Hong Kong
1. HKEX launches consultation on reduction of minimum spreads in Hong Kong securities market
The Hong Kong Exchanges and Clearing Limited (HKEX) has launched a consultation paper on the proposed reduction of minimum spreads in the Hong Kong securities market, as part of ongoing efforts to enhance market microstructure and liquidity. Feedback on the proposals is required to be submitted (via questionnaire) by 20 September 2024.
The proposals are part of the recommendations made by the Government's Task Force on Enhancing Stock Market Liquidity set up in August 2023 (see our previous updates in August 2023 and April 2024).
The HKEX is proposing a reduction of the minimum spreads of equities, real estate investment trusts, and equity warrants in Hong Kong’s securities market (but not exchange traded products, structured products, exchange traded options and debt securities). Minimum spread is the minimum price change for a stock traded on an exchange and determines the tightest bid-ask spread allowed. With a tighter minimum spread, investors may be able to enjoy lower overall transaction costs.
The consultation paper proposes a phased implementation of minimum spread reductions by selected price band, with implementation of Phase 2 to be considered based on a holistic review of market feedback and after a period of observation following Phase 1.
- Phase 1: 50% - 60% reduction of minimum spreads for price bands between $10 and $50;
- Phase 2: 50% reduction of minimum spread for price band $0.5 - $10.
The HKEX will arrange online briefing sessions on 15 July 2024 (Cantonese) and 16 July 2024 (English) to provide an overview of the proposed reduction of minimum spreads. Participation is optional and interested market participants should register for the sessions on or before 10 July 2024 (see registration form). The HKEX has also made available a podcast by its Head of Equities Product Development, Brian Roberts, explaining the proposed enhancements. [28 Jun 2024]
2. HKMA and BDF announce collaboration on wholesale CBDC
The Hong Kong Monetary Authority (HKMA) and the Banque de France (BDF) have announced their collaboration on wholesale central bank digital currency (CBDC).
The latest collaboration is the HKMA's participation in Wave 2 of the European Central Bank's Eurosystem exploratory work. This involves the exploration of new technologies for wholesale central bank money settlement in the form of trials with actual settlement in central bank money and experiments with mock settlement in a test environment.
The BDF and the HKMA will study the interoperability between their wholesale CBDC infrastructures – the BDF's DL3S and the HKMA's Project Ensemble Sandbox. The study will focus mainly on real-time cross-border and cross-currency payments, and explore how to optimise settlement efficiency and facilitate interoperability between different jurisdictions' financial market infrastructures.
The HKMA and the BDF have recently signed a memorandum of understanding to foster innovation in wholesale CBDC and the tokenisation market. They have agreed to strengthen communication and collaboration, and lay the groundwork for further efforts on tokenisation and new technologies. [27 Jun 2024]
3. HKIMR publishes applied research reports on DeFi and metaverse
The Hong Kong Institute for Monetary and Financial Research (HKIMR), the research arm of the Hong Kong Academy of Finance, has announced the publication of two new applied research reports, titled 'Decentralised Finance: Current Landscape and Regulatory Developments' and 'The Metaverse: Opportunities and Challenges for the Financial Services Industry' respectively.
The reports provide an in-depth analysis on decentralised finance (DeFi) and the metaverse and their uses in the financial services industry, as well as an overview of the regulatory landscape internationally and in Hong Kong. They also discuss the findings of surveys and interviews, exploring local market practitioners’ engagement, opportunities and challenges, and the talent landscape associated with the evolution of these technologies.
The reports also conclude with some considerations with an aim to facilitate the healthy development and application of the technologies within Hong Kong’s financial services industry.
DeFi:
- Its regulation should continue to be inspired by the guiding principle of 'same activity, same risk, same regulation', with deep-dive research being crucial for enhancing the understanding of the associated risks.
- It would be worthwhile to assess the possibility of co-developing centralised and decentralised financial infrastructure as a hybrid model to enjoy the benefits of both worlds while bringing these activities within regulatory remits.
- Promoting blockchain-related talent development is also essential for addressing the knowledge gaps that hinder the adoption of virtual assets and DeFi.
- Strengthening public-private sector dialogue and collaboration can allow financial authorities to resolve regulatory uncertainty and better understand market needs.
The metaverse:
- Considerations include nurturing talent and fostering innovative entrepreneurship, supporting technology and digital infrastructure developments, increasing knowledge about the metaverse and fostering collaborations among stakeholders and across jurisdictions, as well as adapting the relevant regulatory framework to keep in view of the latest developments and establishing well-defined corporate governance structures for metaverse adoption within financial institutions. [25 Jun 2024]
4. HKMA issues circular on measures to protect customers from bogus telephone calls
The HKMA has issued a circular to authorised institutions noting an increase in the number of bogus telephone calls purported to be made by banks. These calls are usually made with malicious intent, for example, frauds and scams, and/or dubious marketing of lending activities, and have from time to time resulted in financial losses and other harms to customers.
The HKMA therefore advises retail banks (including virtual banks) to enhance their measures to protect consumers from such bogus calls:
- Reinforcing verification against bogus calls – Retail banks should undertake a review to ensure that the verification measures launched by the HKMA in 2015 continue to be implemented as intended, and should, in addition, consider providing verification service through their Internet banking platforms (including mobile banking apps) with appropriate controls in place.
