APAC Monthly Private Wealth Legal Developments – November 2024

AUSTRAC: Legislation to strengthen Australia’s AML/CTF regime has passed Parliament

The Australian Transaction Reports and Analysis Centre (AUSTRAC) has reported that the Anti-Money Laundering and Counter-Terrorism Financing Amendment Bill 2024 (Cth) (AMLCTF Bill) passed through Parliament. AUSTRAC has said that the AMLCTF Bill simplifies, clarifies and modernises the current enforcement regime to ensure it is fit-for-purpose. It also:

• expands the regime to certain high-risk services provided by lawyers, accountants, trust and company service providers, real estate professionals, and dealers in precious metals and stones – also known as ‘tranche 2’ entities;

• improves the effectiveness of the regime by making it simpler and clearer for businesses to comply with their obligations; and

• modernises the regime to reflect changing business structures, technologies and illicit financing methodologies.

AUSTRAC CEO Brendan Thomas said that the AMLCTF Bill focuses more directly on achieving the goal of detecting, deterring and disrupting financial crime, and will make it easier for businesses to meet obligations that are better aligned with the increasingly digital, instant nature of our global financial system. Further, he explained that AUSTRAC have already established strong relationships with the industry bodies affected by these changes, and will continue to work in partnership in developing guidance and assistance to ensure this new system is workable and effective. AUSTRAC is committed to working with industry bodies to keep costs to a minimum and to ensure their members are well prepared for the legislation’s commencement.  [29 Nov 2024]

Speech by ASIC Commissioner at Financial Advice Association Australia Congress

Australian Securities and Investments Commission (ASIC) Commissioner Alan Kirkland delivered a speech at the Financial Advice Association Australia Congress. The Commissioner highlighted that while recent reforms in financial advice have increased the likelihood of clients receiving beneficial advice, ASIC still encounters numerous cases where the advice provided leads to poor, and sometimes disastrous, outcomes for consumers. Further, the Commissioner noted ASIC's initiatives to enhance retirement outcomes and member services extend beyond superannuation, focusing on entities and individuals involved in financial advice. Additionally, it was noted that financial advisors can achieve positive results for their clients by prioritising client interests, consistently evaluating product performance, and demonstrating how their advice meets the required standards.  [28 Nov 2024]

ASIC welcomes recent IOSCO reports outlining key developments for global market regulators

ASIC has expressed approval at recent consultations, reports and a statement published by the International Organization of Securities Commissions (IOSCO), which include:

• CR/11/2024 on pre-hedging (IOSCO requests responses by 21 February 2025);
• CR/09/2024 on digital engagement practices (IOSCO requests responses by 20 January 2025);
• CR/10/2024 on online imitative trading practices, e.g. copy trading (IOSCO requests responses by 20 January 2025);
• CR/08/2024 on finfluencers (IOSCO requests responses by 20 January 2025);
• FR/08/2024 on voluntary carbon markets;
• FR/07/2024 on transition plans;
• (ISSA) 5000 which is IOSCO's statement to the International Auditing and Assurance Standards Board (IAASB) on the International Standard on Sustainability Assurance (ISSA) 5000;
• CR/07/2024 on guidance for open-ended funds for the effective implementation of the liquidity risk management recommendations (IOSCO requests responses by 11 February 2025); and
• CR/06/2024 on revised recommendations for liquidity risk management for collective investment schemes (IOSCO requests responses by 11 February 2025).

These reports highlight significant developments for global market regulators. The reports address various topics, including the impact of Covid-19 on capital markets, the transition from LIBOR to alternative risk-free rates, and the use of AI and machine learning by market intermediaries and asset managers. ASIC has voiced its support for IOSCO's efforts and reaffirmed its commitment to adopting IOSCO's standards and policies in Australia. Additionally, ASIC emphasized the importance of international cooperation and information sharing among regulators to tackle global challenges and promote fair and efficient markets. The reports offer valuable insights for regulators, market participants, and the public, contributing to the ongoing discussion on critical issues affecting global capital markets.  [28 Nov 2024]

APRA and ASIC release observations from the banking industry's implementation of FAR

The Australian Prudential Regulation Authority (APRA) and ASIC have issued a letter outlining their observations on registration and notification lodgements since the implementation of the Financial Accountability Regime (FAR) for the banking industry. The letter identifies areas that banking entities need to further consider and reiterates specific aspects in accordance with previously issued FAR guidance. This guidance is relevant to entities across the banking, insurance, and superannuation industries. Entities are encouraged to review the observations and areas for further consideration detailed in the letter to ensure they comply with their obligations under the FAR.  [27 Nov 2024]

ASIC update on maintenance of regulatory guides

ASIC has announced that it plans to update its regulatory guides (RGs) to ensure they remain straightforward, effective, current, and suitable. This initiative is part of ASIC's commitment to improving regulatory efficiency and reducing complexity, as announced at this year’s ASIC Annual Forum. ASIC regularly publishes updated regulatory guidance to assist regulated entities in understanding the law, and the regulator has shared that it will continue to do so in 2025. Next year, ASIC plans to consult with stakeholders to update key RGs, taking into consideration law reform, insights from case law, and other relevant issues.  The RGs which are intended to be updated in 2025 include:

• Regulatory Guide 53;
• Regulatory Guide 168;
• Regulatory Guide 181;
• Regulatory Guide 183; and
• Regulatory Guide 234.  [25 Nov 2024]

ASIC releases new and updated guidance in response to the DBFO Act

ASIC has issued new regulatory guidance and updated existing regulatory guidance in response to reforms under the Treasury Laws Amendments (Delivering Better Financial Outcomes and Other Measures) Act 2024 (DBFO Act). The new guidance includes four new information sheets and updates to Regulatory Guide 246 (RG 246) and Regulatory Guide 175 (RG 175).

