Compliance Pioneer - Vol. 7
We provide a comprehensive overview of the latest regulatory developments and enforcement actions in the Hong Kong financial market, offering insights for compliance professionals and industry stakeholders.
📅Upcoming Events📅
Attention compliance professionals!
GCC Consulting is excited to announce our upcoming webinar series on critical compliance and regulatory topics. Mark your calendars for these insightful sessions from November to December 2024:
📅 November 13 - SFC Guidelines on Online Distribution and Advisory Platforms, and Office Requirements for Complex Products
📅 November 20 - Type 1 Regulated Activities Explained - Part II
📅 November 27 - Marketing and advertising compliance
📅 December 11 - Introduction to Anti-bribery and Anti-corruption in the Financial Services Industry
📅 December 11 - FMCC- Ongoing Compliance Issues Relating to Fund Manager
📅 December 18 - Research - Rules and Regulations (Code of Conduct Ch.16)
📅 December 20 - Environmental, Social and Governance (ESG) Regulatory Framework in Hong Kong
Don't miss out on these valuable learning opportunities. Register now to secure your spot!
Sign up here: https://forms.gle/iWYxfqdENrPGYzH47
Regulatory
SFC unveils first batch of brokers joining Wealth Management Connect Pilot Scheme
The Securities and Futures Commission (SFC) announced that 14 licensed corporations are eligible to participate in the Cross-boundary Wealth Management Connect Pilot Scheme in the Guangdong-Hong Kong-Macao Greater Bay Area. These firms will provide cross-border investment services in collaboration with approved Mainland partner brokers. SFC CEO Julia Leung highlighted this as a milestone for the brokerage industry, emphasizing the scheme's role in enhancing financial market connectivity and fostering Hong Kong's wealth management sector. The SFC will monitor the scheme and regularly update the list of eligible corporations.
SFC hosts forum to encourage responsible Regtech adoption for anti-money laundering and counter-financing of terrorism
The Securities and Futures Commission (SFC) hosted the "SFC AML/CFT Regtech Forum 2024," bringing together over 300 government officials, industry leaders, and experts to discuss the role of regulatory technology (Regtech) in combating money laundering and terrorist financing. SFC CEO Julia Leung emphasized the importance of adopting Regtech to improve compliance efficiency and reduce costs associated with financial risks. The event featured keynote speeches and discussions on the latest trends in Regtech, with a focus on using technology like artificial intelligence to enhance risk management. A panel session highlighted the growing challenges of money laundering and the potential for Regtech to strengthen Hong Kong's financial ecosystem.
Circular to licensed corporations - Use of generative AI language models
The Securities and Futures Commission (SFC) has issued guidance on the responsible use of generative AI language models (AI LMs) by licensed corporations (LCs) in the financial sector. While AI LMs can enhance efficiency in client interactions and operations, they also introduce risks, including inaccuracies, biases, over-reliance on outputs, cybersecurity threats, and potential breaches of personal data or intellectual property laws. The SFC emphasizes the need for LCs to implement robust risk mitigation measures, particularly for high-risk use cases such as investment advice. LCs must ensure proper governance, model risk management, cybersecurity, and data privacy controls. Additionally, third-party providers of AI LMs must be carefully vetted, and LCs are required to notify the SFC of any significant changes related to AI LM use in high-risk scenarios. The circular is effective immediately, with LCs encouraged to review their policies to ensure compliance.
Survey on Small and Medium-Sized Enterprises (SMEs)’ Credit Conditions for Third Quarter 2024
The Hong Kong Monetary Authority (HKMA) released the results of its third-quarter 2024 survey on Small and Medium-Sized Enterprises (SMEs) credit conditions, revealing a slight improvement.
Seventy-six percent of SMEs reported that banks’ credit approval stance was either "similar" or "easier," up from 73% in the previous quarter. Additionally, only 1% of SMEs with existing credit lines faced a "tighter" stance, a decrease from 2% previously. Among SMEs that applied for new credit, 79% had successful applications, up from 70%. However, due to the small sample size, the findings should be interpreted cautiously. This quarterly survey, which has been ongoing since 2016, monitors SMEs' access to bank credit in Hong Kong.
