APAC Monthly Private Wealth Legal Developments – April 2024

Hong Kong

1. Government and regulators welcome CSRC’s announcement of five measures to expand mutual access between Mainland and Hong Kong's capital markets

The Government, the SFC and the Accounting and Financial Reporting Council (AFRC) have welcomed the five measures announced by the China Securities Regulatory Commission (CSRC) on 19 April 2024 to enhance mutual access between the capital markets of the Mainland and Hong Kong.  The measures include:

• Expanding the scope of eligible exchange-traded funds under the Stock Connect (see 'HKEX reaches agreement with SSE and SZSE to expand scope of eligible ETFs under Stock Connect' below);
• Incorporating real estate investment trusts into the Stock Connect;
• Supporting the inclusion of RMB-denominated stocks into southbound Stock Connect;
• Enhancing the arrangements for mutual recognition of funds; and
• Supporting the listing of leading Mainland companies in Hong Kong.

The CSRC announcement follows the recent issuance of the State Council’s guideline in promoting the high-quality development of the capital markets, strengthening regulation and forestalling risks.  The consensus on these initiatives also came after rounds of discussions between the CSRC and the SFC.  The Mainland and Hong Kong stock exchanges and clearing houses, under the guidance of the two securities regulators, have also had extensive communications and are actively working on the implementation details.

The SFC will continue to work with the CSRC to provide guidance to the industry on the early implementation of these measures.  [19 & 22 Apr 2024] 

2. HKEX reaches agreement with SSE and SZSE to expand scope of eligible ETFs under Stock Connect

HKEX has announced that it has reached an agreement with the Shanghai Stock Exchange (SSE) and the Shenzhen Stock Exchange (SZSE) to expand the scope of eligible exchange-traded funds (ETFs) under Stock Connect.

The eligibility criteria for ETFs for both northbound and southbound trading, including the assets under management requirement and the index weighting requirements, will be relaxed subject to regulatory approval.  The Stock Exchange of Hong Kong Limited (SEHK) has published a circular setting out the newly proposed eligibility criteria.

The SEHK circular and the Hong Kong Securities Clearing Company Limited circular confirm that there will be no system changes for the expansion.  Existing arrangements, including (among others) trading arrangements, settlement arrangements, daily quota, investor eligibility, and CCASS stock code mapping mechanism, will continue to apply.  Nonetheless, China Connect exchange participants, trade-through exchange participants and China Connect clearing participants are requested to assess if any system or operational changes are required to prepare for the expansion.

The three exchanges will work closely on the business and technical preparations for the expansion, which is expected to take effect in approximately three months following regulatory approval.  The official launch date will be announced in due course.  [19 Apr 2024]

3. SEHK publishes conclusions on climate disclosure requirements under ESG framework

The SEHK has published its consultation conclusions on enhancing climate-related disclosures under its ESG framework (Consultation Conclusions).  The SEHK received 115 responses, with broad support for the new requirements which are developed based on the International Financial Reporting Standards IFRS S2 Climate-related Disclosures (IFRS S2) published by the International Sustainability Standards Board (ISSB) in June 2023.  Consequently, the SEHK will adopt its consultation proposals.

The conclusions were influenced by the Hong Kong Government’s approach towards developing a comprehensive ecosystem for sustainability disclosure and the ISSB's jurisdictional guide preview. (see our previous update)  The SEHK will modify its proposals to align more closely with IFRS S2, as set out in the Consultation Conclusions (New Climate Requirements).

Ms Katherine Ng, HKEX Head of Listing, stated that HKEX is among the first exchanges globally to enhance climate-related disclosure requirements based on IFRS S2. The SEHK will adopt a phased approach and implementation reliefs to support listed companies in meeting the new requirements without undue burden and within a reasonable timeframe.

The New Climate Requirements form part of the wider Hong Kong roadmap for the local adoption of the ISSB Standards. This is a crucial part of ongoing efforts to prepare listed companies for eventual sustainability reporting in accordance with local sustainability disclosure standards under development, thereby enhancing Hong Kong’s capital markets attractiveness and competitiveness.

The SEHK has also published guidance (Implementation Guidance) to assist issuers’ compliance with the New Climate Requirements.  The Implementation Guidance contains references to the relevant principles in IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information, and issuers are encouraged to refer to and apply the Implementation Guidance when preparing disclosures under the New Climate Requirements.

This is welcomed by the SFC.  The requirements, which will be implemented in phases from 1 January 2025, aim to align local sustainability disclosure with the ISSB standards.  SFC CEO, Ms Julia Leung, stated that the new regime will provide relevant, consistent, and comparable information for investors as Hong Kong's role as a leading international sustainable finance centre grows.  The SFC will continue to work with stakeholders to provide a clear pathway on sustainability reporting.  [19 Apr 2024]

4. SFC and HKMA issue joint circular regarding finding of thematic review of distribution of non-exchange traded investment products by intermediaries

The SFC and the HKMA have issued a joint circular in relation to the findings of the thematic review of the distribution of non-exchange traded investment products by intermediaries commented in March 2022.  The review identified some issues with intermediaries' practices in performing product due diligence (PDD) and suitability assessment, providing information to clients, and ensuring investment products are in the clients' best interests.  The intermediaries concerned were required to undertake remedial action to address the issues identified.

Key observations are as follows:

• Intermediaries would often assign risk ratings to investment products as part of PDD for matching with a client's risk tolerance level calculated using intermediaries' internal risk-scoring mechanisms or based on the nature of the underlying investment.  However, some intermediaries overlooked key features and risk factors in their PDD assessment methodologies, which could impact the risk-return profiles and growth prospects of the investment products.  Intermediaries could run the risk of making inappropriate recommendations to clients if the risk return profiles of the products were not adequately assessed and accurately reflected in the product risk ratings used for the suitability assessment.
• Structured products were the most prevalent type of non-exchange traded investments products sold by intermediaries.  Given the complex characteristics of structured products, it was noted that it is imperative intermediaries to develop thorough understanding of structured products during PDD and provide adequate training to staff to ensure that they are fully conversant with the characteristics, nature and extent of risks of the products recommended to clients.

Intermediaries are reminded to exercise due skill, care, and diligence in selecting investment products for different risk categories of clients and arrive at an assessment of the products taking into account information that is appropriate and reasonably available for a fair and balanced assessment. Intermediaries are also reminded of their obligations to consider all relevant circumstances specific to a client when assessing the suitability of a product to the client and to disclose all relevant transaction-related information.

The regulators also wish to remind all intermediaries of their obligations to, amongst others:

• give due consideration to all the relevant circumstances specific to a client when assessing the suitability of a product to the client; and
• disclose all relevant transaction related information, and ensure that information provided and any representations made are accurate and not misleading.

The observations from the concurrent thematic review on licensed corporations and on registered institutions are accessible through the links.  Intermediaries are expected to review their policies and procedures to address any issues relevant to their firms with a view to improving compliance, having regard to relevant observations.  [18 Apr 2024]

5. HKEX to develop Orion Derivatives Platform to provide optimum trading, clearing and risk management solutions

The Hong Kong Exchanges and Clearing Limited (HKEX) has announced the development of the Orion Derivatives Platform (ODP), a new proprietary derivatives platform designed to offer enhanced trading, clearing, and risk management capabilities.  The ODP, being developed in-house by HKEX’s technology teams is expected to launch in 2028.  The move is part of HKEX's strategic priority to build future-ready technology platforms and operations, and it aims to differentiate the HKEX Group’s derivatives offerings and increase its competitiveness in the global derivatives market.

HKEX CEO, Ms Bonnie Y Chan, highlighted that derivatives are one of the fastest-growing segments of HKEX's business, with record-breaking volumes in 2023 and 2022.  The ODP will be built on a modular architecture, allowing easier introduction of new products, enhancement of microstructure, and addition of new capabilities.  It will offer enhanced trading and clearing capabilities to clients, including near 24-hour trading, additional order types, an industry-standard interface, and improved testing and onboarding experience.

ODP will also incorporate capital efficient risk management tools, such as the Value-at-Risk (VaR) model, aligning clearing capitalisation methods with international practices.  The VaR margining methodology was successfully implemented in HKEX’s cash market in 2022 offering a clearer and more efficient way to assess risk exposures. Through the development of ODP, the HKEX will bring VaR to its derivatives markets, with the aim of reducing trading costs while ensuring robust risk management.

HKEX Group Chief Information Officer, Mr Richard Leung, emphasised HKEX's commitment to driving market innovation through the development of best-in-class technology platforms. The development of ODP is ongoing and market rollout is expected in 2028.  The HKEX will actively engage with market participants in the development process and the system migration will be carried out in phases to ensure a smooth transition.  [18 Apr 2024]

6. HKMA publishes insights from thematic review of TM systems

The HKMA has published a circular to authorised institutions (AIs) and stored value facility (SVF) licensees regarding the publication of its Insights for Design, Implementation and Optimisation of Transaction Monitoring Systems.