The four new information sheets include:

• Information Sheet 286 (INFO 286) which guides financial advisers when obtaining a client's written consent to enter into or renew ongoing fee arrangements. This is intended to assist financial advisers to comply with revised advice fee obligations under the DBFO Act which apply from 10 January 2025 for new fee arrangements.
• Information Sheet 287 (INFO 287) which guides financial advisers when obtaining a client's written consent or consent to charge non-ongoing fees to client superannuation accounts. This is intended to assist financial advisers to comply with revised advice fee obligations under the DBFO Act which apply from 10 January 2025 for new fee arrangements.
• Information Sheet 291 (INFO 291) which guides financial advisers about obligations relating to Financial Services Guides and website disclosure information. INFO 291 also refers to ASIC's recent instrument (ASIC Corporations (Amendment) Instrument 2024/809). This instrument allows AFS licensees or their representatives who deal in financial products to implement financial products advice, to rely on website disclosure information in place of providing an FSG. 
• Information Sheet 292 (INFO 292) which guides financial advisers about the obligation to obtain informed consent before receiving certain insurance commissions to avoid them being conflicted remuneration.

In additional consequential amendments have been made to two regulatory guides (RG 126 and RG 138) and five information sheets (INFO 141, INFO 228, INFO 266, INFO 267 and INFO 274).  [21 Nov 2024]

ASIC writes to superannuation trustees to drive improvement to death benefit claims handling

ASIC has written to superannuation trustees urging them to reassess the handling of death benefit claims. The letter flags ASIC's observations of the failure of trustees to gather and analyse data which provides insights into the outcomes experienced by claimants. In writing this letter, ASIC confirms that improving services to superannuation fund members remains a strategic priority for the regulator. This follows the publication of interim observations on death benefit claims in May 2024, and a subsequent issuing of notices to 10 trustees requesting claims data and related documents and records. ASIC has confirmed that it will issue a public report in early 2025 with insights from the review of documents obtained from these notices.  [20 Nov 2024]

ASIC Commissioner and APRA Executive Director give remarks to the Association of Superannuation Funds of Australia Conference 2024

ASIC Commissioner Simone Constant and Australian Prudential Regulation Authority (APRA) Executive Director Carmen Beverley-Smith made remarks to the Association of Superannuation Funds of Australia Conference hosted in Sydney.

The ASIC Commissioner shared that driving better retirement outcomes and member services remains a strategic priority for ASIC, and that ensuring accountability of superannuation trustees would remain a significant focus for the next year. The ASIC Commissioner shared that the regulator had written to CEOs of APRA-regulated superannuation trustees to urge them to act to improve their oversight of death benefits, and to remind senior executives that they will be held as accountable persons under the Financial Accountability Regime from March 2025 onwards.

The APRA Executive Director shared that the superannuation industry remains under intense scrutiny from regulators, the media and fund members as there is high public expectations that funds remain strong and well-managed. APRA's 2024-2025 Corporate Plan aims to address gaps in the operation and risk management of superannuation funds. The APRA Executive Director committed to conducting a financial system-wide stress test in 2025 to explore risks in this this space in order to enhance future resilience of the financial system. It was further committed that APRA will implement a new operational risk prudential standard (CPS 230) from 1 July 2025 to improve operational resilience at a fund level.  [20 Nov 2024]

ASIC announcements at the ASIC Annual Forum 2024

ASIC Deputy Chair, Sarah Court, delivered a speech at the ASIC Annual Forum. The speech highlighted some of ASIC’s significant investigations in 2024, including but not limited to cases which confirmed that:

• when an entity uses unqualified language or unequivocal terms such as 'we will not invest' or 'we will eliminate' in relation to investments, it cannot correct those representations by relying on consumers searching for an investment policy that might otherwise qualify those statements; and
• when superannuation trustees or managed investment schemes make representations regarding investment screens or their green credentials, no valid distinction can be made between direct and indirect investments.

ASIC has also announced its enforcement priorities in 2025, including:

• misconduct exploiting superannuation savings;
• unscrupulous property investment schemes;
• failures by insurers to deal fairly and in good faith with customers;
• strengthening investigation and prosecution of insider trading;
• business models designed to avoid consumer credit protections;
• misconduct impacting small businesses and their creditors;
• debt management and collection misconduct;
• licensee failures to have adequate cybersecurity protections;
• greenwashing and misleading conduct involving ESG claims;
• member services failures in the superannuation sector;
• auditor misconduct; and
• used car finance sold to vulnerable consumers by finance providers.

The announcement confirmed ASIC’s enduring priorities for 2025:

• misconduct damaging market integrity including insider trading, continuous disclosure breaches and market manipulation;
• misconduct impacting first nations people;
• misconduct involving a high risk of significant consumer harm, particularly conduct targeting financially vulnerable consumers;
• systemic compliance failures by large financial institutions, resulting in widespread consumer harm;
• new or emerging conduct risks within the financial system; and
• governance and directors’ duties failures.  [14 Nov 2024]

ASIC sues superannuation trustee alleging systemic claims handling failures

ASIC has announced that it has filed civil penalty proceedings against a superannuation trustee, alleging that:

• from September 2022 to November 2024, it failed to act efficiently, honestly and fairly in handling of claims for death benefits and TPD insurance;
• despite receiving reports from its third party administrators, it failed to properly assess the scale of the impact to members and claimants;
• even when a response was undertaken, it was inadequate and insufficient;
• the trustee failed to report these issues to ASIC within 30 days of becoming aware of them; and
• it failed to take all reasonable steps that when the matter was reported to ASIC, these reports were not materially misleading.

In relation to this, ASIC Deputy Chair Sarah Court said that 'trustees cannot outsource accountability when it comes to claim handling' and emphasised that they must ensure there is 'adequate oversight of their systems and to prioritise the resources necessary to deliver the services they have promised'.  [12 Nov 2024]

Australian Parliament: Scams Prevention Framework Bill 2024

The Australian Parliament has proposed a new Scams Prevention Framework Bill 2024 (Scams Bill). The proposed Scam Bill, published with an Explanatory Memorandum, is currently before the House of Representatives. It follows on from Treasury’s consultation on the proposed reforms. Among other things, the Scams Bill sets out a Scams Prevention Framework (SPF), providing a framework for regulated entities to implement measures to prevent, combat and respond to scams. The SPF features the following:

• overarching principles (SPF principles) that apply to regulated entities;
• sector-specific codes (SPF codes) that apply to regulated entities in certain regulated sectors;
• rules (SPF rules) to support the effective operation of the framework;
• a multi-regulator framework;
• regulatory and enforcement mechanisms, including a two-tier civil penalty framework; and
• dispute resolution mechanisms.

