APAC Monthly Private Wealth Legal Developments – January 2023

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 shares key observations and sound practices from its review of consumer protection in respect of digital platforms for application of unsecured loan and credit card products

The Hong Kong Monetary Authority ("HKMA") has issued a circular to share with the industry key observations and sound practices identified in its supervisory work conducted on consumer protection in respect of digital platforms for the application of unsecured loan and credit card products. Key points are as follows:

• Latest landscape of digital banking services – Based on a survey conducted by the HKMA on 28 authorised institutions ("AIs"), there has been significant digitalisation in the application process for unsecured loan and credit card products.  For example, 70% of credit card applications, 62% of loan-on-card applications and 68% of personal instalment loan applications were made via digital platforms in the first half of 2022.
• Consumer protection in the digital environment – With reference to its circular of 4 September 2020 regarding enhanced measures in respect of digital platforms for the application of unsecured loan and credit card products (see our previous update), the HKMA conducted a thematic review in respect of such digital platforms from consumer protection perspectives and noted some room for improvement in a few areas.  These included the display of key facts statement and terms and conditions, key details of specific products on digital platforms, an enhanced disclosure measure in the form of a "double reminder" to customers, and the digital disclosure approach adopted by AIs.  The HKMA has also observed some sound practices which may be helpful for the industry.

Details of the key observations and sound practices are attached to the circular.  AIs are expected to review and make any necessary improvements to ensure that their digital platforms are designed in a way which can enable customers to make informed borrowing decisions.   

SEHK and HKSCC publish FAQs on Dual Counter Model eligible for market making in the Hong Kong securities market

Further to their circulars of December 2022 (see our previous update) regarding the introduction of the HKD-RMB Dual Counter Model eligible for market making in the Hong Kong securities market, the Stock Exchange of Hong Kong Limited ("SEHK") and the Hong Kong Securities Clearing Company Limited ("HKSCC") have published FAQs in light of the enquiries received. The FAQs are available on the Dual Counter Model’s web corner and will be further updated from time to time as required.  Materials relating to the Dual Counter Model participant webinar have also been uploaded to the web corner.

HKMA issues circular on BCBS's recent responses to FAQs on climate-related financial risks, to be incorporated into HKMA's supervisory framework

The HKMA has issued a circular regarding the Basel Committee on Banking Supervision's ("BCBS's") recent responses to FAQs to clarify how climate-related financial risks may be captured in the existing Basel Framework.

The responses to FAQs are intended to facilitate a globally consistent interpretation of existing Pillar 1 standards given the unique features of climate-related financial risks.  They should not be interpreted as changes to the standards.  The responses are consistent with the BCBS’s principles for the effective management and supervision of climate-related financial risks.  The FAQs covers areas such as:

• Calculation of risk-weighted assets (RWA) for credit risk;
• Calculation of RWA for operational risk and market risk; and
• Liquidity coverage ratio.

The HKMA intends to incorporate the responses to the FAQs into its supervisory framework.  AIs should take note of them when considering how to incorporate climate-related financial risks in their interpretation and application of the existing Basel Framework. 

Insurance Authority publishes 2021-22 annual report

The Insurance Authority has published its 2021-22 annual report, providing an overview of its work and initiatives that took place from April 2021 to March 2022.  This included, for example:

• Prudential regulation – Implementing the enhanced group-wide supervision regime, progressing on work related to the proposed risk-based capital regime and sharing findings of a joint inspection with the HKMA in relation to premium financing (and setting out upcoming measures);
• Regulation of insurance intermediaries – Processing 85% of licence applications from deemed licensees through the e-portal and enhancing the portal, issuing a wide-ranging explanatory note on regulated activities with practical case studies, and conducting on-site inspections of intermediaries;
• Investigation and enforcement – Implementing a new disciplinary process, taking 10 disciplinary actions for misconduct or lack of fitness and properness, issuing 119 compliance advice letters and 101 letters of concern, and taking 91 disciplinary actions for non-compliance with Continuous Professional Development ("CPD") requirements as well as launching a CPD penalty framework;
• Covid-19 response – Implementing facilitative measures such as further refined facilitative measures for non-face-to-face distribution to cover all long term insurance products;
• Policy holder protection – Making key changes to complaints handling, initiating a joint mystery shopping programme with the HKMA and the Mandatory Provident Fund Schemes Authority on selling practices related to qualifying deferred annuity policies and Mandatory Provident Fund tax deductible voluntary contributions, and preparing for a consultation on the proposed policy holders’ protection scheme;
• Market development – Launching initiatives to enhance Hong Kong as a global risk management centre and reinsurance and insurance hub, collaborating with Mainland authorities on initiatives in the Guangdong-Hong Kong-Macao Greater Bay Area, and promoting insurtech and green and sustainable finance;
• Anti-money laundering and counter-terrorist financing ("AML/CTF") – Reviewing AML/CTF controls for virtual onboarding trials under the Insurtech Sandbox; and
• Engagement with stakeholders – Discussing with Future Task Force members fintech topics such as open API and “federated learning” technology.

Singapore

MAS revises the Code of Corporate Governance to reflect independent director tenure limit and mandatory renumeration disclosure for directors and chief executive officers

The Monetary Authority of Singapore ("MAS") has introduced amendments to the Code of Corporate Governance ("Code"), to reflect SGX RegCo’s Listing Rule changes to introduce a nine-year tenure limit for independent directors and mandatory remuneration disclosure for each individual director and chief executive officer. The revisions to the Code and Listing Rules are in line with the recommendations made by the Corporate Governance Advisory Committee on 13 September 2022, which were in response to the review of SGX-listed companies’ corporate governance disclosures released by SGX RegCo on the same day.

Malaysia

SCM revises guidelines to strengthen governance and independence of CRAs

The Securities Commission Malaysia ("SCM") has issued revised Guidelines on Credit Rating Agencies ("CRA Guidelines"), which seek to enhance and strengthen the role, independence and objectivity of CRAs in providing credible credit rating opinion. The key amendments in the CRA Guidelines include added measures in relation to board governance and independence, and fit and proper requirements on the controller, compliance officer and the senior management of CRAs and their rating holding companies. In addition, the enhanced CRA Guidelines also incorporate changes in the SCM’s regulatory filings and processes as well as the adoption of regulatory forms for greater operational efficiency.

Thailand

BOT publishes consultation on virtual bank licensing framework

The Bank of Thailand ("BOT") has published a Consultation Paper on the virtual bank licensing framework to introduce virtual banks as new financial service providers. The licensing framework includes the following key points.

• Virtual banks may provide full-service banking businesses to be flexible and accommodate changing customer needs.
• Virtual bank applicants must meet appropriate qualifications. These include possessing business models that can sustainably achieve the above objectives, as well as having expertise in technology, digital services, and data.
• Virtual banks shall comply with the same regulations and supervision as traditional commercial banks. The BOT shall supervise virtual banks in a risk-proportionate manner, placing great importance on robust corporate governance, sound risk culture, IT system continuity, efficient customer support via digital channels, and appropriate outsourcing services.
• Virtual banks shall go through a restricted phase during the initial years of operation. During this period, virtual banks shall be subject to specified conditions as well as to close monitoring to ensure sustainable business operations without posing systemic risks.

Feedback is requested by 12 February 2023.

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.