The HKMA has conducted a thematic review of transaction monitoring (TM) systems, focusing on their design, implementation, and optimization. Effective detection of suspicious transactions is crucial for anti-money laundering and counter-financing of terrorism (AML/CFT) controls.  The review examined governance, data quality, detection scenarios, threshold setting, and periodic reviews.  It also looked at how AIs and SVF licensees use artificial intelligence to optimise TM systems and provided AML/CFT specific guidance based on industry best practices.

The report summarised the key observations from the thematic review, including a number of case studies, and provides insights for AIs to strengthen the design, implementation and optimisation of TM systems to make them more effective and efficient, including by adopting more advanced technologies.

The report also shares relevant Regtech adoption cases that have demonstrated improved outcomes in respect of TM systems, and which supplement use cases provided in recent HKMA technology publications in 2019, 2021 (see our previous update), May 2023 (see our previous update) and September 2023 (see our previous update) on the use of artificial intelligence applications, covering governance, application design, development, and ongoing monitoring. While these principles should be considered when adopting artificial intelligence, they are not intended to inhibit innovation, including in AML/CFT work. AIs can clarify control areas and regulatory expectations through the HKMA’s Fintech Supervisory Chatroom or Fintech Supervisory Sandbox. Good practices observed for successful deployment include readiness, talent considerations, change management, data governance, data quality, model testing, validation, periodic review, and awareness of limitations.  [17 Apr 2024]

7. SEHK announces launch of spot VA ETFs

The SEHK has published a circular regarding preparation for the listing of spot virtual assets exchange traded funds (Spot VA ETFs) authorised by the SFC. Exchange participants (EPs) are advised to note and understand Spot VA ETFs features and obligation and refer to the SFC's circular on SFC-authorised funds with exposure to virtual assets issued in 2023 in relation to authorisation and point of sale requirements for further information. (see our previous update)

Similar to other exchange traded products and stocks, margin financing is allowed for Spot VA ETFs subject to an individual EP’s risk management policy. However, in view of the high volatility of Spot VA ETFs, EPs should be particularly prudent in providing clients margin financing for trading such products and EPs should adhere to the SFC guidelines on securities margin financing activities.  [17 Apr 2024]

8. HKMA shares risk management considerations related to use of DLT

The HKMA has issued a circular to share with the industry the key risk management considerations that the HKMA has regard to when it reviews proposals of AIs involving the use of distributed ledger technology (DLT). Mr Raymond Chan (Executive Director (Banking Supervision) of the HKMA) made comments on the use of DLT in financial services in March 2024  (see our previous update).

Since the Government's 2022 "Policy Statement on Development of Virtual Assets (VAs) in Hong Kong", there has been increased interest from AIs in applying DLT to traditional financial operations. The HKMA supports AIs adopting DLT-based solutions, provided they can manage associated risks. It encourages banks to explore the potential of taking "tokenised" deposits. The HKMA's supervisory approach is risk-based and technology-neutral, focusing on whether an AI has adequate systems and controls to manage additional risks from DLT adoption.

The HKMA has prepared a note outlining key supervisory considerations for DLT adoption, which AIs should consider when developing their DLT solutions. These considerations are non-binding, non-exhaustive, and will evolve with market and technological developments. They currently focus on products and activities receiving the most market attention, such as tokenisation of traditional assets and liabilities, and supporting services for these tokenised products.

The key considerations include:

• Governance – the HKMA expects AIs to take full responsibility for adopting DLT and managing its risks.  This includes updating policies and frameworks to mitigate DLT-specific risks, ensuring sufficient DLT expertise among staff, offering regular training, and updating customer-facing procedures if necessary. DLT adoption introduces new risks due to its decentralisation focus and untraditional governance philosophies.
• Application design and development - the HKMA expects AIs to carefully select the right DLT network for their applications, considering its structure, governance, and associated risks.  AIs should ensure smart contracts are fit for purpose, managing vulnerabilities and establishing a rigorous governance framework for their introduction and updates.  AIs should also understand and mitigate potential legal risks, as the legal basis for DLT application is still evolving. Third-party risks should be effectively managed, especially considering the consensus-based mechanisms of DLT networks. AIs should also design their DLT-based systems to be interoperable with both traditional and other DLT-based solutions, ensuring safe and secure connections.
• On-going maintenance and monitoring - the HKMA expects AIs to establish a level of cybersecurity for DLT-based applications that is commensurate with traditional technology applications, countering both DLT-specific and common cybersecurity threats.  AIs should securely manage private keys with robust policies and procedures, ensuring security appropriate to the nature and risks of the application.  Compliance with data privacy and protection requirements should be ensured, with mitigating measures introduced to manage complications arising from DLT's unique nature.  AIs should also tailor contingency planning and testing arrangements for DLT, including testing scenarios and contingency arrangements specific to DLT in their business continuity planning.  This includes considering unique DLT operating dynamics and potential backup options. [16 Apr 2024]

9. SEHK publishes conclusions on proposed amendments to listing rules relating to treasury shares

The Stock Exchange of Hong Kong Limited (SEHK) has published its consultation conclusion on Proposed Amendments to Listing Rules Relating to Treasury Shares (Consultation Conclusions). The SEHK published its conclusions to its consultation paper which sought views on the proposed amendments to the listing rules (Rules) to remove the requirement to cancel repurchased shares and to adopt a framework in the Rules to govern the resale of treasury shares in 2023.

The SEHK received 56 non-duplicate responses from a broad range of respondents. All the proposals received support from a majority of respondents. The SEHK will adopt all the proposals outlined in the consultation paper, with minor modifications in response to market comments as set out in the Consultation Conclusions.

Key changes to the Rules include:

• Removing the requirement to cancel repurchased shares, so that issuers may hold the repurchased shares in treasury subject to the laws of their places of incorporation and their constitutional documents;
• Resale of treasury shares by an issuer to follow the Rules that currently apply to an issue of new shares;
• Maintain fair and orderly market, by mitigating the risk of stock market manipulation and insider dealing, through:
  • Imposing a 30-day moratorium period to restrict (i) a resale of treasury shares after a share repurchase (subject to certain carve-out provisions); and (ii) an on-Exchange share repurchase after an on-Exchange resale of treasury shares; and
  • Prohibiting a resale of treasury shares on the Exchange (i) when there is undisclosed inside information; (ii) during the 30-day period preceding the results announcement; or (iii) if it is knowingly made with a core connected person; and
• Consequential Rule amendments made as follows:
  • Allowing new listing applicants to retain their treasury shares upon listing, with any resale of these shares subject to the same lock-up requirement as an issue of new shares;
  • Requiring issuers (being holders of treasury shares) to abstain from voting on matters that require shareholders' approval under the Rules;
  • Excluding treasury shares from an issuer’s issued or voting shares under various parts of the Rules (e.g. public float and size test calculations);
  • Requiring an issuer to disclose in the explanatory statement its intention as to whether any shares to be repurchased will be cancelled or kept as treasury shares; and
  • Clarifying that a resale of treasury shares by an issuer or its subsidiary includes resale of treasury shares through their agents or nominees.

The Rule amendments as set out in the Consultation Conclusions will come into effect on 11 June 2024.  For overseas issuers that were granted waivers from the Rule requirement to cancel repurchased shares, transitional arrangements will be provided for them to comply with the amended Rules by their second annual general meeting after the effective date.  The SEHK has also published (i) a new guidance letter on the arrangements for issuers to hold or deposit treasury shares in central clearing and settlement system; and (ii) frequently asked questions relating to treasury shares.  [12 Apr 2024]

10. HKEX, SSE and SZSE announce plans to adjust market data dissemination for Southbound and Northbound Stock Connect

The HKEX, the SSE (in Chinese only) and the SZSE (in Chinese only) have announced planned adjustments to market data dissemination for Southbound and Northbound trading under the Stock Connect programme, aiming to align data disclosure practices with the Hong Kong market and Mainland China's A-share market, respectively, in line with the Stock Connect's 'home market principle'.

The arrangements after the adjustments are set out below:

• Southbound Stock Connect (following Hong Kong market practice):
  1. Real-time available daily quota balance will be shown when it falls below 30%; otherwise indicated as 'available'.
  2. Dissemination of other data will remain unchanged.
• Northbound Stock Connect (following the market practice of Mainland China's A-share market):
  1. Real-time available daily quota balance will be shown when it falls below 30%; otherwise indicated as 'available'.
  2. Real-time buy, sell and total turnover will not be available; historical daily/monthly total market turnover, number of trades, ETF turnover, and turnover of the top 10 most actively traded stocks will be shown.
  3. Real-time available short selling balance for individual stock will be shown when it falls below 300,000 shares; otherwise indicated as 'available'.
  4. Shareholding by central clearing and settlement system shareholding search and stock connect northbound shareholdings search will be available quarterly on the 5th Northbound trading day following the quarter end.

