Hong Kong SFC licensing and compliance hints – October 2023

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Counting down for CPT

Authored by: Joshua Lui

The deadline for individuals licensed by the Securities and Futures Commission (SFC) to complete annual Continuous Professional Training (CPT) requirements is 31 December 2023.

Licensed representatives are required to undertake a minimum of 10 CPT hours while responsible officers are required to fulfil 12 CPT hours per calendar year. The CPT should cover topics relating to:

• Regulated activities for which the individual is licensed (5 out of the 10/12 CPT hours)

• Compliance or ethics related topics (2 out of the 10/12 CPT hours)

• Regulatory compliance (2 out of the 12 CPT hours for responsible officers)

Licensed corporations should start reminding their licensees of the CPT deadline and collect attendance records (e.g. attendance certificates or emails). All CPT attendance records should be kept for a minimum of three years and be made available for regulatory inspection upon request.

Lists of regulatory status of virtual asset trading platforms

Authored by: Joshua Lui

On 29 September 2023, the Securities and Futures Commission (SFC) published several lists of the regulatory status of Virtual Asset Trading Platforms (VATPs) operating in Hong Kong or actively marketing their services to Hong Kong investors. The lists contain the following information:

• SFC-licensed VATPs

• VATPs that are applying to be SFC-licensed VATPs (and the applicants whose licence applications have been returned, refused or withdrawn)

• VATPs that are closing down their operations in Hong Kong (including VATPs required by law to shut down within a prescribed period)

• VATPs that are deemed to be licensed by the SFC as of 1 June 2024

On the same day, the SFC also issued a list of suspicious VATPs to help investors identify suspicious and unlicensed VATPs.

The lists aim to enhance information transparency and assist the general public in avoiding problematic VATPs following the JPEX incident. Investors should clearly distinguish VATP applicants from SFC licensed VATPs, because the eligibility and compliance of VATP applicants have not been assessed by the SFC and therefore the applicants are yet to receive official licences to operate a virtual asset exchange in Hong Kong.

New enhancements to the GBA Wealth Management Connect Scheme

Authored by: Gabriel Shea

On 28 September 2023, the Securities and Futures Commission (SFC) announced enhancements to the Cross-boundary Wealth Management Connect Pilot Scheme (the Scheme). The enhancements include:

• allowing more eligible residents in the Mainland cities in Guangdong-Hong Kong-Macao Greater Bay Area (GBA) and Hong Kong to participate in the Scheme;

• expanding the participating financial institutions to include eligible securities firms which, together with the initial participant banks, will be allowed to distribute investment products and provide relevant services to eligible GBA residents;

• increasing the eligible products and quota for investments by eligible GBA residents under the Scheme; and

• relaxing the promotional and sales arrangements for eligible financial institutions to provide financial services to eligible GBA residents.

Whilst the details of the Scheme enhancements have not yet been announced, Hong Kong licensed securities firms which intend to participate in the Scheme may prepare for the client-facing and compliance infrastructure for Scheme business in the GBA, which at a minimum should include:

• implementing remote client onboarding arrangements or revisiting existing client take-on procedures;

• revamping terms and conditions or agreements for clients;

• updating internal controls on KYC, product due diligence and rating, suitability assessment and record-keeping; and

• providing training for staff involved in the Scheme activities.

Importance of FRR compliance

Authored by: Gabriel Shea

On 11 September 2023, the Securities and Futures Commission (SFC) revoked the licence of a licensed corporation (LC) for its failure to comply with the financial resources requirements under the Securities and Futures Ordinance (SFO) and the Securities and Futures (Financial Resources) Rules (FRR). The LC’s responsible officer was also suspended for five years due to their supervisory failure.

The SFC took very severe disciplinary action because the LC failed to maintain its minimum required liquid capital for a consecutive period of 19 months; and despite becoming aware that its liquid capital was insufficient, the LC only notified the SFC 18 months later. More importantly, the LC failed to submit its mandatory financial resources returns on six occasions and annual financial statements and documents, and ignored the SFC’s repeated reminders to do so.

The SFC considered the LC’s failures were attributable to the failure of its responsible officer to discharge their duty as the senior management of the LC, and in particular, failing to ensure the maintenance of appropriate standards of conduct and adherence to proper procedures by the LC that also constituted a breach of General Principle 9 of the Code of Conduct.

Under the SFO and the FRR, LCs are required to comply with the liquid capital and paid-up share capital requirements, to submit financial resources returns (monthly or semi-annually), and to submit audited accounts and other required documents within four months after the end of each financial year.