. The terms of the confirmation and undertakings may include ceasing to accept new clients and new buy orders, notifying clients of the risk mitigation measures undertaken by the LC and returning client assets. Where the SSHs are also in financial distress, the SFC may ask the LC to undertake other appropriate measures, such as not to provide any financing or guarantee to the SSHs or its affiliates. (c) The SFC may also impose new conditions or amend or revoke any conditions on an LC’s licence as may be reasonable in the circumstances or take other regulatory actions as it considers appropriate in order to protect the interest of the LC’s clients. Any licensing conditions imposed by the SFC will be published in the public register of licensed persons and registered institutions on the SFC’s website.

Financial and operational dependency on another person

Applicable to LCs

(a) Some LCs have arrangements in place for another party, e.g. their SSHs or group company, to pay for their key operating expenses, such as staff costs and rental expenses. In some cases, these payments are not charged back to the LCs as expenses or management fees and therefore the financial positions of the LCs reported in the financial returns do not fully reflect their actual financial and operational capability. Where a paying party encounters financial difficulty and is unable to continue to pay for an LC’s operating expenses, the LC may be in financial and operational stress, which may result in regulatory breaches.

(b) Unless the LC is able to demonstrate that the paying party or its SSHs have adequate resources independent of the LC to continue to pay for these expenses on its behalf, or the LC is able to support its operations for at least 12 months should it have to bear these expenses itself, the SFC may require the LC, the paying party and the SSHs to undertake to adopt measures in addition to those mentioned in “Maintenance of adequate financial resources” above. These additional measures may include:

i. provide financial information of the paying party and the SSHs to the SFC upon request; and

ii. notify the SFC should the paying party cease or intend to cease bearing the LC’s key operating expenses.

(c) An LC may also be required to provide:

i. a detailed business continuity plan covering the scenario where the paying party ceases to pay for the LC’s key operating expenses and the LC’s proposed actions to minimise disruptions to its operations and clients; and

ii. a detailed exit plan for an orderly closure of its business and return of all client assets assuming the worst-case scenario that the LC cannot continue its operations.

(d) The SFC may also consider imposing conditions on an LC and its SSHs above.

(e) In view of the issues that may arise from an LC’s financial and operational dependency on another person as discussed above, LCs are strongly encouraged to take appropriate measures to mitigate the risk of such dependency, such as increasing its share capital buffer and establishing a business continuity plan described above. The SFC will request information about an LCs’ financial and operational dependency regularly and on ad-hoc basis for assessment.

Applicable to licence applicants

When applying for a licence, a corporation should provide information regarding its key operating expenses which are paid by another person and not by the corporation itself. The SFC may request these other persons to provide a written undertaking, confirming their financial soundness and intention to provide continuous support to the applicant in maintaining its operations. Such a confirmation is relevant to the SFC’s consideration of whether the applicant is fit and proper to be licensed. The SFC may also consider imposing conditions on the applicant’s SSHs as discussed above.

Exit plans

The process of winding down an LC’s business can be lengthy and costly, particularly if it involves the handling of client assets held or managed by the LC. In order to minimise the potential impact of an LC’s business cessation on its clients and the market, it is prudent for an LC to plan ahead for such a scenario even when business cessation may not be imminent or anticipated. In formulating its exit plan, an LC should take into account the financial, human and operational resources required to complete the process and ensure that client interests are protected.

An LC should submit its exit plan which sets out the details (see Appendix B to the Circular) of its orderly wind down and closure of business to the SFC when:

(a) it intends to cease, or has ceased, to carry on regulated activities for which it is licensed;

(b) it is required to suspend or cease to carry on regulated activities for which it is licensed, including but not limited to the SFC’s exercise of its power under section 146(5)(a) and section 195(1)(c) of the SFO; or

(c) it is requested to do so by the SFC.

The SFC may request an LC to provide updates on the activation and implementation of its exit plan, such as regular updates of the latest positions of the client interests connected with the LC. The LC should also inform the SFC immediately of any major changes in the exit plan, eg, changes in key milestones, timelines or designated personnel for executing the exit plan.

If an LC fails to formulate a concrete exit plan or act promptly according to its exit plan, the SFC will consider imposing conditions on the LC and other relevant persons, such as its SSHs and ROs, to require their immediate action to wind up the LC’s business of regulated activities in an orderly manner. The SFC may consider taking other regulatory action, such as issuing restriction notices and appointing an administrator. The SFC may also take regulatory action against the LC and other regulated persons concerned if their conduct does not meet the standards expected of them, such as failure to act in the best interests of clients.

Responsibility of senior management

The senior management of an LC assumes overall responsibility for the LC’s contingency planning, which should cover the areas and mitigation measures for stress events as set out in this Circular. Among other things, senior management is expected to take reasonable steps to ensure that financial and other resources, such as manpower and professional services, required for the effective execution of the contingency plan, including the exit plan, are secured and will be available to the LC should the plans be activated.

Senior management of an LC should also review the LC’s contingency planning, including any test results, at least annually to ensure that the plans are sufficiently robust and remain effective over time to allow the LC to mitigate stress events on an ongoing basis, taking into account the prevailing market conditions and the LC’s specific business mix, scale, operational model and clientele.

An LC’s contingency plan, including the exit plan, and any subsequent revisions should be properly documented. They should also be approved by the LC’s board of directors, endorsed by its SSHs and Controllers and communicated to all relevant personnel. The SFC may require an LC to submit related documents should circumstances warrant.