- Assisting customers affected by bogus calls – Retail banks should check with such customers whether any sensitive information has been divulged to the bogus callers and whether there is any potential financial loss. If so, they should advise customers to report to the Police and take necessary steps to protect customers from potential or further financial loss.
- Streamlined and speedy reporting of bogus calls to the Police – Retail banks should report any identified bogus calls using a standard template (to be provided by the HKMA separately) and provide as much information as possible to the Police to facilitate follow-up action by the Police. They should make the report as soon as practicable, and in any case no later than five working days after completing any necessary internal checks.
- Enhancing customer communication and education – Retail banks should raise awareness among their customers and the public about bogus calls and the measures in place for verifying bank callers' identities.
Other authorised institutions that are not carrying on retail banking business should also assist customers in tackling bogus calls, by making reference to the above measures where appropriate. [21 Jun 2024]
5. Enhancements made to Code of Practice on Person-to-Person Marketing Calls
The HKMA has announced the launch of the revised Code of Practice on Person-to-Person Marketing Calls by the Hong Kong Association of Banks (HKAB) and the DTC Association (DTCA). The revised code is effective from 21 June 2024. Although the code is non-statutory and issued on a voluntary basis, the HKAB and the DTCA expect their respective members to take into account the recommendations in the code in the setting and review of their policies and procedures covering person-to-person marketing calls.
The code provides guidance to authorised institutions (AIs) in undertaking telemarketing activities with a view to promoting good banking practices. It applies to all person-to-person marketing calls to be made or authorised to be made by an AI, regardless of whether there is any business relationship between the AI and the called party.
The latest revisions set a limit on the frequency of person-to-person marketing calls (excluding calls where the AI is able to identify the called party with prior contact) made to the same telephone number to no more than three calls in a calendar week.
In addition, the code provides guidance to AIs on other major areas to protect the public, such as:
- Confining hours of making calls to 9:00 am to 10:00 pm;
- Providing clear identity of the callers and purpose of calls to the called parties;
- Handling requests for unsubscribing marketing calls;
- Controls over collection of information from the called parties and arrangement for any subsequent meetings; and
- Mechanism for handling of complaints. [21 Jun 2024]
6. HKEX to implement severe weather trading in securities and derivatives markets from 23 September 2024 subject to regulatory approval
Following a consultation (see consultation conclusions), the HKEX has announced the finalisation of the operational model and arrangements to allow Hong Kong's securities and derivatives markets to remain open during severe weather conditions. The HKEX plans to implement severe weather trading (SWT) from 23 September 2024, subject to regulatory approval.
Severe weather conditions include Typhoon Signal No. 8 or above or Black Rainstorm Warning issued by the Hong Kong Observatory, and Extreme Conditions announced by the government. The HKEX will proceed with the proposals to maintain trading, post-trade and listing arrangements in its securities and derivatives markets, including Stock Connect, derivatives holiday trading, and after-hours trading, during a severe weather event.
To ensure safety, remote working and the use of online services are strongly encouraged on an SWT day, and no public-facing physical outlets should provide services. Some minor adjustments will be made to ensure the market’s operational resilience, as certain services provided only via physical outlets will be unavailable.
The HKEX's trading, clearing, settlement and market data systems will be fully accessible via remote networks during severe weather conditions. The HKEX has made enhancements to its infrastructure and operational arrangements to reduce the need for physical access among participants, and will arrange testing sessions before the launch of SWT to ensure the industry's readiness.
To allow small-and-medium-sized brokers adequate preparation time, the HKEX plans to offer special arrangements to eligible participants requiring assistance until the end of 2024.
The Hong Kong Association of Banks and the Hong Kong Interbank Clearing Limited have confirmed that, during severe weather conditions, banking services (such as electronic money transfer channels) will be available from designated banks and settlement banks of relevant clearing houses of the HKEX, to fully support clearing participants’ operations and money settlement requirements.
The HKMA has issued a circular to provide guidance and to state its expectation that authorised institutions are expected to support the implementation of SWT through continuous banking and payment services. The circular states the arrangements that will apply upon the implementation of SWT, and reminds the banking industry in relation to remote working and other operational arrangements, services to securities brokers, services to bank customers and customer education.
The SFC has also issued guidance:
- The circular to intermediaries sets out the standards of conduct and internal controls expected of intermediaries who provide dealing, clearing and settlement services on an SWT day.
- The circular to management companies of SFC-authorised investment products listed on the Stock Exchange reminds management companies to consider the potential implications of the implementation of trading of Hong Kong securities and derivatives under SWT on their listed SFC-authorised investment products and make appropriate arrangements. [18 Jun 2024]
7. Expansion of eligible ETFs on Stock Connect to take effect on 22 July 2024
The HKEX has announced that the expansion of eligible exchange-traded funds (ETFs) under Stock Connect will take effect on 22 July 2024. This follows the announcement of the new eligibility criteria by the HKEX, the Shanghai Stock Exchange (SSE) and the Shenzhen Stock Exchange (SZSE) on 19 April 2024 (see our previous update).
