APAC Monthly Private Wealth Legal Developments – October 2024

1. Court imposes first immediate jail sentence for convicted unlicensed activity with compensation order

The Eastern Magistrates’ Court has sentenced Ms Lai Ka Yi to two weeks’ imprisonment and ordered her to pay a sum of HK$98,000 as compensation to a victim of her unlicensed activity, after she was convicted of holding herself out as carrying on a business in dealing in securities without an SFC licence.

This is the first time the Court has imposed an immediate jail sentence for an unlicensed activity offence with a compensation order in a prosecution brought by the SFC (see our previous update).  Ms Lai was also ordered to pay the SFC’s investigation costs.

The Court heard that between April and 10 May 2018, Ms Lai (who was then a university student) held herself out to the victim, who she knew personally, as carrying on a business in dealing in securities.  She enticed the victim to transfer to her bank account funds for her to invest in securities on the victim’s behalf.  The victim was subsequently unable to withdraw the investment from Ms Lai except receiving from her HK$2,000 in purported earnings.  

Ms Lai has been granted bail pending her appeal against both conviction and sentence.  [30 Oct 2024]

2. Government issues policy statement on responsible application of AI in financial market

The Financial Services and the Treasury Bureau has issued a policy statement to set out the Government's policy stance and approach towards the responsible application of artificial intelligence (AI) in the financial market.

The policy statement highlights:

• The Government's 'dual-track' approach to promote development and address potential challenges at the same time; 
• Current opportunities and use cases for AI;
• The types of risks associated with the use of AI and the corresponding measures to mitigate such risks (financial institutions should formulate an AI governance strategy, and adopt a risk-based approach in the procurement, use and management of AI systems, with human oversight to mitigate the potential risks); and
• The way forward for the Government and the financial regulators.

Some of the upcoming steps to be taken by the financial regulators include the following (among others):

• The HKMA will continue to run the Generative AI Sandbox launched in Aug 2024 (see our previous update);
• The HKMA will publish an updated study on 'Capacity Building for Future Banking' in 2025 to identify skills gaps in the banking industry for the following five years (2026 - 2030);
• The SFC will issue a circular to licensed corporations within November 2024 to remind them of the existing rules and regulations, as well as the opportunities and risks associated with generative AI;
• The SFC is participating in the International Organisation of Securities Commissions (IOSCO)'s Fintech Task Force AI Working Group and will keep in view any findings or recommendations from the IOSCO to consider whether further regulatory guidance to SFC-licensed firms is necessary;
• The Insurance Authority is enhancing its Guideline on Cybersecurity by developing a Cyber Resilience Assessment Framework specific for the insurance sector (according to a recent speech by the Insurance Authority's Chairman, Mr Stephen Yiu, the updated guideline will be published shortly and will come into effect in Jan 2025); and
• The Insurance Authority will conduct a fintech survey to evaluate current technology adoption trends in the insurance sector, focusing on AI and related cybersecurity measures.  [28 Oct 2024]

3. HKMA announces initiatives at Fintech Week 2024 to spearhead journey of fintech development in Hong Kong

The Hong Kong FinTech Week 2024, co-organised by the HKMA and InvestHK, commenced on 28 October 2024 with an opening keynote from the Chief Executive of the HKMA, Mr Eddie Yue. 

The HKMA announced various initiatives to spearhead the journey of fintech development in Hong Kong, including the following:

Accelerating asset tokenisation

• The HKMA is advancing financial market infrastructure innovation with Project Ensemble (see our previous update).  The HKMA has completed the initial phase of six tokenisation use cases across four main themes under Project Ensemble and will publish a report detailing the results of the experimentation in 2025.  The architecture community has also added three new members and four new participants will begin experimenting with the Ensemble Sandbox on fixed income and investment funds use cases.
• The HKMA is taking Project Evergreen to the next phase by introducing measures to promote wider adoption of tokenisation in capital markets, including the Digital Bond Grant Scheme, details of which will be announced shortly.  The HKMA has also launched EvergreenHub, a knowledge repository for digital bond transactions.

Breaking down boundaries for payment

• The HKMA is working closely with the People’s Bank of China to establish a cross-boundary linkage between Hong Kong’s Faster Payment System and the Mainland’s Internet Banking Payment System, which will support 24/7, instant, small-value, cross-boundary remittances.  A pilot launch is expected to take place tentatively in mid-2025.

Unlocking data potential

• To extend the reach of the Commercial Data Interchange, the HKMA is exploring a connection with the Land Registry to enhance mortgage and loan assessments for individuals and corporates in phases from 2025.  The HKMA is also exploring pilots on cross-boundary credit referencing with Mainland credit reference platforms, and upgrading the Commercial Credit Reference Agency 2.0, to enhance the small-and-medium sized enterprise lending journey.
• The HKMA is actively participating in Project Aperta, a cross-jurisdictional collaboration on open finance application programming interfaces network, to reduce frictions and costs in global finance. 