An individual (whether licensed or not) who is or was involved in the management of an LC’s regulated business is expected to ensure the LC’s orderly exit from the business of any regulated activity, particularly in regard to safeguarding the interests of clients and the investing public and upholding the integrity of the market. Failure to meet these expectations may affect an individual’s fitness and properness to be licensed or to be involved in the management of other LCs in the future.

Appendix A to the Circular prescribes the details of a funding plan expected by the SFC.

Appendix B to the Circular prescribes the details of an exit plan expected by the SFC.

4 March 2022 Click here
7 Circular to Licensed Corporations and Associated Entities - Submission of financial statements, other documents and auditor's report under section 156(1) of the Securities and Futures Ordinance The SFC published a Circular on 4 March 2022 to inform licensed corporations (LCs) and associated entities (AEs) of intermediaries of a temporary arrangement for the submission of the financial statements, other documents and auditor’s report (collectively referred to as “audited accounts”) to the SFC under section 156(1) of the Securities and Futures Ordinance. The SFC understands that the directors of certain LCs or AEs, particularly those located outside Hong Kong, may encounter difficulties in physically signing the audited accounts due to the coronavirus situation, and hence the LCs or AEs may not be able to submit the original copy of the audited accounts with wet-ink signatures by the submission deadline, which is four months after the end of the financial year. To provide flexibility to the industry, LCs and AEs are allowed to submit a scanned copy of their audited accounts by the submission deadline and submit the original copy as soon as reasonably practicable after the submission deadline. LCs and AEs may also apply for an extension of the submission deadline if a delay in preparing the audited accounts is anticipated. These applications will be considered by the SFC pragmatically. Please refer to question 10 of the “Frequently Asked Questions on licensing related matters in light of the COVID-19 pandemic” updated on 2 March 2022 for details regarding applications for an extension of the submission deadline. 4 March 2022 Click here Please see the “Frequently Asked Questions on licensing related matters in light of the COVID-19 pandemic” last updated on 4 March 2022 (covered in item 24 below): here
8 Circular to issuers of SFC-authorized investment products

The SFC published a Circular on 18 February 2022 urging issuers of SFC-authorized investment products (“Issuers”) to review and maintain an up-to-date and effective business continuity plan.

The BCP should ensure continuous operations relating to SFC-authorized investment products (including product valuation, dealing and trading arrangements, trading of underlying assets, and product risk management) without undue disruption to protect investors’ interests. Issuers should discuss their BCP with key counterparties and third party service providers, including trustees, custodians, market makers, clearing and settlement brokers, administrators and distributors, and the BCP should take account of these services.

Issuers should properly monitor and manage their operations and take prompt and effective measures to mitigate any potential adverse impact on SFC-authorized investment products and their investors.

Issuers should also keep investors informed at all times and immediately report to the SFC any material or untoward issue that may have a significant impact on SFC-authorized investment products and/or their investors. If in doubt, they are strongly encouraged to consult the SFC.

18 February 2022 Click here
9 Circular to licensed corporation – Updates to the reminder of business continuity planning in view of COVID-19 Vaccination Programme

The SFC published a Circular on 18 February 2022 urging licensed corporations to review their business continuity plans, in light of the latest wave of COVID-19 infections and the HKSAR Government’s call for people to avoid gatherings and stay at home and ongoing efforts to promote vaccination.

SFC urges licensed corporations to:

  1. Review their BCP to maximise the number of staff who work from home, and arrange for staff to work in the office only if they conduct critical functions or duties that cannot be performed remotely;
  2. Consider making arrangements so that only staff who are vaccinated are working in the office; and
  3. Implement facilitative measures, such as vaccination leave and flexible working hours, in encouraging their staff, including those eligible to receive the third dose, to get vaccinated, in order to ensure the highest possible level of vaccinations amongst their staff.

This circular should be read in conjunction with the circular to licensed corporations entitled “Reminder of business continuity planning in view of COVID-19 Vaccination Programme” issued by the SFC on 28 October 2021.

18 February 2022 Click here Please see the SFC’s circular dated 28 October 2021 here (covered in item 12 below).
10 Circular to licensed corporations – Scheme for quarantine-free travel to Mainland China

The SFC published a Circular on 13 December 2021 setting out the eligibility criteria and pre-registration procedures for executives of licensed corporations to participate in the HKSAR Government’s scheme for quarantine-free travel to the Mainland (“Scheme”). Phase 1 of the Scheme covers travel to Guangdong Province only.

Eligibility criteria

1. In Phase 1 of the Scheme, the criteria for an eligible executive is a staff or director of a licensed corporation who has a regional role and whose main purpose of travelling to Guangdong Province is for the management of the firm's Mainland business. An executive who proposes to meet clients in the Mainland but does not meet the above criteria is not eligible.

Maximum monthly quota

2. Each licensed corporation in each calendar month may submit one pre-registration for a maximum of two executives.

Pre-registration procedures

3. A licensed corporation should pre-register the executives it intends to sponsor by completing and submitting to SFC the pre-registration and change request form at the Appendix to this Circular (“Form”) and providing the following supporting documents for each sponsored executive:

a. copies of the sponsored executive's identity documents including:

i. Hong Kong residence document (i.e. Hong Kong identity card, visa or entry permit issued by the Immigration Department); and

ii. document for travelling to the Mainland (i.e. Mainland Travel Permit, Residence Permit or passport photo page together with a valid Chinese visa);

b. supporting documents which demonstrate that the sponsored executive is responsible for regional duties and the main purpose of travelling is for the management of the firm's Mainland business in Guangdong Province. Examples include address proof of a registered office in Guangdong Province (if any), business contracts with or invitations from corporations located in Guangdong Province.

