APAC Monthly Private Wealth Legal Developments – July 2024

Australia

1. SIC extends transitional relief for FFSPs

Australian Securities & Investments Commission (ASIC) has extended relief to foreign financial services providers (FFSPs) from the requirement to hold an Australian financial services license under the Corporations Act 2001 (Cth) (Act) when providing financial services to Australian wholesale clients for another twelve months. Relief was due to expire on 31 March 2025: in a statement, ASIC said that the extension was 'to provide certainty' for FFSPs until 31 March 2026, at which point FFSPs will be required to notify ASIC of their intention to rely on a yet-to-be-legislated licensing exemption regime for FFSPs. FFSPs who have been or are granted a foreign Australian financial services license are able to continue operating under that license.  [31 Jul 2024]

2. ASIC holds consultation on cash equity clearing and settlement services rules

ASIC has released a consultation on proposed rules in cash equity clearing and settlement services provided by the Australian Securities Exchange (ASX). The proposed rules seek to promote competitive outcomes in the marketplace, and to implement transparent and non-discriminatory governance arrangements and terms and conditions, including with respect to pricing. The proposed rules will implement as enforceable obligations the 2017 regulatory expectations for conduct in operating cash equity clearing and settlement services in Australia, released by the multi-agency Council of Financial Regulators; they will also impose additional requirements relating to technical interoperability, management of intragroup conflicts of interest, and external assurances on pricing and barriers to competition. ASIC notes both the proposed rules’ responsiveness to users, and that the rules respond to industry concerns around the ASX’s handling of the program to replace its current clearing house system (known as CHESS).

Responses to the consultation are requested by 10 September 2024.  [30 Jul 2024]

3. ASIC acknowledges assent of the DBFO Act

ASIC has acknowledged royal assent of the Treasury Laws Amendments (Delivering Better Financial Outcomes and Other Measures) Act 2024 (DBFO Act), which marks an important step in advancing reforms to financial regulation as part of the Commonwealth government’s response to recommendations in the Quality of Advice Review. Key reforms under the DBFO Act include:

• clarifying the basis for superannuation trustees to charge individual members for financial advice from their superannuation account and associated tax consequences;
• streamlining ongoing fee renewal and consent requirements (including the requirement to provide a fee disclosure statement; and 
• providing more flexibility in how Financial Services Guide requirements can be met.

The industry should be aware of the reforms, including transitional periods if applicable, and have, or be in the process of updating, systems and processes as required. Over the coming months, ASIC will update regulatory guidance impacted by the DBFO Act.   [11 Jul 2024]

4. ASIC successful in first DDO case against Firstmac

ASIC has reported that, in a landmark first decision of its kind, the Federal Court found that Firstmac Limited breached the design and distribution obligations (DDO) in relation to the design of financial products, which came into force in October 2021. In contravention of those provisions, the Court found that Firstmac failed to take reasonable steps that would have resulted in, or would have been reasonably likely to have resulted in, the distribution of one of its investment products being consistent with the target market determination for the product.

Firstmac implemented a 'cross-selling strategy' of marketing its investments in another one of its investment products, High Livez, to customers who held existing term deposits in Firstmac between October 2021 and September 2022. The problem arose out of issuing product disclosure statements for the High Livez product to the existing term deposit customers, without first taking reasonable steps to ensure consistency. ASIC will now seek orders imposing pecuniary penalties against Firstmac. The proceedings have been listed for a case management hearing on 19 July 2024.   [10 Jul 2024]

5. ASIC / APRA: Super trustees urged to strengthen oversight of retirement strategy implementation

ASIC and Australian Prudential Regulation Authority (APRA) have conducted a follow-up survey which found that while superannuation trustees have made some progress in implementing strategies to enhance retirement outcomes, significant gaps persist. Many trustees prioritise measuring retirement outcomes but have only made incremental advancements in tracking these strategies' effectiveness. Challenges include concerns over financial advice frameworks, data privacy, security, and member engagement. Both regulators emphasise the importance of trustees improving their strategy metrics to ensure effective outcomes for members, especially those nearing retirement.  [2 Jul 2024]

6. ASIC urges AFS licensees to correct records on the Financial Advisers Register

ASIC has found inaccuracies in the Financial Advisers Register and is urging Australian financial services (AFS) licensees to review and correct the information about their financial advisers. Errors include incorrectly marked qualifications and outdated contact details. Licensees must ensure accuracy by updating information through ASIC Connect promptly. Non-compliance with these requirements is a serious offence. ASIC will enforce compliance starting August 2024 and has updated the public register to clarify qualifications status and accommodate the new experienced provider pathway.  [1 Jul 2024]

7. ASIC chair warns against ‘AI washing’

The ASIC chair Joe Longo has issued a warning to Australian businesses regarding the use of artificial intelligence (AI), cautioning against deceptive practices such as 'AI washing'. He emphasised the need for AI to be employed responsibly and safely, particularly to mitigate issues like AI-powered scams and unfair credit scoring and insurance practices. Mr Longo highlighted ASIC's role in applying existing laws to regulate AI neutrally across corporations and financial services. He also mentioned monitoring global AI regulations, including the European Union's AI Act, to ensure AI systems are safe and uphold fundamental rights. Additionally, Mr Longo addressed ASIC's proactive stance under his leadership, focusing on reforms to enhance the regulator's responsiveness and effectiveness, particularly in areas like climate-related reporting and improving superannuation services for retirees.  [28 Jun 2024]

Hong Kong

1. Rollout of remaining adjustments to market data dissemination in relation to Northbound and Southbound Stock Connect to take place on 19 August 2024

TheStock Exchange of Hong Kong Limited (SEHK) and the Hong Kong Securities Clearing Company Limited (HKSCC) have issued circulars to provide an update on the adjustments to market data dissemination in relation to Northbound and Southbound trading under Stock Connect. The adjustments were first announced in April 2024 (see our previous update). 

Following the successful implementation of the adjustments for item 1 (real-time turnover) and item 2 (daily quota balance) in relation to Northbound trading on 13 May 2024, the SEHK and the HKSCC note that the adjustments for the remaining items (items 3 to 7) will be implemented on 19 August 2024. 

China Connect exchange participants and trade-through exchange participants are advised to note that there is no system change to the Orion Trading Platform – China Stock Connect for the adjustment items 3 to 7.  Nonetheless, they are requested to assess if any system or operational changes are required at their end to prepare for the implementation of the adjustments. 