The Australian Government has committed to initially designating telecommunications services, banking services and digital platform services relating to social media, paid search engine advertising and direct messaging. However, the proposed Scams Bill will allow a Treasury Minister to designate sectors of the economy to be subject to the SPF principles, make an SPF code for that sector, and designate a regulator to enforce that code.  [7 Nov 2024]

HKMA indicates potential expansion of use of Scameter data and scope of bank-to-bank information sharing to enhance detection and prevention of fraud and scams

The Executive Director (Enforcement and AML) of the HKMA, Mr Raymond Chan, delivered opening remarks at the Experience Sharing Forum on Use of Artificial Intelligence for Monitoring of Suspicious Activities.

Mr Chan emphasised the HKMA's commitment to ensuring the right approach, technology, tools and data are employed to tackle the rapidly evolving challenges of global financial crime.  He reiterated the importance of maintaining trust in Hong Kong's financial system, noting that fraud represents 46% of all crime in the city.

Mr Chan also highlighted the importance of establishing a network of banks with improved data streams powered by advanced capabilities, such as analytics and artificial intelligence.  Since having the right data at the right quality is critical, the HKMA is exploring with the Police and the banking industry the possibility of a wider use of Scameter data in banks’ customer due diligence and fraud and scam monitoring processes (see our previous update on the launch of Scameter in 2022).  It is also working with the Police and other stakeholders to expand the scope of bank-to-bank information sharing to further enhance the detection and prevention of fraud and scams.  [28 Nov 2024]

HKMA launches Digital Bond Grant Scheme with an initial period of three years

The HKMA has launched the Digital Bond Grant Scheme, which was announced in the 2024 Policy Address (see our previous update).  The scheme aims to promote the development of the digital securities market and encourage a broader adoption of tokenisation technology in capital market transactions. 

The HKMA stated accepting applications on 28 November 2024, with an initial period of three years.  Applications can be made for bonds issued on or after the Policy Address announcement on 16 October 2024.

Following an industry consultation, the HKMA has set out the details of the scheme, including eligibility requirements, eligible expenses and the application process, in the Guideline on the Digital Bond Grant Scheme.  The scheme covers 50% of eligible expenses for each digital bond issuance up to:

• HK$1.25 million (half grant) if the issuance meets the basic requirements under the guideline;
• HK$2.5 million (full grant) if the issuance meets the basic requirements and all of the additional requirements under the guideline.

The expenses incurred by the digital bond issuer that are eligible for reimbursement include (among others) fees to distributed ledger technology platform providers and Hong Kong-based arrangers (excluding those that are associates of the issuer), and Hong Kong-based legal advisors and auditors.

The Chief Executive of the HKMA, Mr Eddie Yue, has published an article explaining how the scheme aligns with the HKMA's Project Evergreen.  [28 Nov 2024]

SFC issues circular to asset managers on due diligence expectations for third-party ESG service providers

The SFC has issued a circular to clarify the regulatory due diligence expectations for asset managers in respect of their use of third-party ESG ratings and data products providers (ESG service providers).

The SFC observed from its previous fact-finding exercise that asset managers had raised concerns regarding ESG service providers’ data quality, transparency and conflicts of interest management (see our previous update).  To address these concerns, the SFC highlights that asset managers should conduct reasonable due diligence and ongoing assessments on third-party ESG service providers to meet regulatory expectations under the SFC's main code of conduct.  These include due diligence and ongoing assessments on how such products are produced, limitations, and the purposes for which they are used. 

Asset managers should ensure they can demonstrate how they have adequately fulfilled the regulatory expectations.  This includes taking into account the principles and recommended actions of the Hong Kong Code of Conduct for ESG Ratings and Data Products Providers of October 2024 (VCoC) during their due diligence and ongoing assessment process (or other similar or higher standards if deemed necessary and appropriate). 

Where ESG service providers have signed up to the VCoC and completed the self-attestation document, asset managers can utilise the information contained in the document (available on the VCoC website) to facilitate their due diligence and ongoing assessments of the ESG service providers and their products.  As of 29 November 2024, five ESG service providers, both international and local, have indicated their intention to sign up for the VCoC.

Asset managers should adopt a proportionate approach to fulfil the regulatory expectations (proportionate to the impact that the products ultimately have on their investment and risk management processes).  They may leverage group resources and staff, and adopt group policies and procedures to satisfy the above expectations, provided that those group resources, staff, policies and procedures are subject to standards that are similar to or higher than the SFC's expectations. Nevertheless, the asset managers' local management retain the responsibility to ensure that the intermediaries comply with the SFC’s requirements.  [25 Nov 2024]

SFC updates FAQs on ILAS

The SFC has updated its frequently asked questions (FAQ) relating to investment-linked assurance schemes (ILAS) by adding Question 1A under Section 1.  Question 1A discusses whether an ILAS requires SFC authorisation for offerings to the public (and alternatively to professional investors only) in Hong Kong.  [21 Nov 2024]

SFC suspends former licensed representative for 26 months for dishonest misconduct

The SFC has suspended the licence of Mr Wang Shian-tang, a former licensed representative, for 26 months.

The SFC found that:

• Mr Wang had entered into a private profit-sharing agreement with a client on discretionary trading services without his licensed corporation's knowledge or consent.  As part of the agreement, he was entitled to receive 10% of the annual profits he generated through investment for his client.  His conduct was dishonest and was in breach of the SFC's main code of conduct.
• Between October 2019 and April 2022, Mr Wang maintained a personal investment account with a broker other than the licensed corporation to which he was accredited.  He conducted 10 warrant trades with a total transaction value of over HK$350,000 through the account, but failed to disclose to his licensed corporation the existence of the account and the trades.  By circumventing his licensed corporation’s employee dealing policy, he prevented the corporation from monitoring his personal trading activities.
• Mr Wang had also made false and disingenuous representations to the SFC regarding his personal account and trades.  [20 Nov 2024]

SFC CEO discusses forces of change in investment landscape

The SFC's CEO, Ms Julia Leung, gave a welcoming speech at the 'Conversations with Global Investors' investment forum of the 2024 Global Financial Leaders’ Investment Summit. 