The SSE and SZSE have also published frequently asked questions (in Chinese only) in relation to Northbound adjustments.

The Stock Exchange of Hong Kong Limited and Hong Kong Securities Clearing Company Limited have also issued a circular in relation to the adjustment.  [12 Apr 2024]

11. HKMA Chief Executive shares his thoughts on CBDCs and digital money framework more broadly

The HKMA's Chief Executive, Mr Eddie Yue, delivered a keynote speech at the International Conference on Central Bank Digital Currencies and Payment Systems to share his thoughts on central bank digital currencies (CBDCs) and what they mean for the future of money and payment systems.

• The HKMA envisions that a close-knit relationship between public money and private money will continue.  Central banks should continue to play their role in the provision of public money serving as a trusted monetary anchor, enabling the private sector to confidently develop innovative, value-adding financial products for consumers and businesses.  When implementing regulation, it is crucial to strike the right balance between enabling innovation and maintaining stability.
• A holistic digital money framework is required to facilitate the healthy co-existence of public and private money.  The HKMA envisions that this framework will comprise three key components: retail CBDCs, regulated stablecoins, and tokenised deposits.
• Retail CBDC – A retail CBDC could be a potential 'backbone' and anchor, bridging a legal tender and digital assets, offering price stability and confidence needed to empower more innovations.  However, it remains to be seen whether the benefits of its issuance would outweigh the risks, and how its introduction would impact the broader financial system.  The HKMA will continue to take a use-case driven approach in considering whether and when to introduce a retail CBDC.
• Regulated stablecoins – The HKMA has recently completed its consultation on a legislative proposal to implement a regulatory regime for stablecoin issuers, and is in the process of considering the feedback received.
• Tokenised deposits – Over the past year, the industry has been exploring the idea of tokenised deposits.  Whilst the full potential has yet to be explored, the HKMA has observed strong interest in this area, and will continue to work closely with the industry in developing commercially viable use cases.
• Mr Yue also pointed out that a wholesale CBDC could potentially forge a new financial market infrastructure that bridges the existing gap between different forms of digital money, including retail CBDCs, regulated stablecoins, and tokenised deposits. [11 Apr 2024]

12. Acting Secretary for Financial Services and the Treasury discusses upcoming measures to enhance competitiveness and attractiveness of Hong Kong's capital market

The Acting Secretary for Financial Services and the Treasury, Mr Joseph Chan, has responded to questions in the Legislative Council regarding measures to enhance the global competitiveness and attractiveness of Hong Kong's capital market.

The key upcoming measures discussed by Mr Chan include:

• The HKEX will comprehensively examine the stock trading unit arrangement and related market impact, including the board lot arrangement.  Since the HKEX and the SFC are currently conducting a review of the stock bid-ask spread and a determination on both the trading unit and the bid-ask spread will affect the market trading mechanisms, the HKEX will first present the review outcome of the bid-ask spread for market consultation in the second quarter of 2024, and commence the examination of the trading unit as a next step.
• The Government will continue to explore arrangements for further expanding and enhancing the mutual access mechanisms between Hong Kong and the Mainland, including the feasibility of enhancing relevant tax arrangements.
• To further promote Hong Kong's fundraising platform to overseas enterprises and capital, the HKEX is preparing for various major promotion activities in the coming year, including jointly organising thematic flagship summits with organisations in the Middle East and Southeast Asia.  It will also participate in different outreach activities, expanding and deepening the coverage of overseas markets as well as introducing the advantages of Hong Kong's listing platform through thematic speeches, forum exchanges and roadshow events.
• The SFC is actively exploring possible co-operation arrangements in the asset management sector with regulators in the Middle East and ASEAN markets.
• The Government will strengthen external promotion efforts in the coming year to publicise the latest developments and opportunities in Hong Kong's financial services sectors, and will continue to provide assistance to interested enterprises through the Office for Attracting Strategic Enterprises, Invest Hong Kong, and Economic and Trade Offices in the Mainland and overseas. [10 Apr 2024]

13. SFC CEO discusses five-pronged approach to raise Hong Kong market's competitiveness in keynote speech at HSBC Global Investment Summit

The CEO of the SFC, Ms Julia Leung, delivered a keynote speech at the HSBC Global Investment Summit, where she unravelled some of the myths about Hong Kong's financial markets and discussed the SFC's five-pronged approach to raise the Hong Kong market's competitiveness.

Ms Leung provided data which showed (among other things) a growing number of licensed firms (particularly those holding securities advisory and asset management licences), hedge fund managers, private equity fund managers, family offices, as well as registered open-ended fund companies and limited partnership funds.

The SFC's five-pronged approach to raise the Hong Kong market's competitiveness comprises of the following:

• Improving market liquidity and efficiency (including potential measures such as reducing the minimum stock trading spreads, enhancing the price discovery process for IPOs, reviewing requirements on the public float of listed companies’ shares, optimising collateral arrangements, allowing Mainland bonds held in custody under Bond Connect to be collateralised for renminbi (RMB) swap lines and other purposes, and adding block trades under the Connect schemes, in addition to measures which have already been implemented);
• Expanding connectivity (including potential initiatives such as block trading and RMB counter inclusion on Stock Connect, REIT Connect, and strengthening ties with the Middle Eastern and Southeast Asian markets);
• RMB internationalisation (including preparations to launch China treasury bond futures contracts, and to bring RMB counters into Stock Connect);
• Leading financial market transformation through technology (including supporting the development and responsible use of innovations such as distributed ledger technology, Web3 ecosystem, and tokenisation) and ESG (priority is to align Hong Kong's corporate reporting standards with the IFRS Sustainability Disclosure Standards); and
• Attracting firms in growth industries in the Mainland and elsewhere to the IPO market (following the new regime to facilitate IPOs of specialist technology companies, Hong Kong is making further efforts to diversify the sources of primary listings and recognise more overseas exchanges, such as Saudi Arabia and Indonesia). [9 Apr 2024]

14. SFC updates Frequently Asked Questions relating to Open-ended Fund Companies

The SFC has updated its Frequently Asked Questions relating to Open-ended Fund Companies.  Question 4 (regarding the fees payable for establishing an OFC) has been revised.  [5 Apr 2024]

15. SFC and DFSA co-host high-level roundtable on distributing Hong Kong funds in DIFC

The SFC and the Dubai Financial Services Authority (DFSA) have co-hosted a high-level roundtable on opportunities for Hong Kong asset managers to distribute funds in the Dubai International Financial Centre (DIFC).

The roundtable discussion was presided over by the SFC’s Chief Executive Officer, Ms Julia Leung, and the DFSA’s Chief Executive, Mr Ian Johnston, and was attended by more than 15 top executives of Hong Kong asset managers.

• Mr Johnston introduced the regulatory requirements for offering Hong Kong-domiciled funds in the DIFCand opportunities in the DIFC for Hong Kong asset managers, including accessing investors in the wider United Arab Emirates (UAE) market through the fund passporting regime.
• The SFC’s Executive Director of Investment Products, Ms Christina Choi, and the DFSA’s Associate Director of Conduct, Supervision, Mr David Tait, elaborated on relevant regulatory requirements at a subsequent seminar.

The SFC has published an information sheet for Hong Kong asset managers, setting out the market landscape of the DIFC and how Hong Kong funds could be offered in the DIFC and the mainland UAE via DIFC by way of the UAE fund passporting regime.

The DFSA and the SFC plan to host another roundtable for asset management industry participants in Dubai in May 2024.  [5 Apr 2024]

16. SFC consults on proposals to enhance REIT regime and SFO market conduct regime for listed CISs

The SFC has launched a two-month consultation on proposals to enhance the regime for real estate investment trusts (REITs) and the market conduct regime for listed collective investment schemes (CISs) under the Securities and Futures Ordinance (SFO).  Comments are required to be submitted by 27 May 2024.

Under the proposals:

• Hong Kong REITs would be able to conduct privatisation and corporate restructuring in a way similar to other listed companies through a statutory scheme of arrangement and compulsory acquisition mechanism.  This would be fundamentally based on Part 13 of the Companies Ordinance, with appropriate modifications to cater for the nature and features of REITs and provide for the roles and responsibilities of their key operators.  REIT unitholders would also be provided with various safeguards and protection under the statutory regimes.
• Various SFO market conduct regimes would be explicitly extended to listed CIS to enhance market integrity and investor protection.  The market conduct regimes are namely (a) the market misconduct regime under Parts XIII and XIV, (b) the disclosure of inside information regime under Part XIVA, and (c) the disclosure of interests regime under Part XV.  They are proposed to be explicitly extended to cover listed CISs, including REITs. The proposals are in line with prior public consultations which received general support, with certain refinements.