The expansion will further enhance the investment choices for Stock Connect investors, enabling them to diversify their assets across both Hong Kong and Mainland China markets in an efficient and cost-effective manner.
The data cut-off date for determining the eligibility of ETFs under the new criteria is 17 June 2024. ETFs that satisfy the new criteria on this date will be accepted as eligible for trading under Stock Connect, except for ETFs that are delisted from the SEHK, the SSE or the SZSE before the launch of the expansion. The initial list of eligible ETFs upon the expansion will be announced by the SEHK, the SSE and the SZSE on 12 July 2024. Further details can be found in an SEHK circular. [14 Jun 2024]
8. SFC welcomes CSRC consultation paper on proposed rule amendments for implementing enhancements to MRF scheme
The SFC has welcomed the public consultation paper published by the China Securities Regulatory Commission (CSRC) on proposed rule amendments for implementing enhancements to the Mainland-Hong Kong mutual recognition of funds (MRF) scheme.
Enhancing the MRF scheme is one of the five measures announced by the CSRC in April 2024 on the Mainland’s capital market cooperation with Hong Kong (see our previous update). The SFC considers that this will address a longstanding wish of Hong Kong asset managers for the scheme to be more flexible and to provide more diversified product choices to Mainland investors.
The draft proposals include relaxing the sales restrictions for recognised Hong Kong funds in the Mainland and allowing the delegation of investment management functions of recognised Hong Kong funds to overseas asset management companies within the same group. Based on the principle of reciprocity, the SFC will also relax the relevant restrictions on recognised Mainland funds.
The SFC will work closely with the CSRC to formulate and implement the measures. Details and the launch date of the enhancements will be announced in due course. [14 Jun 2024]
9. HKEX signs cooperation agreement with SZSE to support development of integrated fund platform
The HKEX has announced that it has signed a cooperation agreement with a unit of the SZSE to support the development of the HKEX's integrated fund platform. The plan to develop such platform was announced in November 2023 (see our previous updates here and here).
The platform is aimed at supporting the entire fund value chain and overall ecosystem in Hong Kong, reducing barriers of entry to the industry and enabling market participants to more effectively distribute fund products to their clients. It will also help expand Hong Kong's fund distribution network, enhance market efficiency and lower transaction costs.
The cooperation between the HKEX and the SZSE will see Shenzhen Securities Communication Co. Ltd (a member of the SZSE) establish the Financial Data Exchange Platform Network in Hong Kong. The network will serve as a foundation for the platform's communications network, allowing users of the platform to communicate effectively and support key processes such as subscriptions, redemptions and notifications. [13 Jun 2024]
10. SFC gives briefing on regulatory expectations to VATP applicants that are deemed to be licensed following end of non-contravention period
The SFC has held a briefing to explain its regulatory expectations to the virtual asset trading platform (VATP) applicants that are now deemed to be licensed from 1 June 2024.
The SFC gave a comprehensive overview of the competencies expected of the applicants and the licence application process. It also introduced its on-site inspection programme, which aims to ascertain the applicants' compliance with the relevant regulatory requirements.
The non-contravention period for VATPs operating in Hong Kong under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (AMLO) came to an end on 1 June 2024 (see our previous update). All VATPs operating in Hong Kong must be either licensed by the SFC, or be VATP applicants that are deemed to be licensed by operation of the AMLO. [12 Jun 2024]
11. PCPD publishes Artificial Intelligence: Model Personal Data Protection Framework
The Office of the Privacy Commissioner for Personal Data (PCPD) has issued its 'Artificial Intelligence: Model Personal Data Protection Framework' following consultation with various experts and relevant stakeholders, including members of the Standing Committee on Technological Developments of the PCPD, public organisations, the technology industry, universities and AI suppliers.
The PCPD has also published a leaflet setting out the key recommendations extracted from the model framework.
The model framework, based on general business processes, provides a set of recommendations and best practices regarding governance of artificial intelligence (AI) for the protection of personal data privacy for organisations which procure, implement and use any type of AI systems. The model Framework aims to assist organisations in complying with the requirements under the Personal Data Privacy Ordinance and adhering to the three Data Stewardship Values and seven Ethical Principles for AI advocated in the Guidance on the Ethical Development and Use of Artificial Intelligence published by the PCPD in 2021.
The model framework covers recommended measures to organisations in the following four areas (see Annex 1 of the PCPD press release for a summary of the recommended measures):
- Establish AI strategy and governance – Formulate the organisation’s AI strategy and governance considerations for procuring AI solutions, establish an AI governance committee (or similar body) and provide employees with training relevant to AI.
- Conduct risk assessment and human oversight – Conduct comprehensive risk assessments, formulate a risk management system, adopt a 'risk-based' management approach, and, depending on the levels of the risks posed by AI, adopt proportionate risk mitigating measures, including deciding on the level of human oversight.
- Customisation of AI models and implementation and management of AI systems – Prepare and manage data, including personal data, for customisation and/or use of AI systems, test and validate AI models during the process of customising and implementing AI systems, ensure system security and data security, and manage and continuously monitor AI systems.