Ms Leung identified several forces of change in the investment landscape:

• Innovative technology – Algo trading, machine learning and artificial intelligence language models combined are reshaping front, middle and back-office functions including sales, research, client communication and compliance.  The nascent wave of tokenisation allows primary issuance, transfer, ownership and record keeping of traditional financial products to be done on chain at near-atomic speed. 
• The continued rise of passive funds over active funds – Over the past nine years, passive funds have attracted more inflows than active funds.  This trend is also turning a spotlight on the vulnerability of investment concentration in the biggest corporates, where popular trades are driving up their market caps and hence market index weighting.  Ms Leung considers that once these popular trades unwind, the swing could be unforgiving.
• The rapid growth of private market on the back of a more regulated banking market, particularly in the US, followed by Europe – The growth has been slower in Asia, indicating a greater upside potential.  Ms Leung considers that private credit should be supported as an alternative form of financing for enterprises and projects with a longer investment horizon, but that there should be adequate transparency and liquidity risk management and more data reporting.
• Other factors such as climate change and geopolitical events introduce further market volatility and uncertainty.  [20 Nov 2024]

HKEX reviews development of Connect programmes and upcoming initiatives at tenth anniversary celebration

The HKEX has published a paper, 'Ten Years of Connect: Connecting China and the World', as it commemorates the tenth anniversary of the Connect programmes.

The paper reviews the development of the Connect programmes over the past decade, analyses the main drivers behind their success, and identifies ways to further enhance the Connect programmes in the future:

Enriching the product ecosystem – The Connect programmes have been expanded to include stocks, bonds, ETFs and interest rate swaps over the past ten years.  The five capital market cooperation measures announced by the CSRC on 19 April 2024 (see our previous update) point the way forward, with three specific measures on product expansion.  Exchanges and clearing houses in Mainland China and Hong Kong are actively preparing for the inclusion of real estate investment trusts in Stock Connect.  The HKEX may explore expanding the underlying assets of eligible exchange traded funds from equities to other asset classes.

• Enhancing trading mechanism and supporting services –  In light of the strong market desire for block trading, the CSRC and the SFC announced a consensus on the inclusion of block trading in Stock Connect on 11 August 2023 (see our previous update).  Market participants have also suggested other Stock Connect enhancement initiatives, such as optimising the existing stock borrowing and lending arrangement and exploring feasible models for Mainland investors to participate in margin trading and securities lending. 
• Increasing investor participation – The HKEX is exploring the introduction of additional risk management tools to provide additional options for offshore management of onshore investment risks.  The HKEX also plans to ramp up marketing and investor education to encourage more investors to participate in Stock Connect.
• Enhancing Bond Connect and Swap Connect – The HKEX is actively preparing for the listing of China Treasury Bond Futures in Hong Kong. It is also exploring other measures such as improving liquidity and risk management tools for international investors, enriching interest rate derivatives, and expanding the use of RMB bonds as offshore qualified collateral.

In a keynote speech, Mr Eddie Yue, Chief Executive of the HKMA, indicated that there have been ongoing negotiations with the Mainland authorities regarding (i) expanding the scope of eligible domestic investors under Southbound trading of Bond Connect, such as non-bank financial institutions in the securities and insurance industry, and (ii) promoting the opening-up of the domestic bond repurchase business.  [18 Nov 2024]

HKEX collaborates with HSIL to launch Hang Seng HKEX Stock Connect China Enterprises Index

The HKEX and the index compiler Hang Seng Indexes Company Limited (HSIL) have announced a joint initiative to launch an index named Hang Seng HKEX Stock Connect China Enterprises Index.  It is the first co-branded index between the HKEX and the HSIL and was launched on 21 November 2024.

Constituents of the index include the 80 largest Chinese companies by market capitalisation listed on the Hong Kong, Shanghai, and Shenzhen stock exchanges that are traded on Stock Connect.  With a balanced sector representation, this cross-market index will offer global investors a comprehensive and authoritative benchmark to capture the investment opportunities in China.

Methodology and additional information about the index are available on the dedicated HKEX and HSIL webpages.  [15 Nov 2024]

HKEX successfully completes first SWT trading day

The HKEX has announced the successful implementation of its Severe Weather Trading (SWT) programme on the first SWT trading day since the new arrangements took effect (see our previous update).

The HKEX has confirmed that all trading, settlement and clearing operations in its securities and derivatives markets functioned normally on 14 November 2024, maintaining fair and orderly trading as in any regular trading day.  [14 Nov 2024]

SFC issues circular on use of generative AI language models, taking immediate effect

The SFC has issued a circular setting out its expectations for licensed corporations (LCs) offering services or functionality provided by generative artificial intelligence language models (AI LMs) or AI LM-based third party products in relation to their regulated activities.  The circular takes immediate effect, although the SFC will take a pragmatic approach in assessing compliance with the circular for LCs requiring more time to update their policies and procedures.

The circular identifies four Core Principles that LCs may implement in a risk-based manner.  The Appendix to the circular lists non-exhaustive risk factors tied to each Core Principle.

Core Principle 1: Senior management responsibilities

• An LC’s senior management should ensure that effective policies, procedures and internal controls are implemented and that adequate senior management oversight and governance by suitably qualified and experienced individuals are in place. 

Core Principle 2: AI model risk management

• LCs should have an effective AI model risk management framework in place. 
• The SFC considers using an AI LM for providing investment recommendations, investment advice or investment research to investors or clients as high-risk use cases.  LCs should adopt extra risk mitigation measures for high-risk use cases.

Core Principle 3: Cybersecurity and data risk management

• LCs should have effective policies, procedures and internal controls in place to manage cybersecurity risks, including measures to promptly identify cybersecurity intrusions and, where appropriate, suspend the use of an AI LM.

Core Principle 4: Third Party Provider risk management

• LCs should exercise due skill, care and diligence in the selection of a third party provider and assess their level of dependence on the services by the third party providers.

The SFC reminds LCs intending to adopt AI LMs in high-risk use cases to comply with the notification requirements under the Securities and Futures (Licensing and Registration) (Information) Rules (Information Rules), and encourages LCs to discuss their plans with the SFC as early as possible, preferably at the business planning and development stage, to avoid potential adverse regulatory implications.  [12 Nov 2024]

HKMA and multilateral organisations create strategic partnership for climate investment in Asia

The HKMA has announced a strategic partnership with the Asian Development Bank, Asian Infrastructure Investment Bank, and International Finance Corporation, at the Asia Climate Investment Seminar to strengthen strategic cooperation in sustainable finance in Asia.

The strategic partnership emphasises the importance of a collaborative approach involving multiple partners and institutions to address sustainability challenges in the region. The partners will focus on investments in sectors that contribute to achieving net zero emissions and reducing greenhouse gases in the region, including renewable energy infrastructure, energy solutions and sustainable transportation.