4. The Form should be signed by the Manager-In-Charge of the compliance function of the sponsoring licensed corporation, who should be responsible for ensuring the accuracy and authenticity of the information submitted.

5. The first round of pre-registrations was closed on 17 December 2021. Subsequent pre-registrations and changes (i.e. substitution of a sponsored executive) should be submitted to the SFC by email at [email protected] within the first five business days of each calendar month, starting February 2022. If no update is submitted, the most recently registered sponsored executives will continue to be eligible.

6. Subject to the submission of accurate and complete information, the SFC will provide the personal particulars of the executive sponsored by the licensed corporation to the FSTB for registration as an eligible individual on the list maintained by the Office of the Government Chief Information Officer (OGCIO).

7. The SFC will notify the sponsoring licensed corporation when registration with the OGCIO is completed. Upon successful registration, the sponsored executive may then apply for quarantine-free travel to Guangdong Province under the Scheme.

8. Pre-registration via the SFC is not a guarantee of quarantine-free travel as the Scheme is subject to a daily quota administered by the OGCIO. Please pay attention to future announcements by the HKSAR Government on details of application for the quota.

13 December 2021 Click here Appendix – Pre-registration and change request form for the Scheme
11 Circular to licensed corporations – Cancellation of Quarantine Exemption Arrangements

The SFC published a Circular on 1 November 2021 regarding the cancellation of the Exemption Scheme.

The SFC will not accept any new applications under the Exemption Scheme with immediate effect, in view of the HKSAR Government's cancellation of quarantine exemption arrangements for certain categories of persons in the financial services sector in accordance with the Compulsory Quarantine of Certain Persons Arriving at Hong Kong Regulation (Cap. 599C) and the Compulsory Quarantine of Persons Arriving at Hong Kong from Foreign Places Regulation (Cap. 599E).

This circular should be read in conjunction with the SFC’s earlier circulars to licensed corporations titled “Exemption for senior executives of licensed corporations” dated 28 May 2021 (Exemption Scheme), “Updates to the Exemption Scheme” dated 21 June 2021 and "Further updates to the Exemption Scheme" dated 19 July 2021.

1 November 2021 Click here

Please see the SFC’s circulars dated:

  • 19 July 2021 (covered in item 14 below) here.
  • 21 June 2021 (covered in item 15 below) here.
  • 28 May 2021 (covered in item 17 below) here.
12 Circular to licensed corporations – Reminder of business continuity planning in view of COVID-19 Vaccination Programme

The SFC published a Circular on 28 October 2021 reminding licensed corporations of its circular dated 1 June 2021.

The circular dated 1 June 2021 strongly encouraged licensed corporations to consider vaccination as a critical part of operational risk management, and urged licensed corporations to review their business continuity plan and encourage staff performing critical functions to get vaccinated and consider suitable arrangements for unvaccinated critical staff to undergo periodic COVID-19 testing.

In view of the HKSAR Government’s vaccination-in-lieu of regular testing arrangement that requires all civil servants to get vaccinated, the SFC now urges licensed corporations to adopt a similar arrangement and to strongly encourage ALL staff who are medically fit to do so to get vaccinated by 30 November 2021 or undergo effective testing for COVID-19 every two weeks.

28 October 2021 Click here

Please see the SFC’s circular dated 1 June 2021 here.

The above circular has been covered in item 16 below.

13 Circular to intermediaries – Operational resilience and remote working

The SFC published a Circular to intermediaries regarding the regulatory standards for intermediaries’ ability to prevent, adapt and respond to and recover and learn from operational disruptions, which is accompanied by a Report on Operational Resilience and Remote Working Arrangements ("Report") in the midst of the COVID-19 pandemic.

While the guidance provided by SFC on cybersecurity, business continuity plans, internal controls and risk management in its codes, guidelines and circulars has helped licensed corporations maintain resilience amid the COVID-19 outbreak, the SFC stresses the importance for licensed corporations to ensure continued strength by adopting a comprehensive approach to achieve their operational resilience objectives based on common established standards.

For example, many intermediaries are considering whether to maintain some form of hybrid working arrangement as a new normal after the pandemic, with employees working partly from the office and partly from home or other remote locations. In doing so, intermediaries should be vigilant about the risks involved and implement appropriate risk management measures and internal controls to address them.

Appendix A to the Circular provides operational resilience standards and required implementation measures which supplement the SFC’s existing guidance. Appendix B to the Circular sets out the expected regulatory standards for managing and mitigating some major possible risks of remote working.

Intermediaries are also encouraged to read the Report. The Report provides intermediaries with a better understanding of the regulatory standards and the required implementation measures for operational resilience, and provides suggested techniques and procedures. In addition, the Report shares case examples and lessons learned drawn from the SFC’s review of some licensed corporations’ operational resilience measures during the COVID-19 pandemic and other disruptive events. It also explains the major possible risks of remote working and provides suggested techniques and procedures for risk mitigation.

Intermediaries are encouraged to adopt the suggested techniques and procedures where appropriate in their circumstances.