The SFC notes that it has been its long-established policy to regulate REITs in the same manner as listed companies.  The proposals are aimed at building a more vibrant Hong Kong REIT market by facilitating mergers and acquisitions of REITs whilst strengthening investor protection.  [28 Mar 2024]

17. HKMA Executive Director of Banking Supervision makes opening remarks regarding initiatives relating to use of DLT in financial services

At the second seminar focusing on DLT under the new Fintech Promotion Roadmap jointly developed by the HKMA, the SFC and the Insurance Authority, Mr Raymond Chan (Executive Director (Banking Supervision) of the HKMA), made the following comments, among others:

• Innovations such as DLT do not come without challenges, such as those relating to upskilling, data privacy assurance, volatility management, and the establishment of robust cybersecurity controls.  The HKMA considers it of utmost importance that its supervisory approach remains balanced, focusing on risks and maintaining a neutral stance towards the underlying technologies.  The HKMA's guiding principle is equivalence, that is, 'same activity, same risk, same regulation'.
• As an increasing number of banks are approaching the HKMA to ask how this guiding principle applies in practice to DLT, the HKMA plans to issue a set of non-exhaustive, non-binding guidelines in the coming weeks to outline the key considerations that it will take into account when reviewing banks' DLT applications.
• The HKMA, the SFC, the Insurance Authority and the Mandatory Provident Fund Schemes Authority are rolling out other initiatives including research projects, training sessions, and spotlight videos to support the adoption of DLT among other financial technologies by financial institutions. [27 Mar 2024]

18. SFC and HKMA remind LCs, management companies of SFC authorised funds and AIs to prepare for shortening of securities transaction settlement cycle in US and Canada to T+1

The SFC has issued a circular to inform licensed corporations (LCs) and management companies of SFC-authorised funds that from 28 May 2024, the standard settlement cycle for transactions in US securities (such as equities, bonds, exchange-traded funds and options) will be shortened from two business days after the trade date (T+2) to one business day after trading (T+1).  Canada will similarly transition to T+1 on 27 May 2024.

This will lead to a compressed timeline for completing post-trade settlement processes, such as trade allocation, confirmation and affirmation.  The SFC is of the view that this may impact Hong Kong market participants significantly due to time zone differences.

The SFC reminds LCs to assess their readiness and ensure they are able to cope with the shortened settlement cycle, including reviewing their liquidity risk management practices and ensuring that necessary funding is available for settling US securities transactions on time, ensuring that there is sufficient staff to complete the post-trade settlement processes within the shortened timeframe, and proactively engaging and communicating with their clients who are potentially affected by the transition.

Management companies of SFC-authorised funds (particularly those with considerable exposures to US securities) are reminded to carefully assess the impact of the transition on their funds, make appropriate arrangements where necessary (such as expanding pre-funding facilities and allocating additional staff to handle the compressed settlement timeline), and giving early alerts to the SFC and investors about any intended changes, issues or untoward circumstances arising from the transition that may materially affect them (and take remedial actions accordingly).

Similarly, the HKMA has issued a circular reminding AIs to carefully assess their capability in settling the in-scope transactions on a T+1 basis and, where necessary, enhance their operations, systems and infrastructure before the shortened settlement cycle commences, especially given that the standard settlement cycle for foreign exchange transaction remains at T+2.  [27 Mar 2024]

19. Green and Sustainable Finance Cross-Agency Steering Group and ISSB members hold industry roundtable in Hong Kong

Members of the Green and Sustainable Finance Cross-Agency Steering Group and the ISSB have held an industry roundtable to discuss and promote sustainability disclosures by companies and financial institutions in Hong Kong.

The roundtable meeting was attended by around 20 representatives from listed companies and different financial services sectors.  Participants exchanged views on their experiences in and the unique circumstances for entities making sustainability disclosures in Hong Kong and Asia.  They also explored the core elements of a local sustainability disclosures ecosystem that will require further support.

In his opening remarks at the roundtable, the Secretary for Financial Services and the Treasury, Mr Christopher Hui, mentioned that the Government had issued a vision statement on developing the sustainability disclosure ecosystem in Hong Kong on 25 March 2024 (see 'Government issues vision statement on developing Hong Kong's sustainability disclosure ecosystem' below).  He also noted that a key focus area is ensuring the credibility of sustainability disclosures, by implementing measures to strengthen sustainability assurance.  The Government will also prioritise capacity-building initiatives to support industry and companies in implementing the sustainability reporting requirements effectively.  In addition, the Government is actively working to integrate fintech with green finance, with a view to accelerating green transformation.  Finally, Mr Hui also highlighted the key points that are critical to Hong Kong's success in sustainability disclosure.

In a subsequent discussion between the steering group and the ISSB, the parties agreed to strengthen collaboration on developing comprehensive capacity building programmes. They will also maintain a continuing dialogue as Hong Kong furthers its commitment to align sustainability disclosure requirements with international standards.  [27 Mar 2024]

20. HKMA encourages AIs to make use of new GHG emissions calculation and estimation tools

The HKMA has issued a circular to encourage AIs and their clients to make use of the new greenhouse gas (GHG) emissions calculation and estimation tools, available on the Green and Sustainable Finance Cross-Agency Steering Group website.

The new tools provide an easy-to-use starting point for AIs and their clients to comply with climate-related disclosure requirements.  They comprise a calculation tool (which enables users to calculate GHG emissions based on actual activity levels) and an estimation tool (which enables users to estimate the GHG emissions of their investees or borrowers where data of underlying companies is limited).  The tools initially cover Scope 1 and Scope 2 GHG emissions and will continue to be improved.

The use of these tools are not compulsory.  However, regardless of the tools or methodologies used, AIs should adhere to the requirements set out in its Supervisory Policy Manual module GS-1 'Climate Risk Management' (see our previous update).  [26 Mar 2024]

21. Government issues vision statement on developing Hong Kong's sustainability disclosure ecosystem

The Government has issued a vision statement which sets out the vision and approach of the Government and financial regulators in developing a comprehensive ecosystem for sustainability disclosure in Hong Kong.

The following are some of the key points discussed in the vision statement:

• The Government and financial regulators aim for Hong Kong to be among the first jurisdictions to align the local sustainability disclosure requirements with the International Financial Reporting Standards - Sustainability Disclosure Standards (ISSB Standards).
• The Government will adopt a holistic approach in developing the local sustainability disclosure standards and sustainability disclosure ecosystem, with the Hong Kong Institute of Certified Public Accountants tasked with developing the local sustainability reporting standards (Hong Kong Standards) aligned with the ISSB Standards, as well as the complementary application and implementation guidance.
• The Hong Kong Standards are intended for cross-sectoral observance, including listed companies and regulated financial institutions, such as banks, fund managers, insurance companies, and Mandatory Provident Fund trustees.  A phased implementation approach will be adopted, with application of the Hong Kong Standards prioritised for publicly accountable entities such as listed companies and regulated financial institutions.
• The Government and financial regulators will promote sustainability assurance to enable credible implementation, enhance capacity building, and facilitate the use of technological solutions to enhance efficiency, reduce cost and enable comparability and interoperability of disclosures.
• The Government will work with financial regulators and stakeholders to develop a roadmap on the appropriate adoption of the ISSB Standards, and aim to launch the roadmap within 2024. [25 Mar 2024]

---

Singapore

1. MAS MD discusses Asia's climate transition

MAS has published the opening remarks by its Managing Director, Chia Der Jiun, at the Financing Asia’s Transition Conference 2024. Mr Jiun called for greater international collective action in tackling climate change despite the growing challenges.

He emphasised three key areas that will help to bridge action to needs in Asia's climate transition, increase momentum of action and close financing gaps:

• sustaining collective commitment and action;
• strengthening disclosures; and
• supporting the de-risking and viability of transition financing. [17 Apr 2024]

2. MAS sets aside S$35m to support upskilling Singapore’s financial services sector workforce in sustainable finance

MAS and the Institute of Banking and Finance (IBF) have launched the Sustainable Finance Jobs Transformation Map, which lays out the impact of sustainability trends on jobs in Singapore’s financial services sector and the emerging skills that the workforce will require to serve sustainable financing demand in the region. In this regard, MAS has set aside S$35 million in the Financial Sector Development Fund to support upskilling and reskilling, and develop specialists in sustainable finance over the next three years.

A speech by Alvin Tan, Minister of State for Culture, Community and Youth, on the Sustainable Finance Jobs Transformation Map has also been published.  [17 Apr 2024]

3. MAS speech: Scaling blended finance in Asia

The Monetary Authority of Singapore (MAS) has published the opening remarks by its Assistant Managing Director (Development & International) and Chief Sustainability Officer, Gillian Tan, on blended finance and philanthropy. Ms Tan discussed how much progress had been made since the launch of the Green Finance Action Plan in 2019. She also highlighted three key gaps that need addressing in order to achieve scale in blended finance: risk tolerant capital, risk-centric approaches to partnerships and risk mitigation.  [17 Apr 2024]

4. MAS: Response to Parliamentary question on enhanced pre- and post-transaction safeguards

MAS has published the response to a Parliamentary question on when the enhanced pre- and post-transaction safeguards to be undertaken by financial advisers for selected clients will be implemented. The response notes that MAS will consult, by mid-2024, on legislative amendments to enhance pre- and post-transaction safeguards for clients of financial advisers meeting specified criteria. MAS intends to issue the revised standards by Q4 2024 for implementation by the industry no later than H2 2025, after a nine-month transition period.  [2 Apr 2024]

5. MAS: Response to Parliamentary question on Shared Responsibility Framework and Money Lock

MAS has published its response to a Parliamentary question on the release date of the Shared Responsibility Framework (SRF) for phishing scams and whether MAS will make it mandatory for all banking institutions to participate in the Money Lock initiative.