In a speech, the HKMA's Deputy Chief Executive, Mr Howard Lee, highlighted that climate change is a critical issue that must be addressed.  Mr Lee noted that the partnership will entail three components:

• making climate-related investments in Asia, with a view to meeting the respective net-zero targets;
• sharing knowledge, expertise, resources and influence in climate opportunities in Asia, and partnering closely with the private sector, including private equity general partners; and
• demonstrating that achieving financial returns and sustainable development in `Asia are feasible and imperative to the shared vision of progress and environmental stewardship.  [11 Nov 2024]

HKMA issues circular regarding cooling-off period for unsecured consumer credit products for implementation by end-June 2025

The HKMA has issued a circular to set out the requirements for retail banks, including digital banks, to put in place arrangements for the provision of a cooling-off period to individual customers of unsecured consumer credit products.  These arrangements seek to minimise excessive or impulsive borrowing, by providing individual customers a reasonable period to reconsider their financial obligations after entering into a credit agreement.

The HKMA has listed different requirements for cooling-off periods that retail banks should provide, which are based on good banking practices and international standards. These include the following:

• The cooling-off period must not be shorter than 7 calendar days immediately following the day of drawdown of the loans.
• During the cooling-off period, individual customers may repay/redeem the loans concerned with full principal repayment, without being required to provide specific reasons or incurring any charges or fees.
• Retail banks should provide customers with channel(s) that are accessible, timely and efficient to facilitate them to repay/redeem their loans during the cooling-off period.
• Retail banks should clearly communicate to customers the provision of a cooling-off period, the key features, and the available channel(s) for repaying/redeeming the loans at the time of the loan application and notification of loan approval.

Retail banks should review and revise as necessary their systems and documentation and comply with the above requirements as soon as practicable and no later than end-June 2025.  [8 Nov 2025]

HKMA takes disciplinary action against licensed bank for breaching obligations under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance and imposes penalty of HK$4 million

The HKMA announced that it has taken disciplinary action against Fubon Bank (Hong Kong) Limited (FBHK) and imposed a penalty of HK$4 million for contravention of the Anti-Money Laundering and Counter-Terrorist Financing Ordinance.  This follows an investigation conducted by the HKMA triggered by FBHK’s self-report of transaction monitoring failures.

The HKMA found that, between April 2019 and July 2022, FBHK failed to establish and maintain effective procedures for continuously monitoring business relationships with customers.  FBHK did not have effective procedures in place for managing system changes, following up on a substantial decrease in transaction alerts, and regularly reviewing the scope of transactions covered by its transaction monitoring system. 

FBHK also failed to properly scrutinise transactions carried out for approximately 64,000 customers to ensure that they were consistent with its understanding of these customers, their business and risk profiles, and their source of funds.  The HKMA further found that FBHK did not update customer due diligence reviews upon reactivating dormant business relationships for approximately 1,500 of these customers.  [8 Nov 2024]

Government publishes legislative amendments to waive stamp duty payable on transactions or transfers of shares or REIT units and on jobbing business of options market makers, and provide revised stamp duty collection arrangement for USM regime

As announced in the 2024-25 Budget (see our previous update), the Government has published in the Gazette the Stamp Duty Legislation (Miscellaneous Amendments) Bill 2024, primarily to:

• Waive the stamp duty payable on the transactions and transfers of shares or units of real estate investment trusts (REIT) and on the transactions and dealings specified in the Stamp Duty (Jobbing Business) (Options Market Makers) Regulation; and 
• Adjust the stamp duty collection arrangement involving approved securities registrars under the new uncertificated securities market (USM) regime (see our previous update).

The Bill is aimed at enhancing the competitiveness of Hong Kong REITs and reducing the transaction costs of options market makers.  The revised stamp duty collection arrangement will facilitate a more efficient stamping and collection process under the USM environment and help promote the development of the financial market.

The Bill will be introduced into the Legislative Council for first reading on 20 November 2024.  [08 Nov 2024]

SFC bans former hedge fund manager for 15 years following MMT finding of false trading

The SFC has banned Mr Jonathan Dominic Iu Wai Ching, a former responsible officer of Tarascon Capital Management (Hong Kong) Limited (Tarascon), from re-entering the industry for 15 years.

The disciplinary action follows the Market Misconduct Tribunal (MMT)’s determination that Mr Iu had engaged in market misconduct by false trading in the shares of Sinopharm Tech Holdings Limited and Quantum Thinking Limited.  Mr Iu carried out the trades through the brokerage accounts of the hedge fund managed by Tarascon and of his mother, resulting in gains of HK$5.6 million in his mother’s brokerage account at the expense of the hedge fund.  The MMT ordered Mr Iu to disgorge to the Government the illicit profit he had gained, and imposed a four-year disqualification order and a four-year cold shoulder order, amongst other things (see our previous update for further details).

In light of the above, the SFC is of the view that Mr Iu is not a fit and proper person to be licensed.  [6 Nov 2024]

Acting SFST answers LegCo questions on initiatives to develop Hong Kong into international gold trading centre

In his 2024 Policy Address (see our previous update), the Chief Executive proposed developing Hong Kong into an international gold trading centre to consolidate and enhance its status as an international financial centre.  The Acting Secretary for Financial Services and the Treasury (Acting SFST), Mr Joseph Chan, answered questions (see LCQ13 and LCQ14) in the Legislative Council (LegCo) on this subject.

• The Government will focus on the development of gold storage facilities to attract more investors and users to store gold in Hong Kong.  Since the Precious Metals Depository at the Hong Kong International Airport is nearing its full capacity, the Airport Authority is planning to expand the storage in phases from the existing 150 tonnes to up to 1,000 tonnes, with room reserved for further development. 
• The Government will also scale up support services such as insurance, testing and certification, logistics, while expanding related transactions including collateral, loan and hedging, thereby creating a holistic gold trading centre with an industry chain.  In addition, the Government will, as appropriate, explore mutual access with the Mainland financial market, covering spot and futures markets.
• The Financial Services and the Treasury Bureau will set up a working group within 2024 to formulate plans on enhancing the trading and regulatory mechanisms of the market.  Issues to be discussed include gold supply and demand, product development, application of standards, clearing mechanism, logistics and storage, testing and certification, talent training, and cross-boundary collaboration.  The working group will include industry professionals and local exchanges (such as the HKEX and the Chinese Gold and Silver Exchange).  [6 Nov 2024]

HKEX to digitalise ETP servicing capabilities with web-based platform in 2025

The HKEX has announced plans to digitise and automate the in-kind creation and redemption process for relevant exchange-traded products (ETPs) in 2025 through the adoption of a web-based platform, subject to technical readiness and regulatory approval.  This platform will be integrated into the ETP creation and redemption process, connecting key ETP participants with the use of distributed ledger technology and smart contracts, and will help increase overall ETP market efficiency, supporting the continued growth of secondary market activity for ETPs.