- Communication and engagement with stakeholders – Communicate and engage regularly and effectively with stakeholders, in particular internal staff, AI suppliers, individual customers and regulators, in order to enhance transparency and build trust. [11 Jun 2024]
12. HKMA reported to be discussing further expansion of Cross-boundary Wealth Management Connect Scheme
The HKMA is reported to be in discussions with financial services industry stakeholders about further expanding the Cross-boundary Wealth Management Connect Scheme with the Mainland. The discussions focus on areas such as investment quotas, product types, and the sales process, according to the HKMA's Chief Executive, Mr Eddie Yue.
Mr Yue considers that the recently increased investment quota limit of CNY 3 million (USD 414,200) for individual investors is insufficient for private banking customers. He suggests that making the sales process smoother, strengthening marketing, and improving investor education could be possible.
The scheme was launched in September 2021 and allows eligible residents in the Guangdong-Hong Kong-Macao Greater Bay Area to invest in wealth management products distributed by banks in each other's market. It was refined in January 2024 to expand the scope of participating institutions and eligible products and raise the individual investor quota. [5 Jun 2024]
13. HKMA and other Project mBridge team members announce commencement of MVP stage of project
The HKMA, together with other Project mBridge team members, have announced that the project has reached the minimum viable product (MVP) stage. This project aims to study how central bank digital currencies and innovative solutions can be applied to solve the key pain points in cross-border payments.
The project team currently consists of the Bank for International Settlements (BIS) Innovation Hub Hong Kong Centre, the Bank of Thailand, the Digital Currency Institute of the People’s Bank of China, the Central Bank of the United Arab Emirates, and the HKMA. It welcomes the Saudi Central Bank as the next full participant.
Since conducting the pilot in 2022 (see our previous update), the project team has continued to develop and enhance the prototype platform in areas including technology, legal and governance. The four founding central banking institutions have each deployed a validating node in their own jurisdictions. In addition, together with the BIS Innovation Hub, a fit-for-purpose governance framework and comprehensive legal framework, including a rulebook, have been formulated, with a view to matching the unique decentralised nature of the platform. In the meantime, participating commercial banks in the four jurisdictions have used the MVP platform to conduct real-value transactions in preparation for the MVP release.
As the project enters the MVP stage, the platform will continue to be enhanced and the participation of public and private sectors will be widened. The platform could serve as a testbed for add-on technology solutions, new use cases, and interoperability with other platforms, given its high compatibility. Private sector firms are invited to propose solutions and use cases. [5 Jun 2024]
Singapore
1. MAS expands industry collaboration to scale asset tokenisation for financial services
The Monetary Authority of Singapore (MAS) has announced the expansion of initiatives to scale asset tokenisation for financial services. This includes partnering with global industry associations and financial institutions to drive common asset tokenisation standards in fixed income, foreign exchange, and asset and wealth management. [27 Jun 2024]
2. MAS whitepaper: Global Layer One
MAS has published a whitepaper introducing the Global Layer One initiative which explores the development of a multi-purpose, shared ledger infrastructure based on distributed ledger technology that is envisioned to be developed by regulated Fis for the financial industry. [27 Jun 2024]
3. MAS: Updated Singapore ML NRA
The MAS has announced the publication of an updated Money Laundering (ML) National Risk Assessment (NRA), as part of Singapore’s continuing efforts to maintain the effectiveness of its anti-money laundering (AML) regime amidst the evolving risk landscape. The updated ML NRA synthesises the ML risks observed by the Singapore supervisory and law enforcement agencies, and Singapore’s Financial Intelligence Unit – the Suspicious Transaction Reporting Office, as well as feedback from private sector entities and counterpart foreign authorities. Among the highlights from the NRA are:
- Key ML threats stem from fraud, particularly foreign and domestic cyber-enabled fraud, orchestrated by criminal syndicates typically located overseas.
- Consistent with international typologies, the most common ML typologies include: (i) illicit funds flowing into or through Singapore via bank accounts; (ii) misuse of legal persons to channel illicit funds; and (iii) placement of illicit funds in high value assets.
- Within the financial sectors, a higher risk sector of note would be the digital payment token (DPT) services providers (or virtual assets service providers). There has been an increase in reported cases involving DPTs and there is a range of ways in which DPTs can be exploited. [20 Jun 2024]
4. MAS and BIS Innovation Hub develop climate risk platform blueprint
The MAS and the Bank for International Settlements (BIS) Innovation Hub have developed a blueprint for a platform that integrates regulatory and climate data to help financial authorities identify, monitor and manage climate risks in the financial system.
The blueprint lays out the key features and metrics required for a climate risk platform. These incorporate data and information on financed emissions, physical risk exposure and forward-looking assessments under different climate scenarios. [12 Jun 2024]
China
1. State Council publishes policy measures to promote high quality development of venture capital
The General Office of the State Council of China has published various policy measures to promote the high quality development of venture capital.
The policy measures focus on five key areas:
- Cultivating diverse venture capital institutions: The measures aim to accelerate the cultivation of high-quality venture capital institutions, support the development of professional venture capital institutions, and utilise government-funded venture capital funds. They also aim to implement and improve the management system for state-owned venture capital.