Hong Kong Academy of Finance’s 2025 intake of the Financial Leaders Programme is open for application
The Hong Kong Academy of Finance (AoF) has opened applications for the 2025 intake of its Financial Leaders Programme (FLP), designed for promising financial professionals two levels below CEO. The nine-month, part-time program, which starts in April 2025, offers participants the opportunity to develop a strategic mindset through high-level dialogues with top leaders and expand their professional networks. The FLP, supported by financial regulators and institutions in Hong Kong, has received positive feedback over its three years, helping participants tackle complex challenges in the financial industry. Applications are open from 5 November to 15 December 2024, with further details available on the AoF website.
Hong Kong’s Latest Foreign Currency Reserve Assets Figures Released
As of October 2024, Hong Kong's official foreign currency reserve assets totaled US$421.4 billion, slightly down from US$422.8 billion in September. These reserves are more than five times the currency in circulation and represent about 39% of Hong Kong dollar M3. There were no unsettled foreign exchange contracts at the end of both October and September 2024.
Adjustment of Base Rate
The Hong Kong Monetary Authority (HKMA) announced that the Base Rate has been set at 5%, effective immediately, based on a pre-determined formula. This rate is calculated as either 50 basis points above the lower end of the US federal funds target range or the average of the five-day moving averages of the overnight and one-month HIBORs, whichever is higher. Following a 25-basis point cut in the US federal funds rate on 7 November, the Base Rate is now 5%, as it exceeds the HIBOR average of 3.87%.
HKMA’s Response to US Fed’s Interest Rate Decision
The Federal Reserve has lowered the federal funds rate by 0.25% to 4.5-4.75%, while the Hong Kong Monetary Authority (HKMA) reduced its Base Rate to 5%. The Fed's rate cut aims to ease monetary policy, but future cuts depend on US economic data and global economic factors. Despite these changes, Hong Kong's financial markets remain stable, with liquidity and the Hong Kong dollar exchange rate holding steady. Banks will assess funding conditions and interbank rates when adjusting deposit and lending rates. The HKMA continues to monitor global financial trends to maintain stability, with no immediate impact on Hong Kong's financial security.
HKMA and Multilateral Organisations Enhance Strategic Partnership for Climate Investment in Asia
The Hong Kong Monetary Authority (HKMA) has partnered with multilateral organizations, including the Asian Development Bank (ADB), Asian Infrastructure Investment Bank (AIIB), and the International Finance Corporation (IFC), to advance sustainable finance in Asia. This collaboration, announced at the Asia Climate Investment Seminar on November 11, aims to address climate change by deploying at least US$500 million in investments targeting renewable energy, energy solutions, and sustainable transportation. The initiative seeks to accelerate Asia's transition to a low-carbon economy, demonstrating that financial returns and sustainable development can go hand-in-hand. Key stakeholders emphasized the importance of collective action to overcome the region's climate challenges, with a focus on achieving net zero emissions and reducing greenhouse gases.
HKMA, Cyberport and banking sector co-organise “SME Digital Technology Solution Day”
The Hong Kong Monetary Authority (HKMA), Cyberport, the Hong Kong Association of Banks, and the Chinese Banking Association of Hong Kong co-organized the SME Digital Technology Solution Day on November 11, bringing together over 100 participants from SMEs in the food and beverage and retail sectors, banks, and technology providers. The event focused on how the banking sector can assist SMEs in their digital transformation through big data and technology solutions. In October, the HKMA launched new initiatives, including fast-approval loans for SMEs participating in the Digital Transformation Support Pilot Programme (DTSPP), designed to support business adjustments and growth. Banks also shared success stories of helping SMEs digitalize operations, and the HKMA emphasized continued collaboration to foster SME development and economic growth.
Analytical Accounts of the Exchange Fund
The Hong Kong Monetary Authority (HKMA) reported that as of October 2024, the Exchange Fund's foreign assets decreased by HK$10.4 billion to HK$3,475.5 billion. The Monetary Base stood at HK$1,937.7 billion, while claims on the private sector in Hong Kong totaled HK$288.4 billion. Foreign liabilities were recorded at HK$31.6 billion. These figures are released under the International Monetary Fund’s Special Data Dissemination Standard (SDDS).