The latest plan is part of the HKEX group’s ongoing commitment to further elevate the attractiveness and competitiveness of its international ETP ecosystem, replacing several manual, paper-based processes with a goal to simplify the creation and redemption procedures of ETPs and boost market activity.  [5 Nov 2024]

SFC hosts forum to further encourage responsible regtech adoption for AML/CFT, in light of survey report indicating significant increase in adoption in recent years

The SFC has concluded its Anti-Money Laundering and Counter-Financing of Terrorism Regtech Forum 2024 to encourage the financial services sector to embrace regtech in combatting anti-money laundering (AML) and counter-financing of terrorism (CFT).  See rundown and speakers here.

The forum was attended by more than 300 participants, including Government officials, industry representatives and experts.  Topics of discussion included:

• latest developments and adoption trends in regtech;
• practical application of regtech in legal and regulatory compliance for AML/CFT; and
• risk management.

Ms Julia Leung, the Chief Executive Officer of the SFC, made opening remarks at the forum, where she urged the financial industry to adopt regtech responsibly and more widely.  She announced that the SFC had published its Report on the Adoption of Regtech for Anti-Money Laundering and Counter-Financing of Terrorism. 

• The report highlighted that Hong Kong’s regtech adoption has advanced in major AML processes over the past three years.  Among the 50 firms surveyed, over 80% confirmed that their AML ability had improved due to regtech.  Three years ago, only about half of the surveyed firms had reported using technologies in AML processes. 
• A majority of the firms have implemented regtech solutions in at least one key process.  The adoption rate was as high as 92% for name screening, followed by about 70% for both customer due diligence and transaction monitoring.  In general, regtech has covered more AML processes, with more advanced technologies being deployed.
• Regtech solutions can significantly ease financial firms’ burden to perform labour-intensive tasks through automation, data analytics and artificial intelligence.  They can also swiftly process a sea of data and enable firms to focus attention on suspicious activities.  The key use cases include: client onboarding; name screening; transaction monitoring; and third-party deposit identification and due diligence.  [4 Nov 2024]

SFC announces first batch of 14 brokers joining Cross-boundary Wealth Management Connect Pilot Scheme in GBA

The SFC has 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 (GBA).

The licensed corporations represent the first batch of brokers to offer cross-boundary investment services for GBA investors.  They will work in partnership with their Mainland partner brokers which have been confirmed by the China Securities Regulatory Commission. 

The SFC will closely monitor the operation of the pilot scheme and will continue to update the list of eligible licensed corporations on its dedicated webpage for the scheme.  Details of the eligibility criteria are set out in the SFC’s circular of 24 January 2024  (see our previous update).  [1 Nov 2024]

MAS rationalises leverage requirements and introduces additional disclosures for REITs

The Monetary Authority of Singapore (MAS) has issued revisions to the Code on Collective Investment Schemes to rationalise leverage requirements for the real estate investment trust (REIT) sector. To rationalise requirements, a minimum interest coverage ratio (ICR) of 1.5 times and a single aggregate leverage limit of 50% will be applied to all REITs with immediate effect. The previous requirement was that a minimum ICR of 2.5 times was imposed only on REITs which intended to increase their aggregate leverage from 45% to 50%.

Additionally, REITs will be required to provide additional disclosures concerning the outlook and management of their leverage and ICR levels in their financial result announcements and annual reports. These disclosures provisions will apply from financial periods ending on or after 31 March 2025 onward.  [29 Nov 2024]

SGX RegCo: Commentary – Internalisation of REITS

Singapore Exchange Regulation (SGX RegCo) has published a commentary by CEO Tan Boon Gin, on Singapore-listed REITs (S-REITs) and the increasing trend towards internalisation. The commentary posits that three factors account for the trend – enhancing unitholder value, rising interest rates, and growth of REITs – before moving on to the implications for externally-managed REITs.  [25 Nov 2024]

SGX RegCo CEO discusses internalisation of REIT management

The Singapore Exchange Regulation (SGX RegCo) has published a speech by CEO Tan Boon Gin, delivered at the real estate investment trust (REIT) Association of Singapore Annual Conference 2024. The speech focused on the shift towards internalisation in the management of Singapore-listed REITs, which traditionally have been managed by external managers owned by sponsors. The SGX RegCo CEO explained the challenges with the external manager model and how internalisation is one form of market discipline. He also set out SGX RegCo's position that whether REITs should internalise or have an external manager is a decision for unitholders.  [20 Nov 2024]

MAS announces launch of M-CGT

The Monetary Authority of Singapore (MAS) has announced the launch of the Multi-Jurisdiction Common Ground Taxonomy (M-CGT). The M-CGT presents a comparison of the sustainable finance taxonomies of China, the EU and Singapore, enhancing their interoperability; it was developed by International Platform on Sustainable Finance (IPSF).

While the M-CGT is not legally binding, green bonds and funds that align with the M-CGT criteria can be considered by cross-border investors whose markets reference the taxonomies which are mapped to M-CGT, subject to applicable laws and regulations of each jurisdiction.