MAS confirmed that it aims to publish a response to the SRF consultation and implement the initiative later this year.

With respect to the Money Lock feature, MAS expects it to be introduced by major retail banks by mid-2024. However, MAS has no plans to make Money Lock mandatory for all banking institutions.  [2 Apr 2024]

6. MAS expands scope of regulated payment services and imposes requirements on DPT service providers

MAS has announced that it has introduced amendments to the Payment Services Act and its subsidiary legislation to expand the scope of payment services regulated by MAS, and to impose user protection and financial stability-related requirements on digital payment token (DPT) service providers. The amendments will take effect in stages from 4 April 2024

The following activities will be brought within the scope of regulation under the Act:

• provision of custodial services for DPTs;
• facilitation of the transmission of DPTs between accounts and facilitation of the exchange of DPTs, even where the service provider does not come into possession of the moneys or DPTs; and
• facilitation of cross-border money transfer between different countries, even where moneys are not accepted or received in Singapore.

Transitional arrangements will be provided for entities currently conducting activities under the Act’s expanded scope. Such entities must notify MAS within 30 days and submit a licence application within six months from 4 April 2024 if they wish to continue the activities on a temporary basis while MAS reviews their licence applications.  [2 Apr 2024]

7. MAS launches platform to combat ML/TF/PF

MAS has announced the launch of a centralised digital platform to facilitate the sharing of customer information among financial institutions (FIs) in order to combat money laundering (ML), terrorism financing (TF) and proliferation financing (PF) globally.

COSMIC was co-developed by MAS and six major commercial banks in Singapore. These banks will be the participant FIs on COSMIC during its initial phase. Information sharing is currently voluntary and focused on three key financial crime risks in commercial banking, namely: misuse of legal persons; misuse of trade finance for illicit purposes; and proliferation financing.  [1 Apr 2024]

8. MAS MD: Investing in change

MAS has published the opening address by its Managing Director, Chia Der Jiun, at the Investment Management Association of Singapore (IMAS) Investment Conference 2024. Mr Jiun spoke on the importance of supporting Asia's growing investment needs; raising more interest and demand for sustainable investments; and generating business value through asset and fund tokenisation.  [27 Mar 2024]

9. MAS extends suspension of remittances to China through channels that are not specifically permitted

The MAS has issued a notice to extend, for a further six months until 30 September 2024, the suspension of the use of channels that are not specifically permitted by remittance companies when transmitting money to persons in the People’s Republic of China.  [27 Mar 2024]

---

China

1. CSRC reported to be in the process of revising securities investment fund law

According to Regulation Asia, the China Securities Regulatory Commission (CSRC) is revising the securities investment fund law to strengthen the roles of fund managers and custodians in reducing capital market risks. The revisions aim to:

• Ensure that fund managers and custodians adhere to stricter standards, and to “substantially” raise the cost of illegal activities and rule violations;
• Further enhance the protection of small and medium-sized investors by clearly stipulating suitability obligations for and increasing the accountability of fund managers; and
• Improve the safeguarding of investors’ legal rights, to attract more overseas investment into China’s capital markets. [26 Apr 2024]

2. Draft revisions to AML law tabled before NPC

Draft revisions to the Anti-Money Laundering (AML) law have been tabled before the National People's Congress (NPC), with the Governor of the People's Bank of China, Mr Pan Gongsheng, providing an explanation of the revisions.

The revised draft AML law consists of 7 chapters and 62 articles. The revisions supplement and improve relevant systems relating to clarifying the scope of application of the law, strengthening AML supervision and management, and enhancing the provisions on AML obligations.

In terms of strengthening AML supervision and management, the revised draft:

• Clarifies the division of responsibilities;
• Improves AML supervision of financial institutions (including providing for the formulation of relevant regulations and implementation of AML review requirements);
• Clarifies the scope application to, and AML supervision of, specific non-financial institutions;
• Strengthens risk prevention and control, and supervision management; and
• Improves the AML information sharing mechanism between the AML administrative department of the State Council and relevant state agencies, and establishes a system for the management and use of beneficial owner information.

In terms of enhancing the provisions on AML obligations, the revised draft:

• Stipulates the AML obligations of financial institutions, including establishing, improving and implementing internal control systems to combat money laundering, conducting customer due diligence to understand customer identities, transaction background, and risk situation, retaining customer identity information and transaction records, and effectively implementing systems for reporting large-value transactions and suspicious transactions;
• Stipulates the AML obligations for specific non-financial institutions; and
• Stipulates that entities and individuals are prohibited from engaging in money laundering activities or facilitating money laundering, and are required to cooperate in customer due diligence investigations lawfully conducted by financial institutions and specific non-financial institutions.

The revised draft also stipulates the extraterritorial application of the law, enhances the legal liability provisions, and increases penalties for illegal acts. [23 Apr 2024]

3. CSRC's new regulations on administration of securities transaction fees of public investment funds to take effect on 1 July 2024

The CSRC has issued its Regulations on the Administration of Securities Transaction Fees of Public Securities Investment Funds. The regulations will take effect on 1 July 2024.

The issue of the regulations follow the publication by CSRC of its Work Plan for the Reform of Public Fund Industry Rates in July 2023, which proposed optimising the commission system for securities trading in public funds.

The new regulations consist of 19 articles, which aim to achieve four objectives:

• Clarifying the securities trading commission rates (including appropriately reducing the rates and clarifying the system for publishing average commission rates);
• Lowering the maximum securities trading commission allocation ratio;
• Strengthening the internal systems and control requirements for fund managers and securities companies; and
• Clarifying the requirements on information disclosure at the fund manager level. [19 Apr 2024]

4. US and China continue economic and financial discussions and launch new initiative to cooperate on AML/CFT and financial sector resilience to crime

Secretary of the US Treasury, Janet L. Yellen, announced the following new initiatives after her meeting with China's Vice Premier He Lifeng on 6 April 2024:

• The US and China will hold intensive exchanges on balanced growth in the domestic and global economies. These exchanges will facilitate a discussion around macroeconomic imbalances, including their connection to overcapacity (particularly Chinese industrial overcapacity in certain sectors as a result of government support), and the US intends to use this opportunity to advocate for a level playing field for American workers and firms.
• The US and China will start Joint Treasury-PBOC Cooperation and Exchange on Anti-Money Laundering (AML) to expand cooperation in combating illicit finance and financial crime. Around the world, fraudsters, drug traffickers, and other criminal organisations and individuals identify and exploit loopholes in the US and Chinese financial systems to advance their illicit activities.  This new effort aims to address these concerns by facilitating the exchange of best practices and updates on actions taken by both countries to close loopholes in their respective financial systems.

Secretary Yellen also welcomed the announcement that the US and China will continue holding technical exchanges on financial issues, including operational resilience in the financial services sector and the financial stability implications from the insurance sector.

Subsequently on 16 April 2024, Secretary Yellen met with the US-China Economic Working Group and Financial Working Group (FWG). The FWG meeting sessions included discussions on banks’ liquidity risk management, financial stability and market developments, swap arrangement practices, cross-border payments and data, and sustainable finance, among other topics.

The first Joint Treasury-PBOC Cooperation and Exchange on AML also met under the auspices of the FWG to discuss several priority AML and counter financing of terrorist (CFT) issues, including virtual assets and beneficial ownership.  Both sides agreed to continue to meet regularly and to hold additional technical exercises on operational resilience in the financial sector, supervision and regulation on cross-border supply of financial services, and on the financial stability implications from the insurance sector’s exposure to climate risk.

Secretary Yellen also welcomed new progress in the FWG on sustainable finance. The US Treasury and the PBOC agreed on the importance of transition finance to support the decarbonisation of various sectors, including through the voluntary commitments financial institutions make to decarbonise.  Both sides recognised that degradation of ecosystems and loss of biodiversity represent economic challenges, and that financial support for conservation and restoration is critical.  [6 & 16 Apr 2024]

5. CSRC rolls out legislative work plan for 2024

The CSRC has released its legislative workplan for 2024, to implement the spirit of the Central Financial Work Conference (CFWC) and the State Council's "Opinions on Strengthening Regulation and Preventing Risks and Promoting the High-quality Development of the Capital Market") published on 4 April 2024.