- Expanding the sources of venture capital funds through multiple channels: The measures encourage long-term investment in venture capital and support asset management institutions in increasing their investment in venture capital. They also aim to expand the scope of direct equity investment pilot projects for financial asset investment companies and enrich the types of venture capital fund products.
- Strengthening government guidance and differentiated regulation of venture capital: The measures aim to establish a collaboration mechanism between venture capital and innovative start-up projects, implement a plan to promote the growth of small and medium-sized enterprises through patent industrialisation, continue to implement and refine preferential tax policies for venture capital enterprises, implement differentiated supervision of venture capital funds, and further open up venture capital investment to the rest of the world in an orderly manner.
- Improving the exit mechanism for venture capital: The measures aim to broaden the exit channels for venture capital and optimise the exit policy for venture capital funds.
- Optimising the venture capital market environment: The measures aim to optimise the development environment of the venture capital industry and create a sound financial ecology to support technological innovation. [15 Jun 2024]
2. NFRA reportedly considering stricter regulations on distribution of private fund products
According to Bloomberg (as reported by The Standard), Chinese regulators are contemplating stricter regulations on how banks sell financial products to the public. This could significantly impact a major distribution channel for some of the country's largest hedge funds.
The National Financial Regulatory Administration (NFRA) is reportedly seeking feedback from commercial banks on revisions that would prohibit the "disguised" selling of private fund products, including hedge funds. Banks have long been a key distributor of hedge funds, which typically raise money from investors in the form of trust products that are then invested into their funds.
It is reported that, under the relevant rules of 2016, banks can only distribute products for licensed financial institutions. Private funds, including hedge funds, are registered with the Asset Management Association of China but are not considered licensed financial firms. However, banks have continued to serve them, typically by selling products for trust firms which then engaged hedge funds as investment advisors and allocated money to them. [13 Jun 2024]
3. China stock exchanges publish consultation on draft implementation rules on programmatic trading
The Beijing Stock Exchange, the Shanghai Stock Exchange and the Shenzhen Stock Exchange have published consultation drafts of implementation rules to promote the standardised development of programmatic trading and maintain securities trading order and market fairness. The one-week consultation period ended on 14 June 2024.
The implementation rules are to implement the regulatory requirements proposed in the "Regulations on the Management of Programmatic Trading in the Securities Market (Trial)". The draft rules include detailed provisions on the following:
- Programmatic trading report management – Requirements on the content of reporting, reporting timeframe, and changes to the reports for programmatic trading investors, as well as the reporting management responsibilities of members to their customers;
- Trading behaviour management – Details of four types of abnormal trading behaviours that are key to monitoring, and clarification on the compliance and risk control responsibilities of institutions and members;
- Information system management – Details of (among others) specific requirements and testing requirements of programmatic trading technical systems, reporting of monitoring to members, and management of value-added fees (standards on such fees will be published separately);
- Programmatic trading management – Details of (among others) the identification standards for programmatic trading, strict regulation of such trading, additional reporting, and transaction fees (standards on such fees will be published separately);
- Management of programmatic trading under Shanghai-Hong Kong Stock Connect and Shenzhen-Hong Kong Stock Connect; and
- Supervision and inspection – Details of on-site and off-site inspections by the stock exchanges, as well as self-regulatory measures or disciplinary sanctions in the event of breach of the implementation rules. [7 Jun 2024]
4. China increases cap on foreign securities investment for QDIIs and indicates plan to streamline fund management for QFIIs and RQFIIs
According to YiCai Global, China increased the limit on foreign securities investment by USD 2.3 billion in May 2024 to accommodate the growing needs of overseas asset allocation. According to data from the State Administration of Foreign Exchange (SAFE), 53 of the 189 qualified domestic institutional investors (QDII) had their foreign securities investment cap raised, bringing the total quota to USD 167.8 billion. The SAFE also added three new QDIIs, each with a USD 50 million quota.
China's QDII program allows approved institutional investors to invest in overseas stock and bond markets within a government-set quota. Individual investors can indirectly invest in foreign assets by purchasing the financial products sold by QDIIs under the program.
Separately, Mr Zhu Hexin (deputy governor of the People's Bank of China and the head of the SAFE) has stated at the Lujiazui Forum in Shanghai that China plans to simplify and improve fund management for the USD-denominated Qualified Foreign Institutional Investor (QFII) scheme and its yuan-denominated counterpart, RQFII. The QFII and RQFII programs allow overseas investors to invest in China's domestic capital markets.
Mr Zhu stated that the relevant fund management regulations are being revised, and called for efforts to facilitate foreign investors' participation in domestic securities investment and promote financial market connectivity.
Mr Zhu also called for efforts to support multinationals in establishing global or regional fund management centres in Shanghai, promote the cross-border investment business of equity investment funds, support the China Foreign Exchange Trade System in enhancing financial infrastructure functions and relevant services, and support Shanghai in building a high-level international financial asset trading platform.