4 October 2021 Click here

Appendix A – Operational resilience and required implementation measures (p. 1)

Appendix B – Expected regulatory standards for managing and mitigating remote working risks (p. 4)

Report on Operational Resilience and Remote Working Arrangements

14 Circular to licensed corporations - Further updates to the Exemption Scheme

The SFC published a Circular on 19 July 2021 regarding further updates to the Exemption Scheme. The further updates are made in light of the adjustments to the quarantine requirements for vaccinated persons arriving in Hong Kong announced by the HKSAR Government. The key updates include shortening the period of itinerary and point-to-point transportation requirements for inbound travellers (who have stayed in high or medium risk places specified in Group B or Group C under Cap. 599H or Taiwan, China during the 14 days prior to their arrival in Hong Kong and who possess a positive result of a recognised serology antibody test) to the first seven days instead of the entire 14-day medical surveillance period. The Department of Health and Food and Health Bureau has also updated their "Guidelines for vehicles providing point-to-point transportation arrangements for exempted persons (air crew, sea crew and others)".

Accordingly, the SFC has adjusted their requirements for the submission of attestation forms under the Exemption Scheme. Sponsored licensed corporations should submit a signed attestation form:

a.for a returning executive, on his or her third and seventh days in Hong Kong;

b.for a visiting executive,

i.on the last day of his or her trip if he or she stays in Hong Kong for less than three days; or

ii.on his or her third day in Hong Kong, and on the seventh day in Hong Kong or the last day of his or her trip, whichever is earlier, if he or she stays in Hong Kong for more than three days.

Please refer to Appendix II to the Circular for the updated attestation form.

The antibody testing and COVID-19 testing (post-arrival test) requirements of the Exemption Scheme are also updated as follows:

a.the list of recognised laboratories and criteria have been updated to align with the Government’s announcements;

b.the specification that specimens must be collected for an antibody test on the day of arrival or the following day has been removed; and

c.the post-arrival test on the seventh day will be advanced to the fifth day in Hong Kong.

Please refer to Appendix I to the Circular for the revisions to the exemption conditions and requirements.

The Circular should be read in conjunction with the SFC’s earlier Circular on Exemption for senior executives of licensed corporations issued on 28 May 2021 (Exemption Scheme) and Updates to the Exemption Scheme issued on 21 June 2021.

19 July 2021 Click here

Please see the SFC’s circulars dated:

  • 21 June 2021 (covered in item 15 below) here.
  • 28 May 2021 (covered in item 17 below) here.

See Appendix I - Exemption Scheme Application Form (updated as of 19 July 2021) here.

See Appendix II - Exemption Scheme Attestation Form (updated as of 19 July 2021) here.

See Appendix III - Guidelines for vehicles providing point-to-point transportation arrangements for exempted persons (air crew, sea crew and others) here.

See Appendix IV - Point to note for designated activities during the designated period here.

15 Circular to licensed corporations – Updates to the Exemption Scheme

The SFC published a Circular on 21 June 2021 regarding the antibody tests and other updates to the Exemption Scheme. This Circular should be read in conjunction with the SFC's earlier Circular on the Exemption Scheme dated 28 May 2021.

1. Antibody tests

The HKSAR Government has decided that:

(a) antibody tests in Hong Kong should be applied to the Exemption Scheme for all inbound travellers who have stayed in high or medium risk places specified in Group B or Group C2 under Cap. 599H or Taiwan, China during the 14 days prior to their arrival in Hong Kong; and

(b) persons who have stayed in extremely or very high risk places specified in Group A1 or Group A2 under Cap. 599H during the 21 days prior to their arrival in Hong Kong would not be qualified to apply under the Exemption Scheme.

2. Key points concerning the antibody tests and other updates to the Exemption Scheme:

(a) Returning executives who have stayed in high or medium risk places specified in Group B or Group C under Cap. 599H or Taiwan, China during the 14 days prior to their arrival in Hong Kong

(i) Returning executives must possess a positive result from a pre-departure IgG or total antibody test against spike protein or surrogate neutralizing antibody done at a HOKLAS3-accredited medical laboratory with virology-serology tests within the scope of accreditation. Such test must be done on platforms by Abbott or Roche (or other platforms subject to review), following the standard as specified by the respective manufacturer and with the specimen collected within three months prior to the scheduled arrival time of the flight to Hong Kong. Applications can only be submitted together with a positive antibody test result. Please refer to Appendix III for a list of accredited laboratories carrying out antibody tests.

(ii) Upon returning to Hong Kong, exempted returning executives must be subject to self-isolation at a designated quarantine hotel (DQH) or at home for a reduced isolation period of 7 days upon arrival except for permitted activities as set out in the itinerary endorsed by the sponsoring licensed corporation and submitted to the SFC. Please refer to Appendix I (updated as of 21 June 2021) for the corresponding conditions or requirements.

(b) Visiting executives who have stayed in high or medium risk places specified in Group B or Group C under Cap. 599H or Taiwan, China during the 14 days prior to their arrival in Hong Kong

(iii) Visiting executives must have made an appointment with a HOKLAS-accredited medical laboratory with virology – serology tests within the scope of accreditation for an IgG or total antibody test against spike protein or surrogate neutralizing antibody done on platforms by Abbott or Roche (or other platforms subject to review), following the standard as specified by the respective manufacturer and with the specimen collected on the day of arrival at Hong Kong or the following day. The visiting executive must wait for the results at a DQH.

(iv) The exempted visiting executive must be subject to self-isolation only at a DQH for:

(A) 14 days upon arrival, or until departure from Hong Kong, if his or her antibody test result is negative; or

(B) 7 days upon arrival, if his or her antibody test result is positive, except for permitted activities as set out in the itinerary endorsed by the sponsoring licensed corporation and submitted to the SFC.