China Connect clearing participants are requested to note that item 6 (the market data dissemination of Stock Connect for Northbound trading on the CCASS Shareholding Search and Stock Connect Northbound Shareholdings Search) will be adjusted and be available quarterly on the 5th Northbound trading day following the quarter end (including exchange traded funds) in the coming adjustment.  

The Rules of the Exchange have been amended to reflect the above (see clean / marked-up versions).  [26 & 30 Jul 2024] 

2. HKMA publishes Issue 24 of Complaints Watch

The Hong Kong Monetary Authority (HKMA) has published the twenty-forth issue of its Complaints Watch.  The Complaints Watch is a half-yearly newsletter highlighting the latest complaint trends, emerging topical issues and good practices that authorised institutions (AIs) may adopt to improve their services.  The latest issue provides guidance on the following issues:

Handling enquiries about accounts of the deceased:

• In a recent complaint, an AI informed the complainant (who requested the account information of a deceased family member for the purpose of a probate application) that the account balance was zero at the date of the account holder’s death, even though the AI was aware that some funds had been credited to the account subsequently.  As a result, the complainant had to amend the probate application after discovering that there were in fact funds in the account.
• While this appears to be an isolated case, the complaint would have been avoided if the AI had reminded the complainant that there could be subsequent fund flows into and out of the account after the death of the account holder.

Providing mortgage related information in property transactions:

• In a sale and purchase transaction of a property, the aggregate outstanding amount of loans secured by the property may affect the buyer’s decision as to whether to proceed with the transaction.  A recent complaint case suggests that there may be room to improve the clarity of the information provided by the mortgagee bank to the buyer.  The property transaction ultimately fell through, and the buyer of the property had to take separate legal action to recover the deposit paid to the seller.
• The HKMA is exploring ways to address this issue with the banking industry.  [25 Jul 2024]

3. HKMA informs AIs of BCBS's updated cryptoasset disclosure requirements and standard amendments and its intention to align local requirements with such updates

The HKMA has issued a circular to AIs noting the publication of the Disclosure of cryptoasset exposures (setting out the final disclosure framework) and Cryptoasset standard amendments (setting out a set of targeted amendments) by the Basel Committee on Banking Supervision (BCBS) on 17 July 2024 (see our previous update). 

• The final disclosure framework includes a standardised table and a set of standardised templates for banks’ cryptoasset exposures.  These require banks to disclose qualitative information on their cryptoasset-related activities, quantitative information on the capital and liquidity requirements for their cryptoasset exposures, as well as details of the respective accounting classifications.
• The targeted amendments to the cryptoasset standard primarily aim to further specify the criteria for stablecoins to be eligible for a preferential regulatory treatment.  Other revisions include various technical amendments in order to promote a consistent understanding of the cryptoasset standard. 

The HKMA plans to align the proposed regulatory framework introduced in its consultation paper of February 2024 (see our previous update) with the latest updates from the BCBS.  If there are any major additional changes to the local requirements, the HKMA will consult the industry again in due course.  [23 Jul 2024]

4. FSTB and HKMA conclude consultation on legislative proposal to regulate fiat-referenced stablecoin issuers in Hong Kong, with the aim of introducing bill into LegCo within 2024; and HKMA announces stablecoin issuer sandbox participants

The Financial Services and the Treasury Bureau (FSTB) and the HKMA have jointly published the conclusions to their consultation on the legislative proposal to implement a regulatory regime for fiat-referenced stablecoin issuers in Hong Kong.  The consultation was launched in December 2023 (see our previous update).

The FSTB and the HKMA indicated that a vast majority of respondents had agreed that with the increased prevalence and evolving development of virtual assets, a regulatory regime should be introduced for fiat-referenced stablecoin issuers, with a view to facilitating proper management of the potential monetary and financial stability risks, as well as providing transparent and suitable guardrails. The proposed regulatory requirements and implementation arrangements received general support from respondents, with some further enhancements suggested in the submissions.

The FSTB and the HKMA will take into account the views and suggestions from respondents, as well as international discussions and the latest market developments, in finalising the legislative proposal for implementing the regulatory regime, with a view to introducing a bill into the Legislative Council (LegCo) later this year.

The HKMA will in due course issue licensing and supervisory guidelines to facilitate applicants’ understanding of, and compliance with, the relevant requirements under the regulatory regime. 

Separately, the HKMA has announced the first three participants of the stablecoin issuer sandbox.  The participants are expected to comply with the sandbox requirements – they will not be handling the general public’s funds at the initial stage, and will not solicit funding from the public or offer any products associated with the sandbox.  Members of the public are advised to stay vigilant to potential scams purporting to be related to the sandbox.  The HKMA will make separate announcements in the event sandbox participants are allowed to handle the general public’s funds within a limited scope as a result of adjustments to the testing scope. 

The Deputy Chief Executive of the HKMA, Mr Darryl Chan, has published an inSight article on the stablecoin reform and the sandbox.  The Under Secretary for Financial Services and the Treasury, Mr Joseph Chan, also made opening remarks (in Chinese) on the reform at the meeting of the Subcommittee on Issues Relating to the Development of Web3 and Virtual Assets.  [17 - 19 Jul 2024]

5. Government announces successful offering of institutional green bonds, offering 20-year and 30-year RMB Green Bonds for the first time

The Government has announced the successful offering of approximately HK$25 billion worth of green bonds – denominated in Renminbi (RMB), US dollars (USD), and euro (EUR) – issued under the Global Medium Term Note Programme dedicated to green bond issuances established in early 2021.  The offering attracted more than HK$120 billion equivalent in orders.

The green bonds are expected to be settled on 24 July 2024 and listed on the Hong Kong Stock Exchange and the London Stock Exchange.  They have been assigned credit ratings of AA+ by S&P Global Ratings and AA- by Fitch.

The tenors of the green bonds range from two years to 30 years, and it is the first time the Government has offered the 20-year and 30-year RMB Green Bonds.

The HKMA acted as the Government’s representative in the green bond offering.  Proceeds raised will be credited to the Capital Works Reserve Fund to finance or refinance projects that provide environmental benefits and support sustainable development.  [18 Jul 2024]

6. SFC publishes consultation conclusions and proposes five-year timeline for implementation of USM in Hong Kong

The SFC has published its consultation conclusions on the proposed subsidiary legislation, code and guidelines for implementing an uncertificated securities market (USM) in Hong Kong. 