Fourteen regulatory projects are included in the work plan, including nine key projects that are targeted to be introduced within the year and five projects that require further study and are to be launched at an appropriate time. The focus of the projects is to strengthen the supervision of key areas of the capital market, maintain the stable and healthy development of the market, and protect the legal rights of small and medium-sized investors.

The laws expected to be amended or drawn up will pertain to:

1. The strengthening of regulation of capital market-related behaviours and effectively maintaining fair, open and just market order, by (among other things) revising interim measures on the supervision and administration of private investment funds, and introducing new regulations for management of share reductions by shareholders of listed companies, securities fund investment consulting businesses, and derivative transactions.
2. The strengthening of regulation of relevant entities in the capital market and further consolidating the foundation for capital market development, by (among other things) revising rules relating to futures companies and their practitioners, and information technology management by securities and futures fund operating institutions.
3. The enhancement of capital market supervision and enforcement, by (among other things) revising rules regarding margin and securities lending business of securities companies, and refinancing businesses.

The CSRC will also collaborate with relevant departments of the State Council to develop regulations for the management of listed companies, securities companies, and real estate investment trust funds.  [12 Apr 2024]

6. SSE, BSE and SZSE release new sustainability reporting guidelines

To further implement the spirit of the CFWC and several policy papers of the State Council and the CSRC, the Shanghai Stock Exchange (SSE), the Beijing Stock Exchange (BSE) and the Shenzhen Stock Exchange (SZSE) have each released their respective sustainability reporting guidelines for listed companies.  The guidelines took effect on 1 May 2024 and will apply to reporting periods commencing on 1 January 2025:

• SSE – Mandatory reporting for issuers in the SSE 180 or STAR 50 Indexes, or dual-listed in mainland China and overseas markets; voluntary reporting for other issuers;
• BSE – Voluntary reporting;
• SZSE – Mandatory reporting for issuers in the SZSE 100 or ChiNext Indexes, or dual-listed in mainland China and overseas markets; voluntary reporting for other issuers. [12 Apr 2024]

7. NAFMII releases standard agreement for Swap Connect Northbound trading

The National Association of Financial Market Institutional Investors (NAFMII) has released a “Swap Connect Cleared Derivatives Agreement”, jointly formulated with the Hong Kong Exchanges and Clearing under the guidance of the People's Bank of China, for use by counterparties participating in Swap Connect.

According to NAFMII's statement, the bilateral agreement is aimed at simplifying the negotiation process and meeting the basic requirements for risk management and compliance of Swap Connect Northbound trading, which was launched in May 2023.

By providing both Chinese and English versions, as well as various governing law and dispute resolution options, the agreement is friendly for both onshore and offshore investors, and can better serve the development of Swap Connect by improving efficiency of documentation.  [1 Apr 2024]

8. China issues new guidelines on financial support for green and low-carbon development

The People’s Bank of China (PBOC), the National Development and Reform Commission, the CSRC, along with several other government agencies, have issued their Guidelines on Financial Support for Green and Low-carbon Development. The guidelines aim to implement the decisions and arrangements of the Communist Party of China and the State Council regarding carbon peaking and carbon neutrality, make progress in green finance, and actively support green and low-carbon development in the next five years.

The guidelines outline several measures to optimise the green finance standard system and enhance information disclosure. These include promoting carbon accounting in the financial system (and encouraging financial institutions to utilise big tech and fintech to support carbon accounting), developing a unified standard system for green finance, guiding financial institutions and financing entities to carry out environmental information disclosure, and continuously upgrading the quality of environmental information disclosure and assessment.

The guidelines also focus on promoting the development of green financial products and markets. This involves establishing a carbon emissions trading market and expanding the scope of trading entities suitable for the development of China's carbon market, encouraging financial institutions to employ green finance or transition finance standards to increase credit support for green development and low-carbon transition in various sectors, intensifying the capital market's support for green and low-carbon development through listings, green bonds, and green equity investment and financing, developing green insurance and services, and attracting more green financial market participants.

Policy coordination and institutional support are also emphasised in the guidelines. Efforts will be made to improve laws and regulations related to green finance, enhance assessment and evaluation mechanisms for financial institutions, and develop monetary policy tools. The guidelines also highlight the importance of incorporating carbon emission reduction information of high-emission industries and projects into the project credit evaluation and credit systems, as well as supporting green development in major national and regional strategies. In addition, the guidelines set out measures to strengthen prudential management and risk prevention related to climate change.  [27 Mar 2024]

9. China reportedly taking steps to close local financial asset exchanges

According to 21st Century Business Herald, local financial regulators in Hunan, Liaoning, Xi'an, and Chongqing have announced that they will cancel the business qualifications of financial asset exchanges in their areas.  Industry insiders have said that other financial asset exchanges will also gradually shut down after they have wound down their existing businesses in an orderly manner.

Financial asset exchanges have historically been associated with issues including unclear business scope.  Their businesses often fall within the grey area of supervision, such as providing financing channels for illegal financial products. Increased actions have been taken by local governments and regulators since 2011 to tackle the risks relating to these exchanges.

Since over a year ago, the inter-ministerial joint meeting for rectification of exchanges and trading venues had commenced special rectification work targeting financial asset exchanges. At the time, it was made clear that financial asset exchanges were prohibited from financing real estate enterprises (projects), urban investment companies and other companies under national restrictions or specific regulatory requirements.  No new exchanges were permitted to be established, and if there were multiple exchanges within a regulatory jurisdiction, they would be consolidated based on the "one exchange per province" principle.

In December 2023, the People's Bank of China published its China Financial Stability Report (2023), stating that regulation and supervision will continue to clean up and rectify financial order to appropriately address risks associated with financial asset exchanges and "fake financial asset exchanges", third-party wealth management companies, cross-border internet securities firms, as well as speculation in virtual currency trading and other illegal financial activities.  [26 Mar 2024]

10. CAC relaxes cross-border data transfer measures to facilitate data export from Mainland China

The Cyberspace Administration of China (CAC) has enacted the Provisions on Facilitating and Regulating Cross-border Data Flows, which relax data export requirements by introducing modifications and exemptions to the three cross-border data transfer mechanisms: (1) CAC security assessment, (2) China’s standard contract for outbound cross-border transfer of personal information, and (3) personal information protection certification.

Data transferors in mainland China are no longer required to adopt any of the cross-border data transfer mechanisms in certain scenarios, for example, data generated in activities such as international trade, cross-border transportation, academic cooperation, cross-border manufacturing and marketing where the data does not contain personal information or important data, and personal information which is not collected within mainland China and remains separate from personal information or important data originated from mainland China.

The new provisions also revise the thresholds for cross-border data transfer mechanisms, such as the amount thresholds of personal information for non-critical information infrastructure operator data transferors. In addition, the validity period of the results of a CAC security assessment has been extended to three years from the original two years, calculated from the date of issuance of the assessment results.

Nonetheless, data transferors that export personal information outside of mainland China must still fulfil other data protection obligations including obtaining separate consent from the data subjects and conducting the personal information protection impact assessment.

The CAC has issued updated guidelines on applications for security assessment and on standard contract filing for outbound data transfers. A data export declaration portal has been created for online submission of applications for CAC security assessment and standard contract filing.

Further details on this development can be found in our briefing of April 2024.  [22 Mar 2024]

11. US lawmakers introduce four new bills stated to address China risk in US stock market

US lawmakers have introduced a set of four bills aimed at mitigating the strategic, commercial, and national security threats posed by China to the American economy and financial markets:

• The "No Capital Gains Allowance for American Adversaries Act" would end the capital gains tax break for investments in companies based in China, Russia, Belarus, Iran and North Korea.
• The "China Risk Reporting Act" would require publicly traded companies that file any reports with the Securities and Exchange Commission to discuss in their annual reports: (a) the degree to which the company is dependent upon China and the risks China poses, such as supply chain disruptions, intellectual property theft, or nationalisation of assets, and (2) the steps the company has taken to reduce its China risk.
• The "PRC Military and Human Rights Capital Markets Sanctions Act" would prohibit Americans from investing in the stock of companies that appear on sanctions lists for violating human rights or playing an integral role in the China military-industrial complex (or have affiliates on such sanctions lists).
• The "No China in Index Funds Act" would keep Chinese stocks out of index mutual funds, as the lawmakers consider that there are unique difficulties in evaluating the risks of investing in Chinese companies. [20 Mar 2024]

---

Taiwan

1. FSC finalises amendments to guidelines requiring incorporation of sustainability information management in internal control systems of listed companies and securities and futures firms from 1 January 2025

The Financial Supervisory Commission (FSC) in Taiwan has finalised amendments to its guidelines on internal control systems for exchange and over-the-counter listed companies as well as securities and futures firms. The amendments aim to enhance the management of sustainability information by listed companies, and improve the reliability, timeliness, transparency, and level of compliance of sustainability information.