(c) Updates to application procedures

(v) In light of the updates to the Exemption Scheme, applications should be made by completing the Application form (updated as of 21 June 2021) at Appendix I enclosed with this circular and submitting it to the SFC by email at [email protected] at least 10 working days prior to:

(A) the expected date of departure from Hong Kong for proposed exempted executives travelling from and returning to Hong Kong; or

(B) the expected date of arrival in Hong Kong for proposed exempted executives visiting Hong Kong.

(vi) The attestation form is also updated at Appendix II to this circular.

(vii) Exempted executives should bring with him or her a print-out copy of the authorisation letter, together with his or her proof of pre-departure positive antibody test result (applicable for returning executives only) and pre-departure negative COVID-19 test result, and COVID-19 vaccination record.

21 June 2021 Click here

Please see the SFC’s circular dated 28 May 2021 here.

The above circular has been covered in item 17 below.

Appendix I - Exemption Scheme Application Form (updated as of 21 June 2021) can be found here.

Appendix II - Exemption Scheme Attestation Form (updated as of 21 June 2021) can be found here.

Appendix III - Exemption Scheme - List of accredited laboratories for COVID-19 antibody tests can be found here.

16 Circular to licensed corporations – Business continuity planning in view of COVID-19 Vaccination Programme

The SFC published a Circular identifying vaccination as key element of operational risk management and strongly encouraging licensed corporations to consider vaccination as a critical part of operational risk management to ensure their business operations and client interests are not unduly affected by COVID-19. The SFC urges licensed corporations to:

(a) review their business continuity plan (BCP) and identify functions which are critical to their business operations and client interests and encourage staff performing such critical functions, for example client-facing and critical support staff, to get vaccinated. Licensed corporations are also reminded to maintain proper documentation of any changes to their BCPs; and

(b) consider suitable arrangements for critical staff who have not yet been vaccinated or are unfit for vaccination due to medical conditions to undergo periodic COVID-19 testing.

The goal is to keep driving down infection rates, interrupt community transmission and uplift COVID-related restrictions in order to return to a high level of normalcy.

1 June 2021 Click here Please also see our legal update on this here.
17 Circular to licensed corporations – Exemption for senior executives of licensed corporations from compulsory quarantine arrangements

The SFC published a Circular informing licensed corporations that the Government has designated certain categories of persons in the financial services sector to be exempted from the compulsory quarantine arrangements in Hong Kong under Cap. 599C and Cap. 599E (“Exemption Scheme”). Senior executives of licensed corporations or their overseas affiliates who are fully vaccinated and meet the eligibility criteria may apply for exemption from the compulsory quarantine arrangements when they return or travel to Hong Kong.

In short, this is not an automatic exemption. Applications must be made in advance and there are limited quotas. The SFC has sole discretion whether to approve or refuse an application.

Who are eligible to apply for exemption

1. senior executives travelling from and returning to Hong Kong, namely, senior executives of a licensed corporation with global or regional roles who are returning to Hong Kong after travelling to foreign places primarily for the purposes of managing the group entities for which they have responsibility (“returning executives”); and

2. senior executives visiting Hong Kong, namely, global or regional heads or senior executives of financial institutions that a licensed corporation is affiliated with, who are travelling to Hong Kong primarily for the purposes of managing the licensed corporation (“visiting executives”).

Limited quota

3. The quotas are limited to two entries for returning executives and two entries for visiting executives, respectively, per calendar month per licensed corporation.

Application procedures

4. Applications for exemption should be made by the sponsoring licensed corporation of the returning executives or the visiting executives, by completing the prescribed application form (see Appendix I to the Circular) and providing the requisite supporting documents set out in the Circular, including an itinerary of the proposed exempted executive for the entire duration of the trip (for a visiting executive) or throughout the entire medical surveillance period (for a returning executive) in Hong Kong, with information about his or her arrival, departure, accommodation or designated quarantine hotel, organisations and venues to be visited with the dates and times of the visits. Please also follow the application procedures set out in the Circular.

Requirements on exempted executives and their sponsoring licensed corporations

5. Each exempted executive is required to fully comply with the specific conditions for exemptions set out in the authorisation letter issued by the FSTB and is only allowed to leave his or her designated quarantine hotel or accommodation arranged by the sponsoring licensed corporation for approved activities set out in the itinerary. A set of sample conditions is set out in the Notes appended to the application form for reference. These conditions include the completion of a COVID-19 vaccination course; pre-departure, on arrival and post-arrival COVID-19 tests; point-to-point transportation; self-isolation and medical surveillance.

6.Each sponsoring licensed corporation is required to:

(a) keep an up-to-date record of the itinerary of each exempted executive for the entire duration of the trip (for a visiting executive) or throughout the entire medical surveillance period (for a returning executive) in Hong Kong. The itinerary maintained by the sponsoring licensed corporation should also include information about the contact details of the persons who had met or would meet with the exempted executive in Hong Kong. Any changes to the itinerary should be submitted to the SFC upon arrival in Hong Kong and at the time when the sponsoring licensed corporation submits the attestation form as required under item(d) below;

(b) ensure compliance with the guidelines for vehicles providing point-to-point transportation (see Appendix III to the Circular);

(c) ensure that, for exempted persons in self-isolation at an accommodation arranged by the sponsoring licensed corporation, the Department of Health's infection control guidelines are adhered to;

(d) submit to the SFC an attestation form (in the form prescribed in Appendix II to the Circular) signed by a responsible officer or the manager-in-charge of compliance function of the sponsoring licensed corporation, every three working days or at the half-way point of the trip, whichever is earlier, and on the last day of the trip (for a visiting executive) or the medical surveillance period (for a returning executive); and

(e) report to the SFC as soon as possible if an exempted executive is confirmed or suspected to be infected with COVID-19 during his or her trip in Hong Kong and within 14 days after departing Hong Kong (for a visiting executive) or during the medical surveillance period (for a returning executive).