The consultation conclusions paper includes the SFC's conclusions on the proposals published in March 2023 for subsidiary legislation (including the Securities and Futures (Uncertificated Securities Market) Rules and the Securities and Futures (Approved Securities Registrars) Rules) (see our previous update) and on the proposed Code of Conduct for Approved Securities Registrars and proposed Guidelines for Electronic Public Offers published in October 2023 (see our previous update).

In light of market feedback, the SFC proposes a five-year timeline:

• The USM regime will be implemented towards the end of 2025, subject to completion of the legislative process. 
• Companies whose laws are compatible with the regime (ie, Hong Kong companies, and companies incorporated in Mainland China, Bermuda, and the Cayman Islands) will be transitioned to the new regime in batches by the end of 2030.
• Securities will be queued for participation.  Issuers’ share registrars will work with Hong Kong Securities Clearing Company Limited and the Stock Exchange of Hong Kong Limited to agree on a specific deadline for each issuer.

As for next steps, the SFC:

• Will conduct a separate consultation on the maximum levels of three USM-related fees charged by share registrars (transfer fees, dematerialisation fees, and fees charged for setting up a new facility which allows a registered holder to manage any securities held in uncertificated form);
• Will, together with the HKEX and the Federation of Share Registrars Limited, engage with issuers, investors and other market participants to facilitate their understanding of the new regime, its impact, and the steps needed to participate.
• Is working on guidelines for issuers which will highlight the preparatory steps needed for issuers to participate in USM, and their subsequent ongoing obligations (as companies may need to amend their articles or bye-laws to ensure USM-compatibility, sample provisions will also be included in the guidelines for issuers’ reference).   [16 Jul 2024]

7. SEHK and HKSCC provide update on northbound ETFs to be added as part of expansion of eligible ETFs under Stock Connect

Following the HKEX's announcement in June 2024 that the expansion of eligible exchange-traded funds (ETFs) under Stock Connect would take effect on 22 July 2024 (see our previous update), the SEHK and the  HKSCC have issued circulars to participants noting the northbound ETFs to be added.

With effect from 22 July 2024, 59 ETFs listed on the Shanghai Stock Exchange and 26 ETFs listed on the Shenzhen Stock Exchange will be added to the list of China Connect Securities eligible for both buy and sell.  The changes will be reflected in the 'All Eligible Securities' section of the HKEX Connect Scheme webpage.

Amendments to the Rules of the Exchange (see clean / marked up versions) have been made for the purpose of facilitating the above expansion.  [12 Jul 2024]  

8. SFC and CSRC hold 16th regular high-level meeting on enforcement cooperation

The SFC and the China Securities Regulatory Commission (CSRC) have held their 16th regular high-level meeting on enforcement cooperation, with a focus on initiatives to strengthen collaboration.

The two regulators provided updates on their enforcement priorities, trends, progress, and the successful outcomes of their cooperation.  They also discussed key issues relating to cross-boundary enforcement cooperation, including:

• Exploring ways to strengthen cross-boundary enforcement cooperation against securities crimes and misconduct, with a view to achieving higher efficiency and comprehensive outcomes;
• Sharing the process for handling cases involving suspicious transactions and discussing the mechanism for referral of intelligence;
• Examining the trends in ramp-and-dump market manipulation activities; and
• Sharing insights on the effective use of advanced technologies to enhance enforcement outcomes.   [12 Jul 2024]

9. SFC and HKMA welcome PBoC's new measure on Northbound Swap Connect margin collateral arrangement

The SFC and the HKMA have welcomed the announcement of the People’s Bank of China (PBoC) to support offshore investors in using onshore bonds issued by the Ministry of Finance and policy banks on the Mainland (and held under Northbound Bond Connect) as margin collateral for Northbound Swap Connect transactions.

This is a new arrangement for the use of onshore bonds as eligible collateral in the offshore market, following the inclusion of onshore bonds issued by the Ministry of Finance and policy banks on the Mainland in the list of eligible collateral for the HKMA’s RMB Liquidity Facility on 26 February 2024.  It is built on the collaborative efforts with the PBoC to deepen financial cooperation between Hong Kong and the Mainland and further promote RMB internationalisation in a steady, orderly and sound manner.  The arrangement will:

• Provide Northbound Swap Connect investors with the additional choice of non-cash collateral, reducing their liquidity cost and improving capital efficiency;
• Help vitalise offshore investors’ onshore bond holdings and further enhance the attractiveness of onshore bonds; and
• Promote synergies between Bond Connect and Swap Connect, thereby further invigorating market participation in the Connect schemes.

The HKMA and the SFC will continue to provide guidance to the financial infrastructure institutions (including the HKMA Central Moneymarkets Unit and OTC Clearing Hong Kong Limited (OTC Clear)) to take forward the preparatory work, including promulgating rules for the provision of collateral by way of security interest or title transfer, and for the transfer of the relevant bonds, with a view to implementing this new arrangement as soon as practicable (further details will be announced in due course).

OTC Clear plans to start accepting China Government Bonds and Policy Financial Bonds as collateral for Swap Connect, with a targeted launch by the end of 2024.  [9 Jul 2024]

10. SFC to launch new online application and submission system for investment products on 29 July 2024

The SFC has announced (via press release and circular) that it will launch a new online application and submission system for investment products, named e-IP, on 29 July 2024.  The new system is aimed at streamlining and enhancing the efficiency of processing new product applications and post-authorisation or registration submissions to the Investment Products Division (IPD). 

The e-IP is developed on the existing WINGS portal and will serve as a one-stop online platform that digitalises all processes related to investment products administered by the IPD.  The investment products include investment-linked assurance schemes, mandatory provident fund products, open-ended fund companies, paper gold schemes, pooled retirement funds, real estate investment trusts, unit trusts and mutual funds and unlisted structured investment products.

The e-IP utilises certain existing functions on WINGS (such as WINGS Mail, submission tracking and fee payment), but also introduces new workflows and capabilities that allow applicants or advisory firms to submit new product applications, make post-authorisation or registration submissions, maintain information profiles of investment products, file product documents, and exchange information with the SFC.