Empowering banks to go fintech

• The HKMA has launched Fintech Connect, a cross-sectoral sourcing platform connecting financial institutions with fintech solution providers.  The platform is also being enhanced by Qianhai-based fintech solution providers.
• The HKMA will continue to work with the ecosystem stakeholders to organise additional FiNETech sessions in the coming months to further advance the adoption of greentech and distributed ledger technology.
• The HKMA is also introducing a sector-wide uplift programme to enhance banks’ monitoring of complex money laundering cases and geopolitical risks through the use of artificial intelligence, supported by a joint event with Cyberport.  [28 Oct 2024]

4. HKMA Deputy Chief Executive shares thoughts on role of Hong Kong in GBA fintech ecosystem and announces launch of Fintech Connect

Mr Arthur Yuen, Deputy Chief Executive of the HKMA, has made remarks at the Hong Kong FinTech Week 2024 regarding the role of Hong Kong in the Greater Bay Area (GBA) fintech ecosystem. 

The key developments discussed by Mr Yuen include the following (among others):

• The HKMA is launching the Fintech Connect, a new cross-sectoral matching platform that enables financial institutions to discover innovative solutions and partner with solution providers via more direct networking and precise matching.  In collaboration with the Qianhai Authority, the HKMA has onboarded fintech firms in the Qianhai region to the Fintech Connect platform to further promote fintech development. Through the platform, financial institutions from Hong Kong are better equipped with access to the innovation from the Qianhai region, and Qianhai Fintech firms are afforded greater opportunities to access and enter international markets.
• The GBA Fintech Pilot Trial Facility, launched in 2022, has enabled banks and fintech solution providers to obtain early supervisory feedback and user opinions, expedite the launch of fintech products, and ultimately reduce development costs.  The HKMA is encouraged to see successful production roll-out of cross border fintech solutions following these trials.
• The first phase of pilot trials on the Shenzhen-Hong Kong Cross-boundary Data Validation Platform has been conducted, covering cross-boundary validation of credit reference reports and account opening documents for corporate customers.  The HKMA encourages banks to utilise the platform to discover innovative use cases and conduct pilot trials involving cross-border data validation through the HKMA’s Fintech Supervisory Sandbox.
• More fintech-related initiatives will be undertaken in the future, such as training sessions and new editions of the FiNETech series, further exploring the cross-border fintech and financial cooperation between not only Hong Kong and Qianhai, but also other cities in the GBA.  [28 Oct 2024]

5. SFC announces initiatives at Fintech Week 2024 to foster vibrant fintech ecosystem in Hong Kong

In a keynote address at Hong Kong Fintech Week 2024, Dr Eric Yip, the SFC's Executive Director of Intermediaries, detailed initiatives to further develop and scale up Hong Kong’s virtual asset market.

Swift licensing process for virtual asset trading platforms (VATPs)

• The SFC is implementing a swift licence approval process for handling deemed-to-be-licensed VATP applicants (see our previous update), building upon its existing regulatory tools of risk-based on-site inspections alongside direct dialogue with the applicants’ senior management and controllers, rather than using a document-based vetting process.  
• The SFC expects the first batch of formal licences to be granted to deemed-to-be-licensed VATP applicants by the end of 2024.

VATP consultative panel

• To support licensed VATPs’ development of sustainable business models, the SFC is establishing an official consultative panel for all licensed VATPs with representatives from each licensee to ensure that their perspectives are taken into account in the SFC's policymaking. 
• The consultative panel is expected to be launched in early 2025.  Together with feedback from other stakeholders, the panel’s deliberation will form the foundation of the SFC's forthcoming white paper on regulatory priorities for the virtual asset (VA) industry. 

Further regulatory building blocks relating to VAs

• As part of its commitment to enable the sustainable and responsible development of the virtual asset industry, the SFC is working with the Government and other regulatory bodies to develop proposals for regulating the provision of VA trading services, and the provision of VA custody services.

Tokenisation, Project Ensemble and stablecoins

• The SFC is a core member of the Architecture Community of HKMA's Project Ensemble, co-leading tokenisation initiatives for the asset management industry (see our previous update).  Project Ensemble plays a crucial role in establishing the necessary infrastructure for Hong Kong’s tokenisation ecosystem, ultimately setting industry standards for tokenised asset settlement (see our previous update).
• In light of the upcoming implementation of the fiat-referenced stablecoin regime, the SFC expects to see regulated stablecoins available for public usage in as early as 2025. 

