APAC Monthly Private Wealth Legal Developments – August 2022

Welcome to Herbert Smith Freehills’ monthly private wealth industry updates in Asia.

Every month we survey ten Asian jurisdictions for legal developments concerning trust and estate planning which are of interest to the private wealth industry, and provide a succinct summary in a table format.  The jurisdictions covered in the update are Hong Kong, Singapore, China, Taiwan, Japan, India, Malaysia, Indonesia, Thailand and the Philippines. We hope that these updates will prove to be a useful resource to keep private clients, business people, and lawyers abreast of legal updates in the region.

Hong Kong

HKMA and InvestHK announce addition of CBDC track to Global Fast Track 2022

The Hong Kong Monetary Authority (HKMA) and Invest Hong Kong (InvestHK) have jointly announced the addition of the central bank digital currency (CBDC) track to the Global Fast Track 2022, a programme with a business matching portal, pitching competition and mentoring sessions which connect global fintech companies with a diverse range of Asian corporate, investor and service champions to explore potential business partnerships and investments. The CBDC track invites banks, fintech and tech firms to submit innovative solutions in eight focus areas, including retail CBDC (rCBDC) adoption, wholesale CBDC (wCBDC) adoption, programmable money, interoperability, privacy, cybersecurity, foreign exchange and liquidity management, and offline payments.  Application is open until mid-September 2022.

SFC publishes agenda setting out way forward for green and sustainable finance

The Securities and Futures Commission (SFC) has published its Agenda for Green and Sustainable Finance to set out further steps to support Hong Kong’s role as a regional green finance centre. The SFC will continue to support the development of green and sustainable finance in Hong Kong and the transition to a greener economy through improving the quality of information available, increasing transparency and building trust for investors. The agenda sets out the SFC's three main areas of focus going forward, namely, enhancement of corporate disclosures, monitoring the implementation of and enhancing existing measures relating to environmental, social and governance (ESG) funds and expectations for fund managers and identifying an appropriate regulatory framework for any proposed carbon markets.

HKMA shares sound practices for payment operations

The HKMA has issued a circular to authorised institutions (AIs) to share sound practices for payment operations. The HKMA noted that a few payment-related operational incidents were reported by AIs in the past year.  Most of these incidents were caused by IT system malfunctions, rendering the AIs unable to complete payment transactions within the cut-off timelines specified by the Hong Kong Interbank Clearing Limited. The HKMA reminded AIs of the importance of maintaining high operational resilience with respect to their payment operations.  AIs should treat payment operations as critical operations and should have in place robust business continuity plans to ensure that their payment functions can continue to operate in the event of disruptions, taking into account the supervisory guidance in the HKMA's Supervisory Policy Manual module OR-2 (Operational Resilience), module TM-G-1 (General Principles for Technology Risk Management) and module TM-G-2 (Business Continuity Planning). The HKMA indicated that it will step up its surveillance of AIs’ payment operations, including undertaking examinations focused on payment operations.

Singapore

MAS thematic review of operational risk management – third parties

The Monetary Authority of Singapore (MAS) has published the findings from its thematic inspections on the operational risk management standards and practices of selected banks, which focused on third party risk management. The inspections were conducted over 2020 and 2021. In its report of its findings, MAS sets out its supervisory expectations, good practices, improvement areas and case examples observed from inspections.  MAS comments that banks have room to raise risk management standards as regards third party risk.  MAS observed that while banks were familiar with outsourcing risk, it found that some banks had only started to consider the risks posed by other service providers. MAS notes that while the findings relate to its inspections of banks, the good practices highlighted should inform all financial institutions.

MAS Sustainability Report 2021/22

MAS has published its Sustainability Report 2021/22 which sets out its strategy on climate resilience and environmental sustainability. Alongside the report, MAS has also published the remarks delivered by its Managing Director Ravi Menon at the Sustainability Report media conference. Mr Menon spoke about the critical role the financial sector plays in facilitating an orderly transition to a green economy and how MAS is strengthening the financial sector’s resilience against environmental risks, developing a vibrant green finance ecosystem, creating a climate-resilient reserves portfolio, and building a more sustainable organisation.