Upon the launch of the e-IP, users should activate their administrator accounts and review their account administration arrangements, such as account delegation and permissions.  There will be a three-month parallel run of the existing application and regulatory submission channels until 29 October 2024 to allow market participants time to familiarise themselves with the new system.

The SFC will hold a briefing session for the industry prior to the launch of the e-IP.  It will also make available user guides and online demo clips upon the launch of the e-IP on 29 July 2024.  [8 Jul 2024]

11. FSTB briefs LegCo panel on proposed stamp duty waiver for transfer of REIT units and jobbing business performed by options market-makers, with the aim of introducing Bill within 2024

FSTB has published a paper to brief members of the LegCo Panel on Financial Affairs regarding the proposed stamp duty waiver for the (i) transfer of real estate investment trust (REIT) units and (ii) jobbing business performed by options market-makers, as announced in the 2024-25 Budget in February 2024 (see our previous update).  The Secretary for Financial Services and the Treasury, Mr Christopher Hui, has made some remarks (in Chinese) on the proposals.

• Transfer of REIT units – Currently under the Stamp Duty Ordinance (SDO), the sale or purchase of “Hong Kong stock” (including REIT units) is generally chargeable with stamp duty, with the prevailing stamp duty rate being 0.1% on both the buyer and the seller.  Stamp duty for REIT transactions is generally not payable in most international markets (such as the Mainland, Japan, Singapore, the United States).  Waiving the stamp duty payable on the transfer of REIT units is conducive to enhancing the competitiveness of Hong Kong REITs, and coupled with the inclusion of REITs under Stock Connect, will support the development of the Hong Kong REIT market.
• Jobbing business performed by options market-makers – Currently under the SDO, any person performing jobbing business is required to make a contract note and pay a stamp duty of HKD 5 for the stamping of each contract note as a fixed cost for options market-makers.  For tax payment, options market-makers are required to submit the contract notes and pay the stamp duty to the Inland Revenue Department to complete the stamping procedures.  To enhance the efficiency of the options market, provide further facilitation to investors, reduce the costs of options market-makers, and bring the arrangement on par with other market-makers, the FSTB proposes waiving the stamp duty payable and removing the requirement to make and stamp contract notes.

The FSTB plans to introduce a Bill on the above legislative proposals into the LegCo within 2024.  [8 Jul 2024]

12. HKMA Executive Director of Banking Supervision discusses potential of bancassurance and launch of new HKMA-IA Open API Framework Linkage

Ms Carmen Chu (Executive Director (Banking Supervision) of the HKMA) has made opening remarks at the insurtech seminar co-hosted by the HKMA and the Insurance Authority (IA) on unlocking bancassurance potential with insurtech.

• Insurtech has introduced new opportunities and benefits to the financial industry, and there remains significant untapped potential in the area of bancassurance in light of the inherent synergy between banking and insurance.  Banks' extensive customer base and distribution networks combined with insurers' expertise in risk diversification and product offerings, aided by fintech, can enable the delivery of integrated and more comprehensive financial solutions that meet the diverse needs of customers.
• With customer consent, banks and insurers will be able to collect more information to come to a holistic understanding for providing customised products and services at critical life stages, powered by advanced technologies including artificial intelligence, predictive analysis, and distributed ledger technology.
• Innovative practices alongside the expanding scope of data exchange inevitably bring challenges and risks such as frauds and data breaches.  A balanced approach is therefore crucial for nurturing an innovative and secure fintech ecosystem.
• The HKMA encourages financial institutions and insurtech service providers to jointly make full use of its Fintech Supervisory Sandbox to test their bancassurance initiatives before the full launch.
• Building on the above sandbox, the HKMA announces a new collaborative initiative – the HKMA-IA Open API Framework Linkage.  This is aimed at streamlining the mutual adoption of Application Programming Interfaces (APIs), in applicable areas, for possible use cases across the banking and insurance sectors.
• There are currently over 250 bancassurance-related APIs on the Open API directory hosted by the Hong Kong Science and Technology Park.  Banks can make use of open APIs to streamline insurance application processes, while insurance companies are also making use of banks’ open APIs to automate real-time premium payment and even allow for the use of credit card reward points to settle premium.  [5 Jul 2024]

13. HKMA shares results of self-assessment exercise in respect of SPM module TB-1 “Regulation and Supervision of Trust Business”

The HKMA has issued a circular to AIs to share the results of a self-assessment exercise on compliance with Supervisory Policy Manual (SPM) module TB-1 "Regulation and Supervision of Trust Business" during the period from 1 June to 31 December 2023.

AIs and subsidiaries of locally incorporated AIs that carried on trust business in Hong Kong participated in the self-assessment.  The self-assessment covered 84 provisions related to trust business in SPM module TB-1, including the Code of Practice for Trust Business (Code of Practice):

• The overall status of compliance during the assessment period was satisfactory.  No instances of non-compliance was reported. 
• Twelve instances of partial compliance were reported, with the highest number of instances from a single institution being five.
• Among the instances of partial compliance, 8 instances were on provisions relating to Principle 4 of the Code of Practice regarding corporate governance and internal controls.  The reported issues pertained to areas such as oversight and monitoring of the performance of delegates or service providers on delegated or outsourced functions or operations, controls in investment monitoring, risks and controls assessment, and policies and procedures on complaint handling.  A table of partial compliance by general principles of the Code of Practice can be found in the Annex.

According to the rectification plans submitted by the institutions, as of the submission date of the self-assessment (ie, 31 March 2024), three instances of partial compliance had been rectified and the remedial actions for the remaining instances are expected to be completed by the third quarter of 2024.  The institutions in question should ensure that all remedial actions are implemented in accordance with their reported plans.

All AIs and AI subsidiaries that carry on trust business in Hong Kong are reminded to put in place systems and controls to ensure observance of SPM module TB-1, and report any material non-compliance to the HKMA and take appropriate remedial actions in a timely manner.  Locally incorporated AIs should pass a copy of this circular to their subsidiaries which carry on trust business in Hong Kong for their attention.   [4 Jul 2024] 

14. HKMA issues circular on regulatory requirements applicable to AIs participating in pilots for standard contract for cross-boundary flow of personal information within Guangdong-Hong Kong-Macao Greater Bay Area

In December 2023, the Innovation, Technology and Industry Bureau and the Cyberspace Administration of China announced the facilitation measure on "Standard Contract for the Cross-boundary Flow of Personal Information Within the Guangdong-Hong Kong-Macao Greater Bay Area (Mainland, Hong Kong)" and its early and pilot implementation arrangements, and invited participation in such pilots from (among others) the banking and credit referencing sectors (see our previous update).