Tender of 2-Year Exchange Fund Notes to be held on 22 November 2024
The Hong Kong Monetary Authority (HKMA) will conduct a tender for 2-year Exchange Fund Notes on November 22, 2024, to roll over maturing notes. A total of HK$1,200 million in notes will be offered, with HK$5 million set aside for public non-competitive bids via the Hong Kong Securities Clearing Company Limited (HKSCC). If the non-competitive portion is undersubscribed, the remainder will be allocated to competitive bids. The notes will mature on November 25, 2026, and offer an interest rate of 3.19% per annum. Both competitive and non-competitive tender applications can be submitted through eligible brokers or HKSCC, with a minimum bid amount of HK$50,000. Tender results will be published on the HKMA website and financial platforms like Bloomberg.
Asian Insurance Forum 2024 to offer insightful perspectives as top-notch experts navigate challenges amidst global volatility
The Insurance Authority’s (IA) Asian Insurance Forum (AIF) 2024 will take place on December 10, under the theme "Rising to the Challenge amidst Global Volatility." The event will feature prominent speakers from the insurance and financial sectors, including Hong Kong's Chief Executive, Mr. John Lee, and Financial Secretary, Mr. Paul Chan. Key topics include global supervisory priorities, strengthening the economy, and insurance solutions in wealth management. The forum will include panel discussions and a dialogue with IA leadership. The public can register to attend virtually for free.
Cooling-off Period for Unsecured Consumer Credit Product
The Hong Kong Monetary Authority (HKMA) has mandated that retail banks, including digital banks, offer a cooling-off period for all unsecured consumer credit products to promote responsible borrowing. This cooling-off period, lasting at least 7 days after loan drawdown, allows customers to repay the full principal without incurring any fees or charges. Banks must clearly communicate this option to customers during the loan application and approval process. The aim is to reduce impulsive borrowing and ensure that customers have time to reassess their financial commitments. These requirements must be implemented by June 2025, with banks encouraged to adopt similar consumer protection measures.
Payment Card Direct Debit Authorisation
The Hong Kong Monetary Authority (HKMA) outlines expectations for Card Issuing Banks and Merchant Acquiring Banks regarding payment card direct debit authorizations (DDA) when merchants suspend or close their businesses. Consumer protection is the primary focus, with specific guidelines for banks to assist cardholders. Card Issuing Banks must ensure effective communication, provide timely responses to inquiries, offer assistance with DDA cancellations, and, when necessary, contact the merchant's acquiring bank for reimbursement. Additionally, banks are encouraged to prepare resources for handling increased queries and to train staff in assisting cardholders. Merchant Acquiring Banks, on the other hand, should promptly cease collecting DDA payments from merchants whose businesses are suspended or closed to prevent further payments.
Circular to Licensed Corporations, SFC-licensed Virtual Asset Service Providers and Associated Entities - Anti-Money Laundering / Counter-Financing of Terrorism
Early Alert on United Nations Sanctions
On November 8, 2024, the United Nations Security Council (UNSC) added two individuals to its sanctions list for Sudan. Licensed corporations, SFC-licensed virtual asset service providers, and related entities are advised to update their screening databases accordingly for customer and payment sanctions checks. They are also reminded to review the UNSC sanctions guidelines outlined in a February 7, 2018 circular.
Circular to Licensed Corporations, SFC-licensed Virtual Asset Service Providers and Associated Entities - Anti-Money Laundering / Counter-Financing of Terrorism
(1) FATF Statement on High-Risk Jurisdictions subject to a Call for Action
(2) FATF Statement on Jurisdictions under Increased Monitoring
(3) Outcomes from the FATF Plenary, 23-25 October 2024
The Securities and Futures Commission (SFC) has issued a circular regarding Anti-Money Laundering (AML) and Counter-Financing of Terrorism (CFT) updates from the Financial Action Task Force (FATF). Key points include: the FATF's call for enhanced due diligence or countermeasures against high-risk jurisdictions like North Korea and Iran, and the inclusion of Myanmar under heightened scrutiny. Additionally, the FATF added Algeria, Angola, Côte d’Ivoire, and Lebanon to its increased monitoring list. It also released revised guidance on national money laundering risk assessments and proposed revisions to FATF Standards, particularly on financial inclusion. Licensed corporations and virtual asset service providers are advised to stay updated with the FATF’s evolving guidance.