Consequence of violation

Any contravention with the exemption conditions would result in removal of the exemption status. In addition, if an exempted person who is subject to self-isolation in a designated quarantine hotel room is found to have breached the self-isolation requirement, the concerned exempted person's exemption status will be removed immediately and he / she will be sent to the HKSAR Government's Quarantine Centre for compulsory quarantine for 21 days. An exempted person who fails to observe any of the conditions commits an offence and, on conviction, will be liable to a fine of HK$5,000 and to imprisonment for 6 months.

The sponsoring licensed corporations are responsible for ensuring the accuracy and authenticity of the information submitted as part of the Exemption Scheme, and such responsibility ultimately rests with the senior management of each sponsoring licensed corporation.

28 May 2021 Click here

Appendix I – Exemption Scheme Application Form can be found here.

Appendix II – Exemption Scheme Attestation Form can be found here.

Appendix III – Guideline for vehicles providing point-to-point transportation can be found here.

18 Circular to licensed corporations – Margin requirements for non-centrally cleared OTC derivative transactions

The SFC published a circular informing licensed corporations (LCs) that the SFC will defer the introduction of initial margin (IM) requirements for non-centrally cleared over-the-counter (OTC) derivative transactions by one year to provide operational relief in light of the COVID-19 outbreak. The IM requirements for LCs which are contracting parties to non-centrally cleared OTC derivative transactions entered into with a covered entity were originally to be phased in starting from 1 September 2020.

In light of the Basel Committee on Banking Supervision and the International Organization of Securities Commissions’ announcement of the one-year extension of the deadlines for completing the final implementation phases of the IM requirements for non-centrally cleared OTC derivatives, the SFC has accordingly extended the phase-in schedule for the IM requirements by one year, summarized as follows:

  • From 1 September 2021 to 31 August 2022, the exchange of IM by an LC is required in a one-year period where both the LC and the covered entity have an average aggregate notional amount (AANA) of non-centrally cleared OTC derivatives exceeding HK$375 billion on a group basis.
  • On a permanent basis starting from 1 September 2022 and for each subsequent 12-month period, the exchange of IM by an LC is required in a one-year period where both the LC and the covered entity have an AANA of non-centrally cleared OTC derivatives exceeding HK$60 billion on a group basis.

For avoidance of doubt, the variation margin requirements will still become effective on 1 September 2020.

7 May 2020 Click here
19 Circular to licensed corporations – Management of cybersecurity risks associated with remote office arrangements

The SFC published a circular reminding licensed corporations (LCs) to assess their operational capabilities and implement appropriate measures to manage cybersecurity risks associated with remote office arrangements, in light of the increased use of such arrangements as a result of the COVID-19 outbreak. The SFC set out some examples of controls and procedures LCs may take in relation to various aspects of remote office arrangements:

Remote access to internal network and systems - LCs should consider the below measures (amongst others) to mitigate cybersecurity risks:

  • Implement robust virtual private network (VPN) solutions, which provide strong encryption and two or more layers of protection, to protect the integrity of data transmitted between remote users’ devices and internal systems;
  • Monitor, evaluate and implement security patches or hotfixes released by VPN software providers on a timely basis;
  • Require the use of strong passwords and implement two-factor authentication for remote access logins by employees, agents and service providers, in particular when accessing privileged accounts and sensitive data repositories;
  • Avoid granting standing or permanent access to external parties and only allow vendors to access specific systems during pre-determined timeframes;
  • Implement different levels of remote access, such as by equipping computers and mobile devices supplied by LCs with greater capabilities than employee-owned devices;
  • Implement security controls to prevent unauthorised installation of hardware and software on computers and devices provided to staff; and
  • Implement robust network segmentation to segregate system servers and databases, based on criticality, to better protect more critical and sensitive data, such as clients’ personal data.

Use of video conferencing platforms – LCs should consider the below measures (amongst others) to mitigate the risk of unauthorized access and leakage of critical or sensitive data

  • Assess the security features of videoconferencing platforms before use;
  • Allow only authenticated and authorized users to join the videoconference, e.g. by checking their email addresses or making use of “waiting room” features;
  • Invite participants via conferencing software or other legitimate channels, e.g. office emails, and refrain from sharing links to conferences via social media posts.
  • Use a random meeting ID, rather than a personal meeting ID;
  • Enable the password protection feature on the videoconferencing platform;
  • Lock the conference meeting once all the participants have joined, as appropriate; and
  • Use the latest version of the software with the most up-to-date security patches installed.

The SFC also reminded LCs to put in place other measures for enhancing operational capabilities and monitoring mechanisms for remote office activities, such as:

System capabilities:

  • Assess the adequacy of, and enhance, existing information technology infrastructures, software (such as remote computer devices, network bandwidth and software licenses) and hardware (such as notebook computers and mobile devices) for the purpose of supporting remote office arrangements.

Surveillance and incident handling:

  • Implement monitoring and surveillance mechanisms to detect unauthorized access to internal networks and systems, such as reviewing the list of unauthorized access attempts and detecting the use of unapproved applications; and
  • Develop and maintain an effective incident management and reporting mechanism.