Dr Yip indicated that the SFC will continue to enhance its investor protection efforts through proactive monitoring systems and public alerts while stepping up its collaboration with other agencies.  [28 Oct 2024]

6. Project Ensemble Sandbox participant successfully completes simulation of dealing and trading process of tokenised money market fund using TDs

The SFC has announced that a financial institution participating in the Project Ensemble Sandbox has successfully completed a first-of-its-kind simulation of the dealing and trading process of a tokenised money market fund using tokenised deposits (TDs) within the sandbox environment.

Following the launch of the Project Ensemble Sandbox in August 2024 (see our previous update), the SFC has been working closely with HKMA in which the SFC provides regulatory guidance to sandbox participants to support their experimentation on tokenisation use cases under different themes.  The SFC has also been co-leading with the HKMA to advance the tokenisation initiatives within the asset management sector.

The financial institution (a local bank) has partnered with its own asset management arm and trustee business, and successfully completed in the sandbox a simulation of delivery-versus-payment settlement of a tokenised money market fund using TDs.  The simulation covered subscription, redemption and trading of the tokenised fund unit for its institutional clients, as well as cross-bank settlement of the tokenised fund unit using TDs.  This pilot test would pave the way for further exploring atomic settlement of tokenised funds and money on a 24/7 basis in real-world business scenario, which could increase operational efficiency, reduce costs and appeal to international investors across various time zones.

The SFC remains committed to building the tokenisation ecosystem in Hong Kong and working with the HKMA and sandbox participants to further develop use cases.  It will continue to engage asset managers on their product tokenisation initiatives.  [28 Oct 2024]

7. HKEX to launch Virtual Asset Index Series on 15 November 2024

The HKEX has announced the launch of the HKEX Virtual Asset Index Series, which will go live on 15 November 2024.  The launch is part of HKEX's push to explore adjacencies, supporting Hong Kong's fintech development whilst providing investors with essential benchmarking tools and solutions in a constantly evolving market landscape.

The index series, which will be the first EU Benchmarks Regulation-compliant virtual asset index series developed in Hong Kong, will be administered and calculated by CCData, a UK-registered benchmark administrator and virtual asset data and index provider. 

The index series will provide investors with transparent and reliable benchmarks for Bitcoin and Ether pricing in the Asian time zone.  It seeks to provide a single reference price for virtual assets, where these assets are often traded at different prices across global exchanges.

The index series will include the reference index as well as the reference rate for Bitcoin and Ether.  The reference index is a 24-hour volume weighted reference spot price of Bitcoin or Ether, using prices aggregated from top-rated virtual asset exchanges, calculated in real-time and denominated in USD.  The reference rate is designed for the settlement of financial products, calculated daily at 4:00 pm Hong Kong time.

Further details on the design and calculation methodology of the index series will be announced in due course.  [28 Oct 2024]

8. HKMA partners with central banks of Thailand and Brazil on cross-border tokenisation initiatives

The HKMA has announced its collaboration with the central banks of Thailand and Brazil on cross-border tokenisation initiatives, following earlier collaborations.

Bank of Thailand (BOT):

• The collaboration involves exploring cross-border tokenisation use cases under Project Ensemble and Project San.
• The HKMA and the BOT will explore payment versus payment (PvP) and delivery versus payment (DvP) tokenisation use cases, including trade payments and carbon credits.  A key aspect of this collaboration will be a proof of concept development, exploring the interoperability of new distributed ledger technology integrated financial market infrastructures.  In the proof of concept development, the HKMA and the BOT will test a link between infrastructures under Project Ensemble and the BOT’s Project San.  

Banco Central do Brasil (BCB):

The collaboration involves conducting cross-border tokenisation experiments under Project Ensemble and Drex pilot programme.

The HKMA and the BCB will link their experimental central bank digital currency infrastructures, namely the Ensemble Sandbox (launched in August 2024 – see our previous update) and the Drex pilot platform, to explore cross-border PvP and DvP settlement use cases in areas such as trade finance and carbon credits.  [28 Oct 2024]

9. Task Force on Promoting the Development of Asset and Wealth Management established and convenes first meeting

The Task Force on Promoting the Development of Asset and Wealth Management has been established and held its first meeting.

The Financial Secretary announced in the 2024-25 Budget the establishment of a task force to discuss with the industry measures for further developing the asset and wealth management (WAM) industry (see our previous update).  The task force is chaired by the Secretary for Financial Services and the Treasury, Mr Christopher Hui, and comprises nine non-official members from the WAM industry, government officials, and representatives of financial regulators and relevant bodies.

The Chief Executive's 2024 Policy Address set out the need to further enhance Hong Kong's status as an international WAM centre (see our previous update).  In this respect, the Government will consult the industry on the proposal to add qualifying transactions eligible for tax concessions for funds and single-family offices.  The task force had a focused discussion on the proposal at its first meeting.  [25 Oct 2024]

10. SFC issues circular on refinements to data reporting requirements for SFC-authorised funds, superseding 2018 and 2021 circulars from 31 January 2025

The SFC has issued a circular to inform management companies of SFC-authorised unit trusts and mutual funds that it is refining the fund data reporting in light of international regulatory developments.  The refinements will take effect on 31 January 2025 and will enhance the SFC's ability to perform supervisory and regulatory responsibilities.