HKEX to Digitalise ETP Servicing Capabilities with Online Platform
Hong Kong Exchanges and Clearing Limited (HKEX) plans to digitize and automate the in-kind creation and redemption process for exchange-traded products (ETPs) by 2025 using a web-based platform, pending technical readiness and regulatory approval. The platform will integrate Distributed Ledger Technology (DLT) and smart contracts, enhancing market efficiency and boosting liquidity. This initiative is part of HKEX's ongoing efforts to streamline ETP operations, replace manual processes, and strengthen Hong Kong’s role as a global financial hub. HKEX’s ETP market has grown significantly, with a 29% annual increase in business since 2020, reflecting a strong surge in trading activity.
AFRC welcomes appointment of Chairman
The Accounting and Financial Reporting Council (AFRC) has announced the appointment of Dr. David Sun Tak-kei as its new Chairman for a two-year term, starting 1 January 2025. He will succeed Dr. Kelvin Wong, who served as Chairman for six years and will step down at the end of 2024. Dr. Sun, with extensive experience in accounting and auditing, including his tenure as Director of Audit for the Hong Kong Government, is expected to bring valuable leadership to the AFRC. Both Dr. Wong and AFRC CEO Janey Lai expressed confidence in Dr. Sun’s ability to advance the council’s mission of ensuring the integrity and quality of audit and financial reporting. Dr. Sun pledged to continue the efforts of his predecessor and strengthen the regulatory framework of the profession.
Enforcement
SFC bans Jonathan Dominic Iu Wai Ching for 15 years
The Securities and Futures Commission (SFC) has banned Mr. Jonathan Dominic Lu Wai Ching from re-entering the industry for 15 years following his involvement in market misconduct. Lu, a former responsible officer at Tarascon Capital Management (Hong Kong) Limited, was found to have engaged in false trading of shares in Sinopharm Tech Holdings and Quantum Thinking Limited, using both a hedge fund and his mother's brokerage accounts. This resulted in $5.6 million in illicit gains for his mother's account. The SFC deemed Lu unfit for licensing, emphasizing the seriousness of his manipulative actions, his breach of client trust, and the need for a strong deterrent message to prevent similar misconduct in the future.
Penalty :
Under Section 274 of the Securities and Futures Ordinance (SFO), a person should not engage in actions that create a false or misleading appearance of active trading or artificial prices in securities. Individuals found guilty of engaging in market misconduct under Section 274 face penalties of up to 7 years imprisonment and a fine of up to HKD 10 million. The court may also impose civil penalties, including financial compensation for any losses incurred due to the misconduct.
Key Take Away
For Individuals
The case emphasizes the importance of integrity and ethical decision-making, especially for those in positions of trust. Misconduct, like Lu’s, can lead to severe consequences, including long bans from the industry and legal penalties. Ultimately, both corporations and individuals must prioritize compliance and ethical standards to avoid significant professional and personal repercussions.
For Corporations
It’s crucial to have strong compliance systems in place to detect market misconduct and foster a culture of ethical behavior. Policies should also prevent conflicts of interest, such as personal trading with client funds, to protect the organization’s reputation.
Monetary Authority takes disciplinary action against Fubon Bank (Hong Kong) Limited for contravention of Anti-Money Laundering and Counter-Terrorist Financing Ordinance
The Hong Kong Monetary Authority (HKMA) fined Fubon Bank (Hong Kong) Limited HK$4,000,000 for failing to comply with the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (AMLO). Between April 2019 and July 2022, the bank lacked effective systems for monitoring transactions and managing money laundering and terrorist financing risks. Specific issues included inadequate transaction reviews, system change management, and failure to update customer due diligence. The HKMA considered the seriousness of the violations, FBHK's cooperation, corrective actions, and clean record in imposing the fine.
Relevant Rules and Regulations
Sections 19(3) and 5(1) of Schedule 2 to the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (AMLO) mandate that financial institutions maintain effective procedures for detecting and reporting suspicious transactions, conducting proper customer due diligence, and monitoring transactions for consistency with customer profiles. Specifically, Section 19(3) requires firms to establish robust systems for transaction monitoring, manage system changes effectively, and investigate significant decreases in transaction alerts. Section 5(1) demands that institutions scrutinize transactions to ensure they align with the knowledge of customers' business and risk profiles, and conduct reviews when dormant accounts are reactivated. Breaching these provisions can lead to severe penalties under Section 100 of the AMLO, including fines of up to HK$1 million and imprisonment for up to seven years, depending on the seriousness of the violations.