AIs participating in such pilots may be sharing and/or using consumer credit data and commercial credit data through credit reference agencies (CRAs) in Hong Kong and/or on the Mainland.

The HKMA has issued a circular to remind AIs that are participating in the pilots to comply with the requirements under the Personal Data (Privacy) Ordinance when handling cross-boundary flow of consumer credit data or commercial credit data where personal data is involved.  

• In the case of consumer credit data, the requirements set out in the Code of Practice on Consumer Credit Data issued by the Privacy Commissioner for Personal Data should also be observed.  AIs should also (where relevant and practical) observe the guidance in SPM module IC-6 on “The Sharing and Use of Consumer Credit Data through Credit Reference Agencies”.  In particular, AIs participating in the pilots should pay attention to Section 5 of module IC-6 to ensure that the cross-boundary data are properly safeguarded with regard to security and confidentiality, as well as Section 7 on engagement of CRAs.
• In the case of commercial credit data, AIs should observe the guidance in SPM module IC-7 on “The Sharing and Use of Commercial Credit Data through a Commercial Credit Reference Agency” and other relevant requirements.  [28 Jun 2024]

15. HKMA issues circular on arrangements for conducting pilots for cross-boundary credit referencing and application of regulatory requirements

The HKMA has issued a circular to set out the arrangements for conducting pilots for cross-boundary credit referencing, and the application of SPM module IC-7 on “The Sharing and Use of Commercial Credit Data through a Commercial Credit Reference Agency” on such pilots.

The HKMA and the PBoC have signed a Memorandum of Understanding on Cross-boundary Credit Referencing Business Pilots (MOU), which aims to set out the cooperative arrangements for facilitating and conducting pilots of transfers of commercial credit reference information across the boundary, in support of the promotion and development of cross-boundary credit referencing.  AIs are strongly encouraged to make use of the pilot arrangements under the MOU to conduct pilots for meeting their business development needs.

As enabled by the MOU, the cross-boundary credit referencing pilots aim to cover both southbound and northbound transfers of commercial credit information, and will be implemented via CRAs.  The MOU sets out the principles under which such pilots are to be conducted:

• Customer consent must be obtained for transmission of all data related to the customer;
• Compliance with the relevant requirements in data security and protection;
• Proper risk management and control;
• Focus on facilitating commercial lending, in particular small and medium enterprise lending, in the initial stage;
• Open to participation by different banks and CRAs with specific proposals based on their market and business needs;
• Pilots to be carried out between Hong Kong and Mainland cities, starting from Shenzhen in the first phase; and
• The HKMA and the PBoC will oversee the pilots from the perspectives of data security and prudent risk management.

The circular reminds AIs of the relevant provisions under SPM module IC-7 which should be complied with in respect of the sharing and using of commercial credit data under the pilot arrangements.  In the event personal data is involved in cross-boundary data transfer, AIs should also comply with the requirements of the Personal Data (Privacy) Ordinance.  [28 Jun 2024]

16. HKMA Chief Executive provides progress update on initiatives to deepen financial cooperation between Hong Kong and Mainland

In January 2024, the HKMA and the PBoC announced six policy measures (three "connection" and three "facilitation" measures) to deepen financial cooperation between Hong Kong and the Mainland (see our previous update).  Some of the measures have already been implemented. 

The Chief Executive of the HKMA, Mr Eddie Yue, has published an inSight article to share the latest developments on the other measures and provide a preview of other initiatives that are in progress.

Financial market connectivity:

• The inclusion of onshore RMB bonds issued by the Ministry of Finance and policy banks on the Mainland in the list of eligible collateral for the HKMA's RMB Liquidity Facility from 26 February 2024 marks the first time that onshore bonds can officially be used as eligible collateral in the offshore market.  
• The HKMA has been working with Mainland financial regulators to explore further broadening the use of onshore bonds as collateral in the offshore market.  The next imminent breakthrough is in relation to the use of onshore bonds under Northbound Bond Connect as eligible margin collateral for Northbound Swap Connect transactions (to be announced soon).
• Financial regulators and participating institutions on both sides are also working on the "connection" measure which aims to further open up the onshore repo market to institutional investors outside the Mainland (to be announced in the near future).  In the longer term, the HKMA will continue to work with Mainland authorities and infrastructure providers on both sides to promote broader use of onshore bonds as collateral in the international markets. 

Measures to support business:

• At the corporate level, the HKMA and the PBoC took a significant step to promote cross-boundary credit referencing in early 2024, launching the cooperative arrangements for business pilots of two-way cross-boundary credit reference data connection with a view to facilitating companies in both places to access cross-boundary financing.  A number of pilot cases for southbound transfer of credit reference data to Hong Kong have been successfully conducted.  These pilot cases were carried out through the cooperation of credit reference agencies in Shenzhen and Hong Kong, transmitting business data and related credit reference information of small and medium-sized enterprises to Hong Kong banks.
• Based on the successful pilot cases, the HKMA has issued two regulatory circulars – see "HKMA issues circular on arrangements for conducting pilots for cross-boundary credit referencing and application of regulatory requirements" and "HKMA issues circular on regulatory requirements applicable to AIs participating in pilots for standard contract for cross-boundary flow of personal information within Guangdong-Hong Kong-Macao Greater Bay Area" above.

Facilitative measures for residents:

• The facilitative measure for cross-boundary remittances for property purchases in the Greater Bay Area cities were announced in the beginning of 2024 in response to demand from Hong Kong residents (see our previous update).  The HKMA is engaging with Mainland authorities to explore further facilitative measures under different scenarios.  Responses have been positive and discussions are progressing well. 
• The HKMA is working with the PBoC on cross-boundary payment linkage between Hong Kong and the Mainland.  They will shortly sign a memorandum of understanding to establish a cooperative framework for the linkage.  [28 Jun 2024]

Singapore

1. MAS revised information paper on good practices for licensed and exempt financial advisers

The Monetary Authority of Singapore (MAS) has published a revised version of its information paper on good practices for licensed and exempt financial advisers with regard to: advisory and sales process; recruitment, training and competency of representatives; complaints handling; and the compliance function.  [31 Jul 2024]

2. MAS response to feedback – proposals on tier structure and remuneration requirements

MAS has published a response to feedback received in relation to its 2021 consultation paper on proposals to refine the tier structure requirements under the Financial Advisers Act (FAA) and to introduce new requirements relating to remuneration. The MAS intends to further consult on legislative amendments to effect the proposals.  [26 Jul 2024]

3. MAS consults on minimum interest coverage requirements for REITs

MAS has published a consultation on proposals to subject all real estate investment trusts (REITs) to a minimum interest coverage ratio (ICR) threshold of 1.5 times and an aggregate leverage limit of 50%.