Among other things, in order to strengthen the quality of disclosure of environmental, social and governance information by listed companies and enhance their ability to collect, utilise, and compile such information, the internal control systems of listed companies and securities and futures firms will be required to include the management of sustainability information, with sustainability information management included as an annual audit item. The new requirements will take effect on 1 January 2025, to allow time for those impacted to make appropriate adjustments to their internal control systems.

The FSC, Taiwan Stock Exchange, and the Taipei Exchange will issue additional guidance to assist those involved. The FSC also plans to publish FAQ guidance and promote the new requirements in the second half of 2024.  [10 Apr 2024]

2. FSC revises Incentive Policy for Offshore Funds Development in Taiwan

The FSC has made amendments to the "Incentive Policy for Offshore Funds Development in Taiwan" (and the relevant Q&A set) to encourage offshore fund institutions to expand asset management business in Taiwan on a long-term basis and continually invest resources to enhance Taiwan's core manpower relating to asset management (see Chinese and English versions of the FSC press release).

These amendments were made after considering the views of the Securities Investment & Consulting Association and the industry.  The key amendments include:

• Provision of optional preferential measures for market players with a two-year applicable recognition period: New measures have been proposed to provide flexibility in the application of preferential measures during the first and second years of the recognition period. This allows those who obtained long-term recognition under the policy to align the preferential measures with their business objectives and development.
• Adjustment to the benchmark for measuring the size of assets managed by offshore fund institutions in Taiwan: Money market funds and index equity funds will be excluded from the calculation of the average assets under management. This adjustment aims to encourage offshore fund institutions to develop a wide range of fund products in Taiwan.
• Encouraging continuous talent cultivation by offshore fund institutions: The number of investment research and analysis team members of offshore fund institutions setting up offices in Taiwan will be added as an evaluation item. This is to encourage offshore fund institutions to enhance resource allocation in cultivating core talent for asset management in Taiwan.
• Adjusting preferential measures to increase incentives: The amendments include adding multi-asset funds to the preferential measures for "introducing new types of offshore funds", amending the incentive measure for accelerated examination and approval of offshore funds to a reporting system, and relaxing the maximum number of funds which can be the subject of a submission by a master agent (and removing the requirement for the funds under each submission to be from the same offshore fund institution). [2 Apr 2024]

3. Taiwan crypto industry receives government approval to form industry association

The Ministry of the Interior of Taiwan has reportedly granted approval for the formation of an industry association by the local cryptocurrency sector.

According to The Block, a local cryptocurrency industry working group was formed in 2023 for the purpose of establishing an industry association.  The working group which currently consists of 22 cryptocurrency firms, including MaiCoin and BitoPro, will now need to complete all necessary preparations and officially establish the cryptocurrency industry association by the end of June 2024, as required by the government.

This development marks another step towards self-regulation for the cryptocurrency industry in Taiwan. In September 2023, the Financial Supervisory Commission released guidelines that focus on customer protection for cryptocurrency firms. By establishing an industry association, these firms aim to develop self-regulatory rules based on the guidelines.  [29 Mar 2024]

---

Japan

1. BOJ publishes progress report on CBDC pilot experiment

According to Medium, the Bank of Japan (BOJ) has published a report detailing the progress of its central bank digital currencies (CBDC)  pilot experiment. The experiment consists of two main aspects:

• The construction and verification of an experimental CBDC system; and
• The establishment of the CBDC Forum to engage in discussions with private businesses.

The experimental CBDC system encompasses aspects ranging from user wallets/apps to intermediary and central systems. The BOJ is building an account-type CBDC ledger to be shared between a central system and intermediary systems, expanding upon the previous proof-of-concept phases which focused just on the central system ledger.  The overall CBDC system aims to handle high transaction volumes, featuring performance testing and privacy considerations, and allows for potential future functionality expansions.

As for the CBDC Forum, 64 private companies have participated in five thematic working groups, discussing topics including (a) connection to external infrastructures/systems, (b) additional services and the CBDC ecosystem, (c) know-your-customer and user authentication/authorisation, (d) new technologies and CBDC, and (e) user devices and user interfaces/user experience. Additional themes are planned, such as administrative workflow for basic CBDC functions, and horizontal coexistence with other payment methods.

The BOJ has not made a final decision on CBDC issuance in Japan, but aims to steadily advance CBDC discussions through system construction/testing and the CBDC Forum.  [22 Apr 2024]

2. FSA publishes revised FAQs on AML/CFT guidelines

The Financial Services Agency (FSA) has released updated "Frequently Asked Questions Regarding "Guidelines for Anti-Money Laundering and Combating the Financing of Terrorism"", in order to serve financial institutions' efforts to enhance effectiveness of their AML/CFT framework.  [2 Apr 2024]

3. FSA finalises new guidelines on impact investment following consultation

The FSA has released its Basic Guidelines on Impact Investment (Impact Finance), following a public consultation in 2023.

The FSA states that the purpose of the guidelines is to foster common understanding on basic concepts and processes for, and further elaborate markets and practices on, impact investment, that fundraisers, fund providers, and other participants in impact investment markets could refer to when structuring, financing, and promoting collaboration for investment projects. The basic concepts under the guidelines are in principle compatible with the discussions in various guidance on impact investment that have been provided by international organisations or initiatives. The FSA has produced a summary overview of the guidelines here.

The guidelines outline four overarching principles, which relate to:

• Intention – clarifying intended social or environmental impact;
• Contribution – investment contributing to realising impact;
• Identification, measurement and management – identifying, measuring and managing impact; and
• Innovation, transformation, or acceleration – supporting transforming or accelerating transformation in markets and customers.

The FSA intends to use the guidelines as a basis for discussions at a forum in May 2024 by the "Impact Consortium" (launched in November 2023 to facilitate communication and knowledge sharing among impact-driven stakeholders).  [29 Mar 2024]

4. JPXI launches new trading analysis data service following proof of concept

Following a successful proof of concept and feedback from participants that the use of the provided data was effective, the JPX Market Innovation & Research, Inc. (JPXI) has confirmed that it will officially launch the Trading Analysis Data Service on 1 April 2024.

Only Tokyo Stock Exchange trading participants are eligible to apply to use the new service. The service will provide trading analysis data on a daily basis, aggregated by trading participant based on their order and execution information, thereby assisting them in analysing their own transactions.

The data will be categorised into the following four types:

1. Cross trade data;
2. Order volume increase;
3. Buy and sell with price movement; and
4. Rapid tick-by-tick change.

The data will be extracted based on criteria determined by JPXI, considering factors such as data processing load. Only data associated with the trading participant applying for the service will be provided.  [26 Mar 2024]

5. JPX publishes results of survey on TCFD disclosure using generative AI

Japan Exchange Group, Inc. (JPX) has released the results of its "Survey of TCFD Disclosure Using Generative AI" for Tokyo Stock Exchange (TSE) listed companies.

This survey follows the previous surveys conducted in the 2021 and 2022 financial years, and covers 2,198 domestic listed companies that submitted Annual Securities Reports between 1 April and 31 October 2023, against 27 criteria based on the Recommendations of the Task Force on Climate-related Financial Disclosure (TCFD).

The year's survey utilises the results of research which looked to use generative artificial intelligence (AI) to automatically determine whether information was disclosed corresponding to each of TCFD's recommended disclosures in the Annual Securities Reports of TSE-listed companies.  The coverage in this year's survey is therefore much wider than in previous years, and it has become possible to shed light on differences between disclosure rates by market segment, company size, and sector.

Among other things, the survey revealed that companies had the highest rates of disclosure on governance-related aspects, including the process by which management is informed about climate-related issues and the process of reporting to the board on such issues. The lowest disclosure rates were observed in areas such as historical greenhouse gas emissions metrics, the impact on financial planning in climate-related strategies, and historical performance based on evaluation metrics.

JPX also mentioned that the Sustainability Standards Board of Japan is developing specific disclosure standards for Japan for the purpose of implementing the new standards developed by the International Sustainability Standards Board of the IFRS Foundation.

JPX emphasised that as companies enhance the quality and quantity of their disclosed information over time, it will lead to more active shareholder dialogue, sustainable growth, and increased corporate value, ultimately enhancing the overall attractiveness of the Japanese market.  [26 Mar 2024]

---

Malaysia

1. SCM Chairman discusses growth in private markets

SCM has published a speech by its Chairman, Dato’ Seri Dr. Awang Adek Hussin, delivered at the  Kuala Lumpur 20 (KL20) Summit. The speech focused on the opportunities arising from the growth of private markets and the SCM's work to enhance efficiency and increase the breadth and depth of the Malaysian wealth management ecosystem and to position Malaysia as a competitive and attractive destination for both local and foreign investors.  [22 Apr 2024]

2. BNM: Revised e-KYC requirements

Bank Negara Malaysia (BNM) has published a policy document which sets out revised requirements and guidance in implementing electronic know your customer (e-KYC) solutions for the onboarding of individuals and legal persons to the financial sector.