Key Take Away
For Corporations
Corporations must maintain strong, continuous monitoring systems for money laundering and terrorist financing risks. Corporations should also regularly update transaction monitoring processes, especially after system changes, to ensure compliance and avoid costly penalties, as seen with Fubon Bank's HK$4 million fine. In case of any deficiencies, corporations should promptly address it to stay ahead of regulatory requirements.
For Individuals
Individuals should be aware that financial institutions are required to monitor transactions for potential money laundering and terrorist financing risks. While this doesn't directly impact personal actions, it’s important to ensure your financial activities are transparent and comply with regulations to avoid scrutiny.
Announcement - Cancellation of Listing by HKEX
The Stock Exchange of Hong Kong Limited has announced that the listing of the below companies will be cancelled:
These companies have suspended trading for more than six months, prompting the Listing Committee's decision to delist under Rule 6.01A(1). Shareholders are advised to seek professional advice regarding the implications of the delisting.
Key Take Away
For Corporations
Corporations should prioritize compliance with listing rules and resumption guidance to avoid the risk of delisting, as seen in the case of Goldstone Investment Group Limited. Maintaining proactive communication with shareholders is essential, especially during periods of suspension or financial distress. Additionally, companies should engage professional advisors early to effectively navigate regulatory requirements.
For Individuals
Individuals should stay informed about company announcements and market conditions is critical to understanding potential risks. It’s also important to evaluate the implications of delisting on investment value and liquidity. Consulting financial experts can help assess the impact of such events on personal investment strategies.
SFC commences MMT proceedings against Ding Yi Feng’s former chairman and others over suspected manipulation of Smartac International Holdings Limited shares
The Securities and Futures Commission (SFC) has initiated proceedings against Mr. Sui Guangyi, former chairman of Ding Yi Feng Holdings, along with two corporate entities and 28 other individuals, for allegedly manipulating the shares of Smartac International Holdings between October 31, 2018, and March 11, 2019. The SFC claims that Sui and the suspects engaged in manipulative trading to inflate Smartac's price and trading volume, creating a false impression of market activity. The manipulation resulted in a significant increase in Smartac's share price, benefiting Ding Yi Feng, which held 21.68% of Smartac’s shares. The SFC has frozen the securities accounts tied to the alleged manipulation, with the restrictions still in place. The SFC acknowledges the cooperation of the China Securities Regulatory Commission during the investigation.
Key Take Away
For Corporations
Corporations should be vigilant about the risks of market manipulation and ensure that their trading activities comply with regulatory standards to avoid legal and financial consequences. This case highlights the importance of maintaining transparency in trading practices and monitoring any transactions that could create a misleading appearance of active trading or inflate share prices. Companies must also be prepared to cooperate with regulatory authorities, as failure to do so can lead to significant penalties and damage to their reputation. Additionally, firms should implement strong internal controls to prevent and detect potential market misconduct.
For Individuals
Individuals should be cautious when engaging in trading activities, particularly in relation to potential market manipulation. Participating in or facilitating manipulative practices, such as creating false trading volume or inflating share prices, can lead to serious legal consequences, including fines and sanctions. It's important to understand the laws and regulations governing market conduct, and to avoid any actions that could be construed as deceptive or manipulative. Transparency and ethical behavior in trading are essential to maintaining personal and professional integrity.
Ramp-and-dump case against surrendered fugitive transferred to District Court
The Eastern Magistrates' Courts granted an application by the Department of Justice (DoJ) to transfer a securities fraud case involving fugitive Ms. Chan Sin Ying to the District Court. Chan, who was surrendered from Singapore to Hong Kong on October 3, 2024, is accused of being a key member of a sophisticated ramp-and-dump syndicate and was charged with conspiracy to defraud in securities transactions. She is alleged to have conspired with others in manipulating shares of Wan Cheng Metal Packaging Company. Her case will be consolidated with that of her alleged co-conspirators at a District Court hearing on November 28, 2024. After her bail applications were initially denied, the Court of First Instance granted her bail on October 17, 2024, under conditions including a cash bail of $400,000 and restrictions on her movements and contacts with prosecution witnesses. At today’s hearing, she was granted bail under the same terms.