MAS: Disclosure and reporting guidelines for retail ESG funds

MAS has published circular CFC 02/2022 Disclosure and Reporting Guidelines for Retail ESG Funds. The circular sets out MAS’ expectations on how existing requirements under the Code on Collective Investment Schemes and the Securities and Futures (Offers of Investments) (Collective Investment Schemes) Regulations apply to retail ESG funds, and the disclosure and reporting guidelines applicable to these funds.

India

RBI releases discussion paper on climate risk and sustainable finance alongside survey results

The Reserve Bank of India (RBI) has released a discussion paper on climate risk and sustainable finance. The discussion paper sets out an overview of climate-related risk and its applicability to regulated entities. Among other matters, the paper covers governance, risk management, stress and scenario testing, and capacity building. Feedback on the discussion paper is requested by September 30, 2022.

The RBI has also released the results of a survey on climate risk and sustainable finance undertaken in January 2022. The survey was carried out to assess the approach, level of preparedness and progress made by leading scheduled commercial banks in managing climate risk. Feedback from the exercise will help in shaping the regulatory and supervisory approach of the RBI to climate risk and sustainable finance.

RBI regulatory sandbox: Second cohort on cross-border payments - exit

The RBI has advised that four of the entities which were in the second cohort to enter the regulatory sandbox, which had as its theme cross-border payments, have completed the test phase.  The products were evaluated based on mutually agreed test scenarios and expected outcomes. All were found viable within the boundary conditions defined during testing in the regulatory sandbox and have now exited. The products may be considered for adoption by Regulated Entities (REs) subject to compliance with applicable regulatory requirements.

Malaysia

SCM consults on technology risk management framework

The Securities Commission Malaysia (SCM) has published a consultation paper on a proposed regulatory framework relating to the management of technology risks by capital market entities. The consultation paper seeks feedback on areas such as governance and compliance process, management of technology risks, cyber security, data and third party service providers, as well as the principles relating to the adoption of artificial intelligence (AI) and machine learning. The proposed regulatory framework aims to further improve capital market entities’ ability and effectiveness in detecting and addressing an increasing range of technology risks due to the prevalent use of technology, emergence of new technologies and the growing sophistication of cyber threats. Feedback is requested by 19 September 2022.

Thailand

BoT to pilot Retail CBDC

The Bank of Thailand (BoT) has set out progress on development of a retail central bank digital currency (CBDC).   The BoT explains that it will extend the scope of Retail CBDC development to a Pilot phase in which real-life application of Retail CBDC will be conducted in cooperation with the private sector within a limited scale. The BoT will assess the benefits and associated risks from the Pilot to formulate related policies and improve the CBDC design in the future. The Pilot will be separated into two tracks – foundation and innovation. The foundation track will assess efficiency and safety, including the technological design. During this phase, CBDC will be used in conducting cash-like activities, such as paying for goods and services, within limited areas and with a scale of approximately 10,000 retail users. This phase is expected to begin at the end of 2022 and last until mid-2023. The innovation track will focus on programmability which will facilitate the development of innovative use cases for CBDC, resulting in new financial services for a wide range of customers. This will help the BoT develop and improve the design of CBDC to suit the Thai context in the future. The BoT will allow the private sector and the public to participate in presenting business use cases for Retail CBDC via a CBDC Hackathon.  Applications to participate in the Hackathon should be submitted by 12 September 2022.

The contents of this document are for reference purposes only. Some of the information comes from public sources and this may not be comprehensive, accurate or up to date; where we have relied on third party information and sources, this has not been verified by us. The document does not constitute legal advice, and should not be relied upon as such. Specific legal advice about your specific circumstances should always be sought separately before taking any action based on this publication, and any facts in this document should be checked for your specific circumstances at the time you wish to use or refer to them.