The M-CGT may also serve as a reference for jurisdictions that are developing their domestic green taxonomies and has been designed to accommodate the comparison of more jurisdictions’ taxonomies in the future.  [14 Nov 2024]

MAS: Written response to PQ on regulation of finfluencers

MAS has published the response to a Parliamentary Question (PQ) on complaints data regarding 'finfluencers' and whether MAS will review the Financial Advisers Act 2001 (FAA) to regulate the finfluencer sector. The response highlights that:

• financial institutions (FIs) employing finfluencers are expected to ensure that the information they present is in a clear and balanced format;
• if finfluencers provide financial advice, they must be licensed and regulated under the FAA;
• there are MAS-issued guidelines which clarify that any individual who is remunerated for making a recommendation or expressing an opinion on the buying, selling, or holding of investment products will be considered as providing financial advice and, even if not remunerated, they will be considered to have provided financial advice if they make such recommendations or expressions regularly;
• over the past five years, MAS received an average of less than five complaints per year against finfluencers; and
• MAS and the Commercial Affairs Department (CAD) will take enforcement action against individuals providing financial advice without a licence. [13 Nov 2024]

MAS: Written response to PQ on establishing an independent securities regulator

MAS has published the response to a PQ on whether the Singpaore Government will consider establishing an independent securities regulator rather than (the existing) wholly-owned subsidiary of SGX. The response explains that the Singapore Exchange Regulation Pte Ltd (SGX RegCo), a separate subsidiary of SGX, undertakes front-line regulatory functions of SGX as a self-regulatory organisation (SRO). MAS' view is that the advantage of a SRO is that it can be more responsive to market conditions, while independent governance can be put in place to address conflicts of interest.

The response also notes that the Equity Markets Review Group, set up in August 2024, has been looking into measures to strengthen equities market development in Singapore, and will include a review of the regulatory framework.  [12 Nov 2024]

MAS: Written response to PQ on philanthropy advisory within the banking and finance sector

MAS has published the response to a PQ on whether current regulations allow family office and private banking relationship managers to be proactive in discussing philanthropic giving with their clients, and whether there are plans to catalyse these professions to help channel capital into philanthropic causes.

The response explains that the rules already allow banks to provide advisory services to support their clients’ philanthropic giving, such as where these are incidental to the banks’ core business, or as part of the business of providing advice on the social impact of their client’s investments. There  are training initiatives to help finance professionals develop philanthropy advisory capabilities.  MAS and government agencies have collaborated with industry to develop other resources and introduced policies to catalyse the channelling of capital into philanthropic causes.  [12 Nov 2024]

MAS: Oral response to PQ on SRF

MAS has published the response to a PQ on possible refinement to the SRF. The response comments on the operation of the 12-hour cooling-off period, the real-time fraud surveillance duty and operationalising the SRF.  [12 Nov 2024]

MAS announces green finance and capital markets initiatives to strengthen financial cooperation with China

MAS has announced new green finance and capital markets initiatives to strengthen financial cooperation with China. The initiatives were announced at the 20th Joint Council for Bilateral Cooperation (JCBC) meeting in Singapore, and include: catalysing Green Financing Flows (GFFs); exploring piloting an over-the-counter (OTC) bond market framework between China and Singapore; strengthening collaboration in indices and exchange traded funds (ETF) product links; and facilitating FIs' access to Chinese markets.  [11 Nov 2024]

MAS MD discusses the authority's 'FinTech vision'

The Monetary Authority of Singapore (MAS) has published an edited transcript of a 'fireside chat' between Mr Chia Der Jiun, MAS Managing Director, and Ms Manisha Tank, Broadcaster and TV Presenter, which took place at the SFF. The chat focused on MAS' overall vision for the FinTech sector and its impact on the delivery of financial services. The MAS MD delved into key topics such as global payments and digital currency, tokenisation, AI and MAS' work on a stablecoin regulatory framework. Concluding the discussion with a brief comment about quantum, he emphasised that is 'not too early' to look into security, post-quantum encryption, and quantum key distribution.  [7 Nov 2024]

MAS responds to consultation feedback – SFOs

MAS has published its response to feedback received in relation to a 2023 consultation setting out a proposed framework for Single Family Offices (SFOs) operating in Singapore, under which there will be qualifying criteria for class exemption from licensing under the Securities and Futures Act (SFA), as well as notification and annual reporting requirements.

MAS' response covers a number of topics, including:

• the ownership structure of SFOs;
• permissible structures for which SFOs can manage monies;
• managing monies of charitable organisations;
• non-family key employees;
• definition of family members;
• anti-money laundering and countering the financing of terrorism (AML/CFT) checks; and
• various requirements related to notification and annual reporting.

In terms of next steps, the existing licensing exemption that an SFO has been relying on will be withdrawn, either upon the filing of the initial notification to MAS, or at the end of 1-year transitional period, whichever is earlier. MAS will provide further details on the effective date of implementation, revised legislation and mode of submission for the initial notification and annual return prior to the implementation of the SFO framework.  [6 Nov 2024]

MAS announces plans to support commercialisation of asset tokenisation

MAS has announced plans to advance tokenisation in financial services. These include: forming commercial networks to deepen liquidity of tokenised assets; developing an ecosystem of market infrastructures; fostering industry frameworks for tokenised asset implementation; and enabling access to common settlement facility for tokenised assets.

In particular, to facilitate broad based acceptance and implementation of tokenised assets by financial institutions, two industry frameworks developed by Project Guardian industry group members have been published:

• Guardian Fixed Income Framework (GFIF)  – GFIF integrates the International Capital Market Association’s (ICMA's) Bond Data Taxonomy, Capital Markets and Technology Association’s (CMTA's) Token Standards, and the Global Financial Markets Association’s (GFMA's) Design Principles for Tokenised Securities. It provides an industry guide to implementing tokenisation in debt capital markets.
• Guardian Funds Framework (GFF) – GFF provides a set of recommendations for industry best practices for tokenised funds. This includes the Guardian Composable Token Taxonomy to facilitate development of tokenised investment vehicles comprising multiple assets, simplifying the process of incorporating new tokenised funds, and help achieve efficiencies in fund settlement. [4 Nov 2024]

MAS Deputy Managing Director, Markets & Development, addresses Layer One Summit on tokenisation

MAS has published the keynote address by Mr Leong Sing Chiong, Deputy Managing Director, Markets & Development, delivered at the inaugural Layer One Summit of the SFF. The theme of the speech was ' Tokenisation in Financial Services: Pathways to Scale'. Mr Sing Chiong outlined the benefits of tokenisation before moving on to the 'four jigsaw puzzle pieces that need to come together to support industry-wide deployment of tokenised assets', namely: liquidity; foundational infrastructure; standardised frameworks and protocols; and common settlement assets.  [4 Nov 2024]

BNM: Launch of 'InvestMalaysia' portal

Bank Negara Malaysia (BNM) has announced the launch of the InvestMalaysia portal, as a one-stop gateway for investors to obtain information on Malaysia. The portal consolidates key information required for investors; the initiative is intended to strengthen Malaysia’s position as a competitive and attractive investment destination by highlighting and promoting investment opportunities in Malaysia’s financial markets to both domestic and foreign investors.  [7 Nov 2024]

SECT consultation - digital assets business

The Securities and Exchange Commission Thailand (SECT) has published a consultation on proposed amendments to the regulations regarding the qualifications and prohibited characteristics of applicants for digital asset business licenses and related persons. The amendments aim to align digital asset business regulations with securities regulations, and to protect investors from negative impacts in cases where digital asset business operators provide services beyond the scope of their licenses.