To provide investors with information on how a REIT’s credit profile could be affected by changes in market conditions, MAS proposes that REITs perform and disclose sensitivity analyses on the impact of changes in earnings before interest, taxes, depreciation and amortisation (EBITDA) and interest rates on REITs’ ICRs. This disclosure is to be made in interim financial results and annual reports.

Responses to the consultation are requested by 23 August 2024.  [24 Jul 2024]

4. MAS commits S$100 million to FSTI 3.0 grant scheme – supporting quantum and AI capabilities

MAS has announced that that it will commit an additional S$100 million under the Financial Sector Technology and Innovation (FSTI 3.0) grant scheme to support financial institutions in the building, advancement and adoption of capabilities in quantum and artificial intelligence (AI) technologies. In particular, MAS will establish a quantum track under the scheme, comprising the following grants:

• 'technology centres' grant (to support the establishment of quantum computing and security innovation functions in Singapore);
• 'technology innovation' grant (to support adoption of quantum technology solutions by financial institutions); and
• 'security grant' (to enhance cyber security readiness).

MAS will also enhance the existing AI and data grant scheme under FSTI 3.0; more details on this will be shared in the coming months.  [18 Jul 2024]

5. MAS Annual Report: MAS MD sets out financial sector priorities – AI, quantum, resilience

In conjunction with the release of its annual report for the financial year 2023/2024, MAS has published a speech by Mr Chia Der Jiun, Managing Director (MD), delivered at the MAS Annual Report press Conference. Among other things, the MAS MD outlined developments in Singapore's financial sector, and highlighted MAS' intention to prioritise: "safe and resilient digital financial services"; "fair dealing in financial services"; and "building new capabilities in sustainability, AI and quantum technology".

Looking ahead, MAS is planning to consult on enhancing the requirements set out in its Notice on Technology Risk Management, and on instituting a technology assurance program for financial institutions that are core to the Singapore financial system.

On GenAI, the findings of a study into how GenAI will change jobs in financial sector will be release early next year, alongside MAS' recommendations.  Also on AI, MAS is putting together a set of good practices for addressing AI model, technology and cyber risks, and considering supervisory guidance for next year. An industry-led AI Governance Handbook to aid the development of good AI governance practices is also targeted to be finalised then.

MAS is also working with the industry on a proof-of-concept sandbox on quantum key distribution (QKD) to enable secure and quantum-safe communication between MAS and participating financial institutions. The sandbox is expected to be implemented by the end of this year, and will help build QKD capabilities for broader application in the industry to strengthen quantum resilience.  [18 Jul 2024]

6. MAS replies to Parliamentary questions

MAS has published replies to Parliamentary questions regarding:

• measures to ensure independent access to banking services for visually impaired persons;
• initiatives to engage retail investors and encourage greater participation in the Singapore Exchange;
• qualification for Fund Tax Incentive Scheme by foreign family offices' investments in local shophouses and assets.  [2 Jul 2024]

7. Former Fund Manager convicted for engaging in acts likely to defraud investors

A former fund manager and director of One Asia Investment Partners (OAIP) was convicted on 11 April 2024 and sentenced today to 6 months’ imprisonment for engaging in acts which were likely to defraud investors, that is the selling of two over-the-counter (OTC) bonds at lower prices from one fund managed by OIAP to another OAIP fund of which he was the majority investor, while knowing that there were earlier available bids at higher prices. This is the first conviction under the Securities and Futures Act for fraudulent or deceptive conduct relating to over-the-counter bond trading.  [2 Jul 2024]

8. Project Nexus completes blueprint for connecting domestic instant payment systems globally

The Bank for International Settlements (BIS) and partners have completed the comprehensive blueprint for phase three of Project Nexus, which will allow ready participants to work towards the next stage of seamlessly connecting their instant payment systems. BIS will facilitate central banks and instant payment systems operators of India, Malaysia, the Philippines, Singapore and Thailand as they work towards live implementation in the next phase, with Bank of Indonesia as special observer.  [30 Jun 2024]

Indonesia

1. New Bank Indonesia Regulation: Money Market and Foreign Exchange Market

Bank Indonesia issued Bank Indonesia Regulation No. 6 of 2024 on Money Market and Foreign Exchange Market (BI Regulation 6/24, in Indonesian language) which came into effect on 16 July 2024 revoking Bank Indonesia Regulation No. 6 of 2023 on Money Market and Foreign Exchange Market (in Indonesian language) which came into effect on 27 June 2023.

The scope of regulation, development and monitoring of money market and foreign exchange market by Bank Indonesia under BI Regulation 6/24 covers:

• the products, which include money market instrument (i.e. promissory note, instruction to pay, debt securities and/or sukuk, and other forms which are equal to the short-term marketable securities as set out by Bank Indonesia) and written confirmation and/or financial contract in the money market and in the foreign exchange market; 
• pricing, which is governed by Bank Indonesia and is used in the issuance of money market instrument, money market and foreign exchange transactions, and other issuance of money market and foreign exchange instrument. This pricing include pricing in money market (in the form of interest rate or returns rate, yield or instrument pricing, and other pricing in the money market) and pricing in the foreign exchange market (in the form of exchange rates and other pricing in the money market);
• actors in the money market and foreign exchange market, which include the issuer of the money market instrument, money market and foreign exchange transaction actors, supporting institutions, and supporting profession; and
• money market infrastructure, which include transactions infrastructures, central counterparty, central custodian, payment system, trade repository and other infrastructure determined by Bank Indonesia.  [16 Jul 2024]

2. New Implementing Regulations to OJK Technological Innovation Regulation

Following the issuance of OJK Regulation No. 3 of 2024 on the Implementation of Technological Innovation in the Financial Sector (Regulation 3/24, in Indonesian language), the Indonesian Financial Services Authority (OJK) issued Circular Letter No. 5/SEOJK.07/2024 on the Mechanism of Room for Innovation Trial and Development (Circular Letter 5/24, in Indonesian language) and Circular Letter No. 6/SEOJK.07/2024 on the Registration of the Technological Innovation Organiser in the Financial Sector (Circular Letter 6/24, in Indonesian language), both came into effect on 3 June 2024 as the implementing regulations of Regulation 3/24.