Cybersecurity training and alerts:

  • Provide adequate cybersecurity training to all internal system users and issue appropriate reminders and alerts to clients, e.g. advice on precautionary security measures, emerging cybersecurity threats and trends (such as phishing and ransomware) and use of secure Wi-Fi networks for accessing internal networks and videoconferencing platforms, on a regular basis.
29 April 2020 Click here
20 SFC regulatory response to COVID-19

The SFC published an announcement summarizing the measures it had taken actively in response to the significant impact of the COVID-19 pandemic on Hong Kong's capital markets. The measures apply to brokers, asset managers and other market intermediaries supervised by the SFC as well as listed companies and the Stock Exchange of Hong Kong Limited (SEHK).

The overriding objective of the measures is to ensure that Hong Kong's international financial markets will function efficiently, effectively and resiliently throughout this episode of extreme stress. In addition to addressing market volatility and major operational challenges associated with special work arrangements and other emergency measures, a significant part of the SFC's efforts has been directed to much-needed regulatory relief for the market participants. Examples include giving specific guidance on how brokers can record client orders when out of office, deferral of regulatory timetables and allowing more flexibility on licensing matters, giving special guidance regarding the timely issuance of preliminary earnings results by listed companies, and intensified supervision on potential vulnerabilities caused by the exceptional market conditions, including investment fund liquidity, gold market volatility, redemption profiles, and fair treatment of investors.

The SFC would maintain close contact with all clearing houses in Hong Kong to ensure that their margining policies are appropriately calibrated to the risks they faced. The SFC would also closely monitor derivatives markets and short selling data to ensure that activity in these areas does not pose any financial stability or systemic risks.

The SFC would pursue a flexible approach with a view to ensuring that Hong Kong’s markets remain open and continue to function properly, while safeguarding market integrity and investor protection.

21 April 2020 Click here
21 Circular to issuers of SFC-authorized paper gold schemes

The SFC published a circular reminding issuers of SFC authorized paper gold schemes (PGS) of their obligations in light of the market volatility caused by the COVID-19 outbreak. The SFC reminded PGS issuers to:

  1. exercise due skill, care and diligence in the operations of the PGS;
  2. closely monitor the dealings by investors under the PGS;
  3. ensure that units of PGS are fairly and accurately valued in good faith and in the best interests of investors in accordance with the constitutive and offering documents of the PGS as well as applicable laws and regulations;
  4. ensure the continuous provision of material information and services to investors (including pricing and dealings of the units of PGS) in accordance with the constitutive and offering documents of the PGS; and
  5. keep investors informed in a timely manner and immediately report to the Investment Products Division of the SFC (IPD/SFC) any untoward circumstances relating to their PGS (including any decision to suspend subscription and/or redemption) and potential impact on the PGS.

Furthermore, for decisions to suspend dealings of the PGS, the SFC reminded PGS issuers that:

  1. such decisions should be made in the best interests of investors in accordance with the constitutive and offering documents of the PGS and applicable laws and regulations;
  2. they should inform IPD/SFC immediately upon any decision to suspend and they should notify investors in a timely manner;
  3. they should regularly review any prolonged suspension of dealings and take any necessary steps to resume normal operations as soon as practicable;
  4. they should notify IPD/SFC as well as investors immediately upon any decision to uplift suspension/resume dealing; and
  5. the offering documents of the PGS should contain information necessary for investors to make an informed judgement about the PGS. This includes information on suspension of dealing of units of PGS, for example, the circumstances under which dealings can be suspended and how investors are notified as a result.

The SFC also reminded PGS issuers to give IPD/SFC early alerts of any material issues affecting their PGS, and to consult the SFC if in doubt.

20 April 2020 Click here
22 Circular to management companies and market makers of SFC-authorized exchange traded funds – ETF market making

The SFC published a circular reminding management companies of exchange traded funds (ETFs) of their responsibility to manage ETFs in the best interests of investors. The circular was prompted by a recent incident where the sole market maker of an ETF temporarily suspended its market making functions for the ETF as some of its traders were under mandatory quarantine due to the COVID-19 outbreak. The SFC is concerned as to the sufficiency of risk management measures of management companies and market makers of ETFs as a whole. Accordingly, the SFC:

  1. Reminded ETF management companies of the duty to closely monitor the operations and activities (including secondary market trading and liquidity) of the ETF and to ensure the trading of SFC-authorized ETFs is conducted in a fair and orderly manner, including to:
    1. conduct due diligence on and regular monitoring of market makers and be reasonably satisfied that they remain competent and properly resourced to duly discharge the market making functions (including having appropriate business contingency plans in place);
    2. closely monitor the secondary market trading and liquidity of the ETFs under their management, including the market making activities and performance of the market makers of their ETFs;
    3. maintain a close dialogue with each market maker and make appropriate arrangements to ensure that such market maker will inform the management company immediately if it experiences or foresees that it will experience any operational difficulties or disruptions that may affect the proper discharge of its market making functions;
    4. properly manage the risk of reliance on a single market maker to provide secondary market liquidity for an ETF. This may include procuring more than one market maker for an ETF or securing appropriate arrangement for an alternative market maker to readily step in with short notice in the event of cessation, disruption or suspension of market making activities of the last market maker;
    5. be fully aware of and comply with the administrative arrangements and other requirements associated with the listing of ETFs on The Stock Exchange of Hong Kong Limited (SEHK), including the procedures of the publication of announcements or notices on the SEHK’s website such as the publication windows cut-off times;
    6. in the event of cessation, disruption or suspension of market making activities or upon notice of such an event happening:
      1. report to the SFC immediately the cessation, disruption or suspension;
      2. assess whether the cessation, disruption or suspension of market making activities for units/shares (traded in any counter) of an ETF under its management could adversely affect the interests of investors;
      3. keep investors informed as required under 8.6(q) of the Code on Unit Trusts and Mutual Funds; and
    7. give the SFC early alerts of any untoward circumstances relating to the ETFs under its management, including any issues which may adversely affect the operations and secondary market trading and liquidity of its ETFs (including receipt of any resignation notice of the last market maker).
  2. Reminded market makers of ETFs to ensure compliance with applicable laws, rules, regulations and conduct requirements administered or issued by the SFC (including the Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission) and the applicable rules of SEHK when conducting their business activities (including the Securities Market Maker Regulations), including in particular to:
    1. establish and maintain appropriate internal controls and risk management measures, including an effective business continuity plan commensurate with their size and scale of business, to protect their key business functions of market making. The plan should identify likely scenarios involving disruptions, appropriate backup facilities or alternative arrangements, as well as adequate personnel for the continuity of market making activities;
    2. invoke contingency measures in a timely fashion in anticipation of potential operational disruptions to maintain the key business functions; and
    3. alert the management company of the ETFs, the SFC and the SEHK immediately if they experience or foresee that they will experience any operational difficulties or disruptions that may affect the proper discharge of their market making functions for ETFs.
17 April 2020 Click here

23

Joint Statement in relation to General Meetings in light of the Prevention and Control of Disease (Prohibition on Group Gathering) Regulation

The SFC and the Hong Kong Stock Exchange (SEHK) published a joint statement regarding the impact of the recently introduced Prevention and Control of Disease (Prohibition on Group Gathering) Regulation (Cap. 599G) on corporate annual general meetings (AGM), extraordinary general meetings (EGM) and special general meetings (SGM). The SFC and SEHK clarified that AGMs fall under an exemption in Cap. 599G, while EGMs and SGMs can also fall under the same exemption under certain circumstances. The SFC and SEHK also set out some guidelines for listed issuers to consider when deciding on the timing of their meetings.

1 April 2020

Click here

24

FAQ – Licensing related matters in light of the COVID-19 pandemic

The SFC published an FAQ on concerns and issues faced by intermediaries and licence applicants relating to licensing related matters. The FAQ covers issues such as working from home, and arrangements relating to extension of timeline for filing audited accounts or extension of timeline for completing annual CPT requirements.

31 March 2020

Click here

25

Circular to intermediaries – Extended deadlines for implementation of regulatory expectations and reminder of order recording requirements under COVID-19 pandemic

The SFC published a circular on the extension of implementation deadlines for a number of upcoming regulatory expectations by six months, including expectations on the use of external electronic data storage, new measures to protect client assets (client asset acknowledgement letters), and data standards for life cycles. The SFC also reminded intermediaries of their need to continue to comply with the order recording requirements under paragraph 3.9 of the Code of Conduct for Persons Licensed by or Registered with the SFC.

31 March 2020

Click here

Please also see Legal Update here.

26

Circular to intermediaries - Reminder of important obligations to ensure suitability and timely dissemination of information to clients

The SFC published a circular reminding licensed and registered persons of their obligations under the Code of Conduct for Persons Licensed by or Registered with the SFC. In particular, the SFC emphasized the need to observe the suitability obligations when they make a solicitation or recommendation and the obligation to disseminate information in a timely manner when they hold an investment product directly or indirectly on behalf of clients, as well as the need to act in the best interests of their clients.

27 March 2020

Click here

Please also see Legal Update here.

27

Circular to management companies and trustees and custodians of SFC-authorized funds

The SFC published a circular reminding managers, trustees, and custodians of SFC-authorized funds of their obligations to properly manage the liquidity of their funds and ensure fair treatment of investors in the wake of the market volatility caused by the COVID-19 outbreak. The SFC has stepped up its monitoring of authorized funds in light of the current market conditions.

27 March 2020

Click here

Please also see Legal Update here.

28

Further Guidance on the Joint Statement in relation to Results Announcements in light of the COVID-19 Pandemic

The SFC and the Hong Kong Stock Exchange (SEHK) provided further guidance on the joint statement of 4 February 2020 regarding the release of results by listed companies. The SFC and SEHK provided clarifications on a number of issues, such as guidance for issuers who are unable to publish a preliminary results announcement in accordance with the Listing Rules by 31 March 2020 and guidance for both GEM and Main Board issuers on the publication of annual reports by the respective 31 March 2020 and 30 April 2020 deadlines.

16 March 2020

Click here

29

Joint Statement in relation to Results Announcements in light of Travel Restrictions related to the Severe Respiratory Disease associated with a Novel Infectious Agent

The SFC and the Hong Kong Stock Exchange (SEHK) issued a joint statement to listed issuers and auditors regarding the impact of the COVID-19 outbreak on the ability of listed issuers to meet reporting requirements under the Listing Rules, namely announcement of their financial information and results by the 31 March 2020 deadline. The SFC and SEHK noted that travel and other restrictions caused by the outbreak may cause disruption to the reporting and audit processes of listed issuers, and encouraged them to consult the SEHK and provide details of the circumstances which would prevent them from meeting the requirements. The SEHK will then provide further guidance in conjunction with the SFC.

4 February 2020

Click here

Please also see the FAQ on the joint statement here.