To further boost China's financial market, Mr Zhu underscored the need to leverage Shanghai's leading role in promoting China's financial opening up. [4 & 19 Jun 2024]
Taiwan
1. FSC releases guidelines for use of AI by financial industry
The Financial Supervisory Commission (FSC) has released its Guidelines for the Use of Artificial Intelligence (AI) by the Financial Industry. The guidelines aim to encourage financial institutions to innovate responsibly by applying trustworthy AI to develop financial services that meet public needs.
The guidelines, which were refined following a consultation process, include a general principles section and six key chapters:
- The general principles section mainly explains common matters such as the definitions related to AI, the life cycle of AI systems, the factors to consider in risk assessment, the ways to implement core principles based on risk, and the supervision and management of third-party operators.
- The six key chapters respectively discuss the key areas that the financial industry should focus on and the measures they can take to implement the six core principles, based on the AI life cycle and the assessed risks. They include the purpose, main concepts, as well as the corresponding precautions, implementation methods or measures for each principle.
The FSC clarified that the guidelines are in the nature of administrative guidance and primarily aim to provide guidance on the areas the financial industry should note when introducing and using AI. The guidelines may also serve as guidance to industry bodies when formulating self-regulatory rules. The FSC will continue to monitor the challenges and opportunities faced by the financial industry in adopting AI technology, and urge financial institutions to strengthen risk controls, consumer protection, information security, and digital rights for vulnerable groups. [20 Jun 2024]
2. Taiwan establishes VASP association upon holding of founding meeting
The Taiwan Virtual Asset Service Provider Association has been formally established with a founding meeting attended by 24 industry participants, according to an announcement by the virtual asset service provider (VASP) preparatory office.
The association acts as a bridge between the VASP industry and the government, and its first tasks are to formulate a self-regulation code, properly implement the classification and management of industry participants, and create an upstream and downstream industry chain and ecosystem. The association has already commenced work with the Ministry of Justice and various other units with regard to anti-fraud, anti-money laundering and establishment of joint prevention mechanisms, and will continue to progress these initiatives.
Mr Huang Xihe of the FSC indicated at the founding meeting that the establishment of the association would bring more cooperation and consensus to the VASP industry, promote compliance, standardisation and healthy development of the industry to ensure the safety, transparency and stability of the industry, as well as enhance the protection of customer rights. Mr Huang also stated that the FSC plans to strengthen cooperation with the association and work together achieve the above.
The preparations for the establishment of the association began in September 2023, when nine entities came together to kickstart the process. Taiwan's Interior Ministry approved the formation of the association in line with the law in March 2024. [13 Jun 2024]
3. FSC releases guidelines to prevent greenwashing in financial industry
The FSC has released its "Guidelines for Prevention of Greenwashing by Financial Institutions" as a reminder to financial institutions to avoid potential greenwashing behaviours. The guidelines provide relevant examples to assist financial institutions in their self-examinations to prevent issues before they occur.
The term "greenwashing", as defined in the guidelines, refers to financial institutions providing unclear or exaggerated information, selectively disclosing positive impacts or disclosing unsubstantiated information in their sustainability-related statements, actions, or claims, thereby misleading financial consumers, investors, or other market participants.
The guidelines are in the nature of administrative guidance, and stress that financial institutions and their financial products and services should comply with relevant laws. When making "sustainability" or "green" statements (publicity, advertising, or other forms of statements), they should ensure that the statements are accurate, complete, comparable and comply with the following principles:
- Statements should be true, correct, and supported by evidence, and their accuracy should be reviewed regularly.
- Statements should be direct and easy to understand.
- The content of statements should be complete, and no important information should be omitted or hidden.
- Where statements involve comparisons, they should be fair and comparable.
- Statements should be compliant with relevant sustainability standards.
To help the financial industry better understand the above principles, the FSC has followed the approach of the UK Financial Conduct Authority and provided 10 hypothetical examples in the guidelines for financial institutions to refer to.
The FSC reminds financial institutions that before providing financial products and services and making "sustainability" or "green" statements, they should conduct internal reviews (or verification by external third party institutions), and regularly review the compliance of such statements. They should also incorporate ESG into the decision-making process of operational risk management, and allocate sufficient manpower to such process as well as provide necessary staff training. [30 May 2024]
Japan
1. FSA reported to be revising Stewardship Code to improve transparency of listed company shareholders
According to Regulation Asia, the Financial Services Agency (FSA) is planning revisions to its Stewardship Code for institutional investors to enhance transparency regarding the identities of listed company shareholders. The Stewardship Code, established in 2014, outlines the responsibilities of institutional investors and how they should support the sustainable growth of the companies they invest in.
A key revision will be the creation of a system to identify the beneficial shareholders behind listed companies. This is to address situations where major shareholders are involved in the management of a company from behind the scenes, but their identities are not known because they have entrusted the safekeeping and management of their securities to custodians or asset management companies.
