‘Tis the season - 2020, a regulatory recap
2020 might not be a year you want to remember, but it is one you will never forget. Here is our recap of the major regulatory events that have happened in 2020 so far.
JANUARY: Yes, you probably do need a license
The SFC issued guidance on the licensing regimes for private equity firms and family offices which conduct business in Hong Kong. The two circulars clarify aspects of the licensing obligations applicable to private equity firms and family offices which provide services in or from Hong Kong which constitute regulated activities under the SFO.
FEBRUARY: Search & seize
A challenge to the seizure of various digital devices by the SFC pursuant to two search warrants during the course of an SFC investigation failed in the Hong Kong courts. Some of the key findings of the Court include the ruling that “records” and “documents” are to be interpreted widely and would include digital devices, and that the section 183 notices issued to the applicants were not ultra vires, unlawful or unconstitutional as the SFC had offered to take reasonable steps to protect the privacy of the applicant when seizing electronic devices or obtaining access to email accounts. See our newsletter on this here.
APRIL: Risky business
The SFC released a report on its survey of leveraged foreign exchange trading (or "LFET") activities of licensed corporations. There have been a number of SFC enforcement actions in relation to LFET over the years due to the SFC's ongoing concerns about the high-risk nature of LFET to retail investors. LFET is done on a margin basis and may involve complex products and/or features, so brokers should ensure their clients fully understand the nature and risks involved as it may not be suitable for everyone.
MAY: The green scene
The HKMA and the SFC issued a joint statement on the establishment of the Green and Sustainable Finance Cross-Agency Steering Group. The aim of the Steering Group is to co-ordinate the management of climate and environmental risks to the financial sector and promote the growth of green and sustainable finance in Hong Kong.
JUNE: Huge fines
The SFC issued its biggest fine to date relating to AML deficiencies, HK$25.2 million, against Guotai Junan Securities (Hong Kong) Limited in relation to multiple internal control failures and regulatory breaches in connection with the handling of third party fund transfers and placing activities, detection of wash trades and late reporting.
Also in June:
The People's Bank of China, the HKMA and the Monetary Authority of Macao made a joint announcement on the launch of the Cross-boundary Wealth Management Connect Pilot Scheme in the Greater Bay Area (or , the"GBA"). Under the scheme, residents of the Mainland cities in the GBA will be able to invest in eligible investment products distributed by banks in Hong Kong and Macao while residents of Hong Kong and Macao will be able to invest in eligible wealth management products distributed by Mainland Banks by opening designated investment accounts.
AUGUST: More HKEX powers?
The HKEx published a consultation paper on proposed changes to its disciplinary regime with a particular emphasis on strengthening the HKEx's disciplinary powers against individuals in relation to misconduct and breaches of the Listing Rules, including the introduction of secondary liability for such breaches, and expanding the range of available disciplinary sanctions.
Also in August:
The Limited Partnership Fund Ordinance (Cap. 637) took effect and introduced the limited partnership fund ("LPF"), a new type of entity for private equity and venture capital funds in Hong Kong.
SEPTEMBER: Dirty money
The SFC published a consultation paper setting out its proposed amendments to the (i) Guideline on Anti-Money Laundering and Counter-Financing of Terrorism (For Licensed Corporations) and (ii) Prevention of Money Laundering and Terrorist Financing Guideline issued by the SFC for Associated Entities to refine Hong Kong's AML/CFT regime. See our newsletter on this here.
OCTOBER: More huge fines…
On 22 October 2020, the SFC reprimanded and fined Goldman Sachs (Asia) LLC US$350 million for multiple serious lapses and deficiencies in its management supervisory, risk, compliance and AML controls which contributed to the misappropriation of US$2.6 billion from funds raised by 1Malaysia Development Berhad in three bond offerings.
Also in October:
The SFC launched a consultation on proposed amendments to the Fund Manager Code of Conduct which will require fund managers to consider climate-related risks in their investment and risk management processes and to make appropriate disclosures to investors on climate risk information.
NOVEMBER: Regulating virtual assets?
Financial Services and Treasury Bureau, issued a consultation paper which sets out the government's proposal to widen Hong Kong's supervisory net with respect to digital assets. Under the proposed licensing regime, any virtual asset service providers (or, "VASPs") seeking to conduct regulated virtual assets activity in Hong Kong will be required to apply for a VASP licence from the SFC. Once licensed, the VASP will be subject to the AML/CTF requirements under Schedule 2 of the Anti-Money Laundering and Counter-Terrorist Financing Ordinance. See our newsletter on this here.
DECEMBER: Have you been good? Go green.
The Steering Group announced its green and sustainable finance strategy for Hong Kong and five key near-term action points. The strategic plan sets out six key focus areas for strengthening Hong Kong's financial ecosystem developing Hong Kong as a green finance centre in the Greater Bay Area and enhancing regional and international collaboration.
The five action points identified by the Steering Group are: mandating climate-related financial disclosures, adopting the Common Ground Taxonomy being developed by the International Platform on Sustainable Finance, supporting the global convergence of sustainability reporting standards, promoting climate-focused scenario analysis, and establishing a platform to coordinate and develop cross-sectoral capacity building and a repository of green and sustainable finance resources.
Happy Holidays - Let us wait and see what 2021 has in store!
- Jill Wong, Kevin Leung, Sonya Mahbubani, Lydia Wong & Gerianne Yung
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