The enhanced requirements supersede those in the SFC's prior circulars of 29 June 2018 and 11 November 2021 (see our previous update), and covers the following types of reports (sample forms are provided by the SFC – linked as follows):

• Subscription and redemption reports, to be submitted on a monthly basis;
• Liquidity profile reports, to be submitted on a quarterly basis;
• Asset allocation and leverage exposure reports, to be submitted on a quarterly and annual basis respectively; and
• Securities financing transactions and securities borrowing transactions reports, to be submitted on an annual basis.

Following the end of each report date, the SFC will send a submission request in the e-IP system on WINGS to the management company of each fund.  The request will include reporting forms, instructions on completing them and a link for submitting the completed forms to WINGS.

The management company (or its authorised entity, such as the fund's administrator) should complete and file the reporting forms with the SFC via WINGS within 10 business days from the report date for the subscription and redemption report, and five weeks from the report date for other types of reports.

The SFC may further refine or enhance reporting requirements, taking into consideration the local and international market and regulatory developments as well as the implementation of the enhanced fund data reporting.  [25 Oct 2024]

11. SFC extends parallel run period of new e-IP application and submission system for investment products to 29 November 2024

The SFC has issued a circular to inform the industry that it will extend the parallel run period of its new online application/submission system for investment products, e-IP, by one month to 29 November 2024.

On 29 July 2024, the SFC launched e-IP on its WINGS portal to streamline and enhance the efficiency of processing new product applications and post-authorisation/registration submissions to its Investment Products Division (IPD) (see our previous update).  A three-month parallel run period (up to 29 October 2024) was provided at the initial stage.

Since its implementation, the SFC has closely monitored the functioning of e-IP and actively engaged with industry participants to obtain their feedback on user experience.  Since new features and more advanced settings will be introduced to further enhance the user experience in light of feedback, the SFC will extend the parallel run period by one month to 29 November 2024.

Starting on 30 November 2024, applications and submissions of investment products must be submitted via e-IP.  The current submission requests from IPD via the IP E-submission system will be integrated into e-IP, including reporting of net asset values, large redemptions and suspensions of dealing.  e-IP users can also settle recurring annual fees associated with relevant investment products through the new system.  [24 Oct 2024]

12. Government indicates upcoming proposals to enhance tax exemption arrangements for asset and wealth management industry

To support the development of the asset and wealth management industry, particularly privately offered funds, private equities and family offices, the Government will shortly consult the industry on proposals to enhance the tax exemption arrangements for relevant entities.  The proposals were mentioned at a high level at the Chief Executive's recent Policy Address (see our previous update).

According to the blog post of the Secretary for Financial Services and the Treasury (Mr Christopher Hui) and the keynote speech by the Permanent Secretary for Financial Services and the Treasury (Financial Services) (Ms Salina Yan) at the Alternative Investment Management Association Asia-Pacific Annual Forum 2024, the Government proposes to:

• Expand the definition of 'fund' to cover pension funds and endowment funds so as to strengthen the development of 'patient capital';
• Increase the types of transactions eligible for tax concessions for funds and single family offices to cover emission derivatives or emission allowances, insurance-linked securities, loans and private credit investments, virtual assets, etc; and
• Remove the requirements for certification and hurdle rate for carried interest in seeking such tax exemption arrangements.  [21 & 24 Oct 2024]

13. SFC launches FASTrack to expedite authorisation of simple investment funds, with six-month pilot period commencing on 4 November 2024

The SFC has announced that it will launch the Fund Authorisation Simple Track (FASTrack) on 4 November 2024, to expedite the processing of applications from simple investment funds and promote overall fund authorisation efficiency.  The first six months (ie 4 November 2024 to 4 May 2025) will be a pilot period where the SFC will monitor the operation of FASTrack and refine it as appropriate.

In its circular, the SFC explains that FASTrack will be available to simple funds domiciled and regulated in specific jurisdictions that seek authorisation for public offering in Hong Kong.  Such jurisdictions are those that have entered into mutual recognition of funds (MRF) arrangements with Hong Kong.  As the regulatory regimes of these MRF jurisdictions provide investor protection for retail investment funds comparable to that in Hong Kong and cooperation arrangements between the SFC and home regulators are in place, the SFC considers that there is room to further expedite the authorisation process for eligible funds from such jurisdictions.

A simple fund from an MRF jurisdiction will be processed under FASTrack if the criteria set out in the circular are met:

• The fund must take a certain form, such as (i) an equity, bond or mixed fund, (ii) an exchange-traded fund or unlisted fund tracking an index adopted by other existing SFC-authorised fund(