The revised requirements and guidance in the policy document seek to accommodate advancements in technology to facilitate the secure and safe adoption of e-KYC solutions for both individuals and legal persons while preserving the integrity of the financial system.  [15 Apr 2024]

3. BNM: FMC statement on ringgit foreign exchange market

The BNM has published a statement by its Financial Markets Committee (FMC) on the ringgit foreign exchange market. The statement notes that the movements of ringgit and regional currencies continue to be driven by global factors, particularly uncertainties surrounding the timing and extent of interest rate adjustments by major central banks.  [8 Apr 2024]

4. SCM: ATB releases Version 3 of the ASEAN Taxonomy for Sustainable Finance

The Securities Commission Malaysia (SCM) has announced that the ASEAN Taxonomy Board (ATB) has released Version 3 of the ASEAN Taxonomy for Sustainable Finance.

Version 3 introduces technical screening criteria for two more focus sectors, namely transportation and storage, and construction and real estate. The new focus sectors cover activities including construction and renovation of buildings, demolition and site preparation, and acquisition and ownership of buildings, as well as urban and freight transport, and infrastructure for land, water, and air transport, among others.  [27 Mar 2024]

---

India

1. RBI Governor discusses development of financial markets in India and areas for improvement by the banking sector

The Reserve Bank of India (RBI) has published the keynote address delivered by its Governor, Shri Shaktikanta Das, at the FIMMDA-PDAI annual conference in Barcelona. Among other things, the address included: the history of the RBI and its role in developing the financial markets in India; reforms to foster trust, stability and innovation; and six key areas for improvement, including participation of domestic banks in derivative markets, liquidity in OTC derivatives markets, transparency in pricing, leveraging technology for greater efficiency, taking up opportunities presented in the context of the recent regulatory reforms, and appropriate safeguards to address the challenges posed by new products, participants and markets.  [8 April 2024]

2. SEBI consults on changes to terms of PPM regarding AIFs

The Securities and Exchange Board of India (SEBI) has issued a consultation on its draft circular 'Relaxation in requirement of intimation of changes in the terms of Private Placement Memorandum (PPM) of Alternative Investment Funds (AIFs) through Merchant Banker'. Responses are requested by 26 April 2024.  [5 Apr 2024]

3. RBI: Policy approach to ETCD remains unchanged

In a press release concerning exchange trade currency derivatives (ETCD), the RBI notes the release of a revised regulatory framework for over-the-counter and exchange traded transactions under a single Master Direction in January 2024. The RBI emphasises that 'the regulatory framework for ETCDs has remained consistent over the years and that there is no change in the RBI's policy approach.  [4 Apr 2024]

4. IFSCA circular: Direct participation by foreign institutions on the Stock Exchanges

The International Financial Services Centres Authority (IFSCA) has published a circular regarding remote trading participants (RTPs) on stock exchanges in the IFSC.  The circular sets out the conditions for onboarding as an RTP.  [3 Apr 2024]

---

 Thailand

1. BNM: Revised e-KYC requirements

Bank Negara Malaysia (BNM) has published a policy document which sets out revised requirements and guidance in implementing electronic know your customer (e-KYC) solutions for the onboarding of individuals and legal persons to the financial sector.

The revised requirements and guidance in the policy document seek to accommodate advancements in technology to facilitate the secure and safe adoption of e-KYC solutions for both individuals and legal persons while preserving the integrity of the financial system.  [15 Apr 2024]

2. SECT revises regulations on sustainability-themed bonds

The Securities and Exchange Commission Thailand (SECT) has announced that it has revised the regulations related to the issuance and offering for sale of sustainability-themed bonds through crowdfunding and private placement. The regulations also enhance information disclosure in line with international standards.  [2 Apr 2024]

3. SECT consults on draft regulation on the offering of sustainability-related digital tokens

SECT has published a consultation on proposed requirements and draft regulations regarding the offering of sustainability-related digital tokens. The proposed rules aim at ensuring that the disclosure of information related to sustainability is sufficient for investors to make informed investment decisions and aligns with relevant international standards. [28 Mar 2024]

4. SECT consults on amendments to regulations regarding qualifications of bondholders’ representatives

The SECT has published a consultation on proposed amendments to the regulations regarding qualifications of bondholders’ representatives. Such amendments aim at updating qualifications of bondholders’ representatives while enhancing proper investor protection mechanisms.

Feedback is requested by 25 April 2024.  [25 Mar 2024]

---

Philippines 

1. SEC removes minimum commission rule for stockbrokers to boost stock market activity

The Securities and Exchange Commission (SEC) of the Philippines has removed the minimum amount of commission that stockbrokers must charge their customers, allowing brokers to set their own commission schedule without the limitations of a prescribed regulatory minimum.

Previously, the SEC had set the broker's commission at 1.5 percent, while guidelines issued by the Philippine Stock Exchange prescribed a minimum commission ranging from 0.25 percent to 0.05 percent of the trade transaction value. The move is reportedly aimed at lowering transaction costs and encouraging more retail investors to participate in the stock market.  It will also empower the investing public to engage the services of a broker of their choice based on cost preference.

In reaching its decision, the SEC took into account the increasing popularity of online trading platforms, which have facilitated more cost-efficient transactions. It also considered practices in neighbouring jurisdictions that do not impose a minimum stockbroker's commission.  [16 Apr 2024]

---

 Indonesia

1. Indonesia President signs decree on FATF membership

President Joko Widodo of Indonesia has signed presidential decree number 14 of 2024, confirming Indonesia's membership in the Financial Action Task Force (FATF) as the 40th member.  The issuance of the presidential decree is stated to be aimed at eradicating money laundering and terrorism financing (which is part of cross-border crimes), and maintaining economic stability and the integrity of the financial system.

According to local media, Mr Ivan Yustiavandana (head of the Center for Financial Transaction Reporting and Analysis) stated that the FATF membership will bring a number of benefits, such as increasing the credibility of Indonesia's national economy and enhancing the global perception of its financial system and integrity. A positive perception of domestic financial integrity could boost foreign investor confidence in Indonesia. In addition, the FATF membership is expected to enhance international cooperation in detecting cases of money laundering, terrorism financing, and the proliferation of weapons of mass destruction. By joining the FATF, the Indonesian government can also contribute to the formulation of global strategic policies on these three crimes, based on its national perspectives and interests.  [5 Apr 2024]

2. Indonesia to implement sandbox testing requirement as part of crypto approval process from 2025

Starting from January 2025, the Financial Services Authority (OJK) will take over the regulation of Indonesia's crypto industry from the commodities agency Bappebti. As part of the new regulatory framework, crypto firms will be required to undergo evaluation in a regulatory sandbox before they can obtain licences to operate in Indonesia, according to Coindesk.

The OJK has indicated that the sandbox evaluation process is aligned with its spirit, particularly in relation to consumer protection and education.  It expects its regulatory mechanisms to directly impact the prevention of fraudulent investments.

Crypto firms that offer services in Indonesia without undergoing sandbox evaluation will be considered to be operating illegally. The regulatory sandbox serves as a testing and innovation development space to evaluate products and ensure their safety and reliability. It allows for trial runs that help enhance security and responsible management in the financial sector.  In addition, it also provides an opportunity for crypto businesses to familiarise themselves with the regulations and supervision of OJK.

Currently, the crypto industry in Indonesia is supervised by Bappebti, which regulates commodities and futures trading. Once OJK assumes oversight in January 2025, crypto assets will likely be reclassified as financial instruments. [28 Mar 2024]

---

  Vietnam

1. Vietnam working towards removing obstacles to improve foreign participation in stock market

The State Securities Commission (SSC) is reportedly working to overcome two remaining obstacles in its ambition to upgrade its stock market from "frontier" to "emerging" status by 2025.

The first hurdle involves pre-trade margin requirements for foreign investors. Discussions are underway with international rating agencies to find viable solutions. In the meantime, the SSC has proposed regulatory amendments to the Ministry of Finance (MoF) to eliminate the need for a 100% cash margin requirement for foreign institutional investors, provided they can demonstrate a secure payment process.

The second hurdle involves foreign ownership ratios in certain sectors. The SSC is collaborating with the MoF and the Ministry of Planning and Investment (MPI) to conduct a comprehensive review across various industries. The SSC has suggested that the MPI work with other relevant ministries and agencies to expand foreign ownership limits in non-essential sectors. Details of these proposed changes are expected to be publicly available soon, translated into English.

Efforts are also being made to improve information disclosure regulations, particularly for public and large-scale listed companies. Proposed amendments, subject to approval by the MoF, would require English disclosure for regular and irregular information updates.

The timeline for implementation would see mandatory English disclosures for regular information and large-scale company listings starting from 1 January 2025. Irregular information disclosures would follow suit by 1 January 2026, with the requirement eventually encompassing all public companies by 1 January 2028.

If Vietnam's stock market achieves "emerging" status, the World Bank projects that it could attract an additional USD 25 billion in fresh investment capital from international investors by 2030.  [25 Mar 2024]