Key Take Away
For Corporations
The key takeaway from this case is the importance of vigilance against securities fraud, particularly in complex schemes like ramp-and-dump. Companies should ensure robust internal controls and compliance systems to detect and prevent market manipulation. Additionally, executives and employees should be aware of the legal implications of conspiracies involving securities fraud, as regulatory bodies like the Securities and Futures Commission (SFC) are actively pursuing cases with significant penalties. It’s also crucial for firms to establish clear guidelines on handling investigations and cooperating with authorities in the event of suspected fraud.
For Individuals
The key takeaway is the importance of understanding the legal and financial risks associated with securities fraud. Engaging in or inadvertently supporting fraudulent schemes, like ramp-and-dump operations, can lead to severe legal consequences, including criminal charges. Individuals should be cautious when participating in stock market activities, ensuring that all transactions are legitimate and transparent. It's also important to stay informed about the legal implications of conspiracy and fraud in securities trading and to avoid any involvement in activities that could be deemed deceptive or manipulative.
District Court sets next hearing date for three sophisticated ramp-and-dump cases
Nineteen defendants appeared in Hong Kong's District Court today facing charges of securities fraud and money laundering related to three companies: Eggriculture Foods, Fullwealth Construction, and KNT Holdings. The case, stemming from investigations by the Securities and Futures Commission (SFC) and the Police, involves large-scale ramp-and-dump schemes. The court adjourned the case to 25 March 2025, granting bail to the defendants with conditions such as cash sureties, travel restrictions, and regular police reporting. Additionally, the case involving KNT Holdings was consolidated with another related case.
Key Take Away
For Corporations
The takeaway from this case highlights the importance of maintaining strict oversight and compliance with securities laws to avoid involvement in fraudulent schemes like ramp-and-dump. Companies should implement robust internal controls to detect suspicious trading activities, conduct regular audits, and ensure that all executives and employees adhere to ethical standards. Additionally, any company that trades on the stock market should be vigilant against potential manipulation of their shares and be prepared for regulatory scrutiny.
For Individuals
The key takeaway is the importance of understanding the legal risks and consequences of engaging in market manipulation or fraudulent activities, such as ramp-and-dump schemes. Participating in or facilitating securities fraud can lead to serious legal charges, including money laundering, with severe penalties. It's crucial to be cautious when investing or trading in stocks, ensuring all actions are transparent, lawful, and aligned with financial regulations. Moreover, individuals should be aware of the broader implications of market manipulation, including its impact on market integrity and their own financial and legal standing.
Exchange’s Disciplinary Action against a Former Director of Christine International Holdings Limited (Stock Code: 1210)
The Stock Exchange of Hong Kong Limited has imposed a Director Unsuitability Statement and censured Mr. Dun-Ching Hung, former non-executive director of Christine International Holdings Limited (Stock Code: 1210), due to his failure to comply with a 2022 disciplinary directive. Despite being instructed to attend 15 hours of training on Listing Rule compliance, Mr. Hung did not follow through, which the Exchange deemed a serious breach of the rules. As a result, the Exchange has declared Mr. Hung unsuitable to hold a director or senior management position within the company or its subsidiaries. Furthermore, the Exchange has stated that the company’s shares will be delisted if Mr. Hung continues in such roles after 14 days from the statement’s issuance.
Penalty
Relevant Rules and Regulations
The Training Direction provides that a disciplinary instruction issued by the Stock Exchange of Hong Kong Limited in 2022, requiring Mr. Dun-Ching Hung to attend 15 hours of training on compliance with the Listing Rules. This was part of the corrective action following his prior conduct, which was found to be in violation of the rules. The failure to complete the training as directed led to further disciplinary actions, including the imposition of a Director Unsuitability Statement against him.
Key Take Away
For Corporations
Corporations should ensure strict compliance with regulatory requirements. Failure to follow mandated corrective actions, like training, can lead to censure, reputational harm, and even delisting. Strong governance and prompt adherence to compliance obligations are essential to avoid penalties and protect listing status.
For Individuals
Individuals in senior roles must prioritize compliance with regulatory requirements and follow all directives, such as mandatory training. Failure to do so can lead to professional censure, damage to reputation, and loss of leadership positions.