Feedback is requested by 27 November 2024.  [13 Nov 2024]

SECT hosts seminars on embedding ESG into investment landscape

The Securities and Exchange Commission, Thailand (SECT) has announced that, in partnership with the CFA Institute and CFA Society Thailand, it has hosted a specialised seminar series focused on embedding Environmental, Social, and Governance (ESG) considerations into the investment landscape. The seminars, 'Analysts Workshop: The Impact of Sustainability Issues on Valuation and Performance' for investment analysts and 'Navigating the Future of Investing in the Time of Sustainability: A Paradigm Shift in the Roles of Investment Consultants?' for investment consultants, were designed to advance professionals’ understanding of how ESG factors affect corporate operations, financial valuation, and the broader investment environment.  [5 Nov 2024]

SECT: Masterclass on enhancing climate governance practices

The SECT has announced that, in collaboration with the Principles for Responsible Investment (PRI) and Asia Investor Group on Climate Change (AIGCC), it has hosted a masterclass aimed at empowering Thai asset managers to enhance their climate governance practices and develop robust climate action plans.  [4 Nov 2024]

IFSCA : Principles for ESG-labelled debt securities

The International Financial Services Centres Authority (IFSCA) has published principles to which issuers of ESG-labelled debt securities in the IFSC must adhere. The principles centre around five key themes: avoid misleading labels and terminology; transparency in methodology for project selection and evaluation; managing and tracking use of proceeds; quantification of negative externalities; and monitoring and disclosure.  [21 Nov 2024]

IFSCA consults on CMI Regulations 2024

IFSCA has published a consultation on the proposed IFSCA (Capital Market Intermediaries) (CMI) Regulations, 2024. The proposed regulation sets out a revised regulatory framework for registration, regulation and supervision of CMIs set up in the IFSC.

Feedback is requested by 12 December 2024.  [21 Nov 2024]

SEBI consults on use of AI tools by regulated entities

The Securities and Exchange Board of India (SEBI) has published a consultation on proposed amendments to various regulations with  respect to assigning responsibility for the use of artificial intelligence (AI) tools by Market Infrastructure Institutions (MFIs), Registered Intermediaries (RIs)  and other persons regulated by SEBI.

Feedback is requested by 28 November 2024.  [13 Nov 2024]

SEBI consults on regulatory framework for 'Angel Funds'

SEBI has published a consultation on the review of the regulatory framework for 'Angel Funds' within the Alternative Investment Fund (AIF) Regulations. The consultation aims to ascertain: whether a regulatory environment for Angel Funds is needed. If so, views are sought on proposals to streamline the regulatory framework for Angel Funds to: rationalise their fundraising processes; strengthen disclosure and governance requirements; and provide operational clarity and investment flexibility.

Feedback is requested by 28 November 2024.  [13 Nov 2024]

SEBI consults on review of SEBI (Custodian) Regulations, 1996

SEBI has published a consultation on the review of SEBI (Custodian) Regulations, 1996. The proposals relate to a number of areas, including, but not limited to: the framework for seeking prior approval for a change in control; the code of conduct; and business continuity planning.

Feedback is requested by 28 November 2024.  [13 Nov 2024]

RBI: Operational framework for reclassification of FPIs to FDI under Foreign Exchange Management (Non-debt Instruments) Rules, 2019

In consultation with the Government of India and SEBI, the Reserve Bank of India (RBI) has announced that it has finalised an operational framework for reclassification of Foreign Portfolio Investment made by Foreign Portfolio Investors (FPIs) to Foreign Direct Investment (FDI) under Foreign Exchange Management (Non-debt Instruments) Rules, 2019 in case of any breach of the investment limit by the FPIs concerned. The aim is to further enhance the ease of doing business in India.  [11 Nov 2024]

RBI: Amendment to Master Direction on KYC

The Reserve Bank of India (RBI) has published an amendment to the to the Master Direction - Know Your Customer (KYC). The amendments:

align the instructions with the recent amendments to the Prevention of Money Laundering (Maintenance of Records) Rules, 2005;

incorporate instructions in terms of the April 2024 corrigendum to the February 2, 2021 Order on the ‘Procedure for implementation of Section 51A of the Unlawful Activities (Prevention) Act, 1967); and

• revise certain existing instructions.
• The amended provisions come into force with immediate effect.  [6 Nov 2024]

SEBI: Advisory on unauthorised virtual trading / gaming platforms

The Securities and Exchange Board of India (SEBI) has published an advisory on unauthorised virtual trading/gaming platforms. SEBI has been made aware that some apps/web applications/platforms are offering virtual trading services, paper trading or fantasy games to the public, based on stock price data of listed companies. SEBI reminds consumers that such activities are in violation of Securities Contract (Regulation) Act, 1956 and SEBI Act, 1992, which are designed to protect investors.

SEBI also draws attention to an August 2016 press release in which it cautioned the public against schemes and competitions related to securities markets, which might involve distribution of prize monies. SEBI reiterates that the public can invest and undertake trading activities in the securities markets only through or with registered intermediaries.  [4 Nov 2024]

SECP consults on SBG investment limit

The Securities and Exchange Commission Philippines (SECP) has published a consultation on the application of the Single Business Group Investment Limit (SBG Limit) which is set out in the SECP's Memorandum Circular No. 15, series of 2020 entitled, 'Rules on Investment in Financial Derivatives'. Responses are requested by 2 December 2024.  [21 Nov 2024]

BSP welcomes new swap market

The BSP has announced the launch of a new interest rate swap market, aimed at boosting trading and liquidity in the domestic bond market. The new swap market is part of a plan to deepen the local capital markets to enhance savings and investment, as well as strengthen the transmission of monetary policy.  [18 Nov 2024]