The FSA is also expected to make regulatory amendments that will eventually force institutional investors to comply with company requests to disclose their shareholdings. Currently, the Financial Instruments and Exchange Act requires the submission of large shareholding reports if an investor's shareholding in a listed company exceeds 5%. However, there have been cases of delays in submission or non-submission, prompting discussions regarding a new and more effective regulatory framework. Legal amendments are expected to take at least three to four years. In the meantime, revisions to the Stewardship Code, expected to be completed by end of March 2025, will make it easier for companies to identify those who control voting shares, thereby improving communications between management and shareholders. [19 Jun 2024]
2. FSA and NPA expected to enhance anti-money laundering measures in response to major laundering case
In response to a USD 444 million money laundering case, the National Police Agency (NPA) and the FSA are set to request banks, particularly digital banks, to intensify their efforts in detecting accounts misused by criminal organisations, according to Regulation Asia.
Banks will be asked to upgrade their transaction monitoring systems for real-time detection and to bolster their capabilities in conducting investigations, performing digital forensics, and managing customers. They will also be required to ensure they have accurate information on the business models and commercial flows of corporate customers by enhancing due diligence, digital forensics, and ongoing customer management capabilities.
The FSA is expected to clarify regulations that provide a safe harbour for inter-bank sharing of information on misused accounts. This move is part of the NPA's response to a recent money laundering case involving the arrests of 12 individuals for suspected violations of the Act on Punishment of Organised Crimes and Control of Proceeds of Crime, also known as the Anti-Organised Crime Law.
The suspects were allegedly part of the "Rivaton Group," which managed about 500 paper companies and over 4,000 corporate accounts. These accounts were used to transfer at least JPY 70 billion (USD 444 million) of crime proceeds through the banking system between January and July 2023.
According to NPA statistics, the number of cases involving violations of the Anti-Organised Crime Law related to money laundering has tripled over the past decade, reaching 888 in 2023. [18 Jun 2024]
3. FSA designates four regions as special zones for financial and asset management businesses
The FSA has announced (see press release in Japanese and English) that it has designated four regions as special zones, to concentrate financial and asset management businesses by improving the business and living environment and attract domestic and foreign investment funds. The special zones include (i) Hokkaido and its capital city, Sapporo, (ii) Tokyo, (iii) the prefecture and city of Osaka, and (iv) the prefecture and city of Fukuoka.
Key national initiatives include deregulation to allow asset managers to outsource middle- and back-office operations, enhancing administrative services in English, creating a new status of residence for foreign nationals investing in startups, and supporting foreigners in opening bank accounts. There will also be deregulation on banks' investment in green transformation (GX) related businesses and investment in startups, expansion of the investment cap for venture funds for qualified institutional investors, deregulation of restrictions on compressed hydrogen storage, and promotion of acceptance of foreign nationals through the points-based system for highly skilled professionals in areas such as GX and fintech.
Local initiatives include the expansion of English support (through the establishment or expansion of one-stop English support centres and English administrative services by local governments) and the provision of tax and fiscal support for domestic and overseas financial and asset management companies (such as reduction or exemption of local taxes, and subsidies for the establishment of business bases). [4 Jun 2024]
Malaysia
1. SCM releases guide on venture capital and private equity
The Securities Commission Malaysia (SCM) has published the first edition of the Practical Guide on Venture Capital and Private Equity in Malaysia. The guide aims to equip prospective venture capital (VC) and private equity (PE) fund managers, service providers and investors with in-depth practical knowledge to navigate the Malaysian policy landscape governing VC and PE operations.
Key contents of the guide include information on local capital market regulations pertaining to the VC and PE industries, foreign exchange policy, tax matters, fund structuring considerations and other areas critical to fund operations. [13 Jun 2024]
India
1. SEBI: Master circular for mutual funds
The Securities and Exchange Board of India (SEBI) has issued a master circular which gathers in one place the various circulars issued from time to time in respect of mutual funds. With respect to directions or other guidance issued by SEBI, as specifically applicable to mutual funds, they will continue to remain in force in addition to the provisions of any other law currently in force. [27 Jun 2024]
2. SEBI consults on review of eligibility criteria of stock derivatives
The SEBI has published a consultation on proposed changes to the eligibility criteria for entry and exit of stocks in derivatives segment. Responses to the consultation are requested by 19 June 2024. [8 Jun 2024]
3. SEBI: Master circular for portfolio managers
The SEBI has issued a master circular which gathers in one place the various circulars and directions issued from time to time to portfolio managers. [7 Jun 2024]
4. RBI launches survey on foreign liabilities and assets of mutual funds and AMCs – 2023-24
The RBI has launched its 2023-24 annual survey on ‘Foreign Liabilities and Assets of Mutual Funds and Asset Management Companies’. The survey collects information from mutual fund companies and asset management companies on their external financial liabilities and assets as at end-March of the latest financial year.
Asset management companies (AMCs) are required to submit the annual return on Foreign Liabilities and Assets online by 15 July 2024.
Mutual fund companies are required to submit the survey schedule (Schedule-4) by 15 July 2024.
Data from the survey will be used in the compilation of India’s external sector statistics and will be publicly disseminated. [3 Jun 2024]
Thailand
1. BOT and AMLO reiterate need for EDD in high-risk countries
In light of recent news regarding transactions between Thai financial institutions (FIs) with Myanmar, the BOT and the Anti-Money Laundering Office (AMLO) have reiterated that all FIs must comply with the Anti-Money Laundering Act B.E.2542 (1999). FIs are required to strictly adhere to official notifications and operational guidelines related to know your customer and enhanced due diligence (EDD) procedures for both customers and their transactions, as outlined by the AMLO.