Circular Letter 5/2024 elaborates on the mechanism for registering to be in the OJK sandbox. It covers: the purpose, scope, participation in sandbox; application forms and procedure to be a participant; suitability criteria, verification process and documents analysis to become participant; approval or rejection of the application; and innovation trial and development process, reporting, monitoring, and approval cancellation by OJK, final report, and result of sandbox process. Some of the above matters have been addressed under Regulation 3/24, but the circular provides further details for applying to be in the sandbox. While Circular Letter 6/2024 sets out the procedure for a participant, which has passed the sandbox process, to register with OJK as a technological innovation operator, before applying for a business licence.

The new circular letters issued by OJK aim to provide clarity and details on the application procedure to be in the OJK sandbox process; and, after passing the OJK sandbox process, on the application procedure to register as a technological innovation operator, which is a step before applying for a business licence as a technological innovation operator to OJK.  [19 Jul 2024]

Malaysia

1. BNM and SCM: 13th JC3 meeting

Bank Negara Malaysia (BNM) and the Securities Commission Malaysia (SCM) have published a joint summary of the 13th Joint Committee on Climate Change (JC3) meeting. Members agreed to:

• support the development of national emissions factors for key industrial sectors through closer collaboration between the government and financial sector players involved in data collection and reporting; and
• reduce reporting burdens on companies for information furnished to financial institutions. This includes the use of standardised templates by financial institutions to obtain climate-related information from customers, and arrangements to enable companies to allow financial institutions to share their information to other financial institutions with consent.

The meeting also agreed to establish the Climate Finance Innovation Lab (CFIL) to accelerate decarbonisation efforts via innovative financial solutions. The CFIL will focus on bringing together industry players to ideate financial solutions for climate transition, adaptation and nature-related projects.  [30 Jul 2024]

2. BNM speech: Impact of AI – the next steps for regulators and industry

BNM has published a speech by its Deputy Governor, Adnan Zaylani Ahmad Zahid, on the potential benefits and risks of artificial intelligence (AI) to financial services and the way forward for financial regulators and the industry.  [11 Jul 2024]

3. BNM issues warning over misleading posts by ITOs

BNM has confirmed its awareness of the recent circulation of misleading social media posts by some registered agents of insurers/takaful operators (ITOs) and financial adviser’s representatives urging customers to purchase medical reimbursement products without co-payment features before September 2024.

BNM clarifies that ITOs are required to offer medical reimbursement products, such as medical cards, with co-payment features (ie deductible, co-insurance/co-takaful) as an option at the point of sale or renewal of existing medical and health insurance/takaful (MHIT) policies/certificates effective 1 September 2024. However, existing medical reimbursement products without co-the payment feature, including those with deductible below RM500, are still allowed to be offered by ITOs. The aim is to ensure that the cost of medical insurance and takaful remains affordable.  [3 Jul 2024]

4. BNM announces completion of phase three of Project Nexus by BIS

BNM has announced the completion by the Bank for International Settlements (BIS) of the comprehensive blueprint for phase three of Project Nexus, which will allow participants to work towards the next stage of connecting their instant payment systems.

BNM notes that phase four will see itself, Bangko Sentral ng Pilipinas (BSP), the Monetary Authority of Singapore (MAS), Bank of Thailand (BOT) and domestic IPS operators – who worked together in phase three – joined by the Reserve Bank of India (RBI), expanding the potential user base to India’s Unified Payments Interface (UPI), the world’s largest instant payments system (IPS).  [1 Jul 2023]

Thailand

1. SECT revises Thai ESG rules

The Securities and Exchange Commission Thailand (SECT) has announced that it has revised the Thai ESG regulations to broaden investment scope and strengthen asset management companies’ fiduciary duty for responsible investment. Under the revised measures, the investment limit eligible for tax exemption is increased to 300,000 baht per person per year and the unitholding period is shortened to five years for the purchases made between 1 January 2024 to 31 December 2026. The Thai Ministry of Finance will evaluate the outcomes of these measures at the end of three years.  [30 Jul 2024]

2. SECT consults on amendment to rules prohibiting use of digital assets as a means of payment

The SECT has published a consultation on a proposed amendment to the rules prohibiting the use of digital assets as a means of payment for products or services to include all current types of digital asset business operators. The consultation additionally seeks views on a proposed amendment to allow digital asset business operators under the SECT’s supervision, to participate in the Programmable Payment Sandbox (PPS) created by the BOT to promote the development of digital financial innovation. 

Responses are requested by 29 July 2024.  [16 Jul 2024]

3. SECT confirms ESG funds comply with governing rules

The SECT has confirmed that the investment practices of all Thailand ESG Funds comply with the diversification and investment rules, with the investment proportion in shares of Energy Absolute Public Company Limited (EA) accounting for 0.35 percent of the net asset value (NAV) of all Thailand ESG Funds combined.

Following recent developments, the SECT has emphasised that all asset management companies are required to strictly comply with the principles of integrity, diligence and fiduciary duty when selecting companies with good corporate governance in which to invest.  [15 Jul 2024]

4. BOT announces completion of phase three of Project Nexus by BIS

The Bank of Thailand (BOT) has announced the completion by the Bank for International Settlements (BIS) of the comprehensive blueprint for phase three of Project Nexus, which will allow participants to work towards the next stage of seamlessly connecting their instant payment systems. Phase four will see the Bank Negara Malaysia, Bangko Sentral ng Pilipinas, the Monetary Authority of Singapore, the BOT and domestic IPS operators – who worked together in phase three – joined by the Reserve Bank of India (RBI), expanding the potential user base to India’s Unified Payments Interface (UPI), the world’s largest instant payments system (IPS).  [1 July 2024]