The BOT also reaffirms that it has continued to instruct FIs to comply with sanctions set forth by the Financial Action Task Force and measures prescribed by the AMLO. Specifically, FIs are obligated to conduct EDD for transactions involving high-risk countries. The BOT advises that it will collaborate with the AMLO in supervising FIs to ensure that Thailand is not inadvertently involved in, or being used as, a channel for money laundering and financing of terrorism. [28 Jun 2024]
2. SET amends short selling and program trading regulations, taking effect from 1 July 2024
The Stock Exchange of Thailand (SET) has announced amendments to short selling and program trading regulations, which took effect on 1 July 2024.
The key revisions are as follows:
- Short selling – The qualifications for non-SET100 securities eligible for short selling have been amended to require larger market-cap shares with more trading liquidity. The minimum three-month average market capitalisation requirement for non-SET100 securities has been raised to THB 7.50 billion (approximately USD 204.03 million). Additionally, a 12-month average monthly turnover of at least 2% has been introduced, while the minimum free float of 20% of paid-up capital remains unchanged. The uptick rule, which requires short selling at prices higher than the last executed price, has replaced the current zero-plus tick rule, which allows short selling at prices equal to or higher than the last executed price.
- Program trading – High frequency trading (HFT) investors are now required to register before sending HFT orders, strengthening the oversight of this group of investors.
- Disclosure of investors who conduct inappropriate trading practices – The SET will now disclose information of investors who conduct inappropriate trading practices to all SET broker member companies, enabling more effective supervision.
These regulatory measures are expected to enhance market supervision and boost investor confidence. [21 Jun 2024]
3. SEC reported to have approved first Bitcoin ETF for wealthy and institutional investors
The Securities and Exchange Commission (SEC) of Thailand is reported to have approved One Asset Management (ONEAM)'s launch of the country's first Bitcoin exchange-traded fund (ETF). The fund, named ONE Bitcoin ETF Fund of Funds Unhedged and not for Retail Investors (ONE-BTCETFOF-UI), is exclusively available to wealthy and institutional investors.
The ONE-BTCETFOF-UI will invest in 11 leading global funds to ensure liquidity and safety, storing coins in accordance with international standards, and has reportedly been reviewed by regulatory agencies in the US and Hong Kong. [4 Jun 2024]
Philippines
1. BSP releases guidance paper on beneficial ownership due diligence
The Bangko Sentral ng Pilipinas (BSP) has issued a guidance paper outlining best practices for identifying and verifying beneficial ownership information, noting that beneficial ownership due diligence is increasingly regarded as an essential element of the money laundering (ML), terrorist financing (TF) and proliferation financing (PF) risk management framework..
The Manual of Regulations for Banks/Manual of Regulations for Non-Bank Financial Institutions require BSP-supervised financial institutions (BSFIs), among others, to identify the beneficial owner and take reasonable measures to verify beneficial owner identity, and in case of juridical person or legal arrangement, to have a system to understand the nature of the customer’s business and its ownership and control structure.
The results of a thematic review conducted by the BSP indicate that BSFIs in general have established ML/TF/PF risk management policies and practices covering the identification, verification, sanctions screening, ongoing monitoring and updating of beneficial ownership information. Focus areas for improvement include (i) enhancing the beneficial ownership identification process using a “control lens” to complement identifying beneficial ownership based on ownership, (ii) taking a multi-pronged approach in collecting beneficial ownership information, and (iii) reinforcing a risk-based approach in verifying such information.
The guidance paper aims to provide BSFIs with functional reference material in benchmarking best practices in the industry and calibrating their policies, systems, processes and controls for enhanced beneficial ownership identification and verification process, tailored to the institution’s risk and context.
BSFIs are advised to consider the guidance paper in enhancing their ML/TF/PF risk management system in line with their risk profile. [20 Jun 2024]
Indonesia
1. Indonesia Stock Exchange upgrades its core trading platform in partnership with Nasdaq
The Indonesia Stock Exchange (IDX) have announced an expansion of its technology partnership with Nasdaq, which involves an upgrade to its core trading platform to Nasdaq's most advanced matching engine, an extension of their market surveillance partnership, and an agreement to enhance the IDX's Index business.
The IDX's decision to modernise its underlying architecture aligns with the strategic pillars set out by Indonesia's OJK (Financial Services Authority) to develop a robust, stable, and sustainable capital market that can support the ongoing development of the Indonesian economy. The IDX has seen rapid growth in recent years, with trading volumes increasing by 65% since 2019, and the total number of investors trading on its exchange growing by over 400% to 12.6 million.
Nasdaq's modular and scalable platform supports trading in traditional asset classes, including equities, fixed income, foreign exchange, and derivatives, as well as digital assets. This flexibility will support IDX's objective of increasing the number of products and services it offers to clients. The new platform will quadruple transaction capacity while supporting a deterministic low latency trading experience. [17 Jun 2024]
Vietnam
[No update for June 2024]
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