India

1. SEBI clarifies on reports regarding T+0 settlement cycle

The Securities and Exchange Board of India (SEBI) has issued a clarification in respect of erroneous press headlines 'SEBI bats for making T+0 system mandatory for all'. SEBI clarified that the SEBI Chair had responded to a question at an event, stating that 'perhaps SEBI might take a proposal to its Board to make it mandatory for qualified stockbrokers to offer Application Supported by Blocked Account (ASBA) as an option to their clients'.  [31 Jul 2024]

2. IFSCA permits CRAs to provide ESG ratings and data products services

The International Financial Services Centres Authority (IFSCA) has published a circular permitting IFSCA-registered credit rating agencies (CRAs) to provide services relating to environmental, social and governance (ESG) ratings and ESG data products, in accordance with the requirements laid down in the circular.  [31 Jul 2024]

3. SEBI consultations: Strengthening the derivatives index framework, FPI disclosure framework, PIT regulations

SEBI has published the following consultation papers (CPs):

• CP on measures to strengthen index derivatives framework for increased Investor protection and market stability – this consultation seeks to introduce measures to enhance investor protection and promote market stability in derivative markets, while ensuring sustained capital formation. Responses are requested by 20 August 2024.
• CP on proposal to improve ease of doing business with respect to the additional disclosure framework for large foreign portfolio investors (FPIs) – this consultation contains proposals to require disclosures of an appropriate majority of set thresholds for disclosure for identification and categorisation of an FPI as a land bordering country (LBC) or non-LBC entity. Responses are requested by 20 August 2024.
• CP on proposed amendments to the SEBI (Prohibition of Insider Trading) Regulations, 2015 (PIT Regulations) – this consultation contains proposals for amendments to the PIT Regulations, with the aim of rationalising the expression ‘connected person’ under the PIT Regulations in order to expand their regulatory scope. Responses are requested by 18 August 2024.  [30 and 29 Jul 2024]

4. SEBI launches SEVA chatbot for investors

SEBI has announced the launch of SEBI’s Virtual Assistant  (SEVA) – an Artificial Intelligence (AI) based conversation platform for investors. The Beta version of the chatbot includes features such as citations for generated response, speech-to-text and text-to-speech functionality for accessibility, follow-up questions, and more. The chatbot is presently enabled to answer questions relating to general information the on securities market, the latest master circulars, grievance redressal process, among other topics.  SEBI intends to add additional areas in the future.  [29 Jul 2024]

5. RBI: Domestic money transfer – review of framework

The Reserve Bank of India (RBI) has announced a number of changes to the framework for domestic money transfer following a review of various services facilitated under the current framework. The changes relate to cash pay-in and cash pay-out services.  [24 Jul 2024]

6. SEBI consults on new asset class

SEBI has published a consultation seeking views on the proposed introduction of a new asset  class aimed at bridging the  gap  between mutual funds and portfolio management services, in the interests of flexibility in portfolio construction. The aim is to provide investors with a regulated investment product, featuring higher risk-taking capabilities and a higher ticket size, in order to curb the proliferation of unregistered and unauthorised investment products.

Responses are requested by 6 August 2024.  [16 Jul 2024]

7. IFSCA: First ECCF report on transition finance

The IFSCA Expert Committee on Climate Finance (ECCF) has published its first report on transition finance. The report captures the recommendations by the ECCF under three pillars: scope and definition of transition finance; policy and regulation; and financial mechanisms and instruments.  [2 Jul 2024]

8. RBI joins Project Nexus

The RBI has announced that it has joined Project Nexus, a multilateral international initiative conceptualised by the Innovation Hub of the Bank for International Settlements (BIS) to enable instant cross-border retail payments by interlinking domestic faster payment systems (FPS) of Malaysia, Philippines, Singapore, Thailand and India, initially. The platform is expected to go live by 2026. This builds on the RBI's previous collaboration with various countries to link India’s FPS – the Unified Payments Interface (UPI) – with their respective FPS for cross-border Person to Person (P2P) and Person to Merchant (P2M) payments.  [1 Jul 2024]

9. SEBI consults on MF Lite Regulations

SEBI has published a consultation paper seeking views on the proposals related to introduction of a relaxed regulatory framework in the Mutual Funds (MF) segment, known as the  'MF  Lite  Regulations'  for  passively managed  MF schemes. Given the lesser risk inherent in managing passively managed MF schemes, the proposed MF Lite Regulations intend to reduce the compliance requirement, foster innovation, encourage competition and promote ease of entry for MFs interested in launching only passive schemes.

Responses are requested by 22 July 2024.  [1 Jul 2024]

Philippines

1. BSP: New reporting guidelines and penalty provisions for FX transactions

The Bangko Sentral ng Pilipinas (BSP) has announced the approval of amendments to the foreign exchange (FX) regulations, in the form of new reporting guidelines and penalty provisions for FX transactions. The major amendments include the following:

• definition of reports that are non-compliant with the BSP reporting standards (i.e., erroneous, delayed, unsubmitted) under the Manual of Regulations on FX Transactions, as amended;
• revisions to monetary penalties for reporting violations based on reporting entities and classification of report;
• setting a maximum monetary penalty of PHP1,000,000 for each transactional violation or PHP100,000 per calendar day for violations of a continuing nature pursuant to Section 37 of Republic Act (R.A.) No. 7653, as amended by Section 19 of R.A. No. 11211; and
• explicit provision of the process for: (a) notifying the concerned BSFI and/or its DTOE of the FX policy violation and the corresponding amount of monetary penalty; and (b) appeal or request for reconsideration.

The implementing Circular will take effect 15 banking days after its publication either in the Official Gazette or in a newspaper of general circulation in the Philippines. Meanwhile, reporting entities are provided a transitory period until 31 December 2024 to make the necessary preparations and adjustments to their systems and processes.  [17 Jul 2024]

2. BSP announces completion of phase three of Project Nexus by BIS

The BSP has announced the completion by the Bank for International Settlements (BIS) of the comprehensive blueprint for phase three of Project Nexus, which will allow participants to work towards the next stage of seamlessly connecting their instant payment systems. Phase four will see the BSP, the Central Bank of Malaysia, the Monetary Authority of Singapore (MAS), Bank of Thailand (BOT) and domestic IPS operators – who worked together in phase three – joined by the Reserve Bank of India (RBI), expanding the potential user base to India’s Unified Payments Interface (UPI), the world’s largest instant payments system (IPS).  [1 Jul 2024]

Vietnam

[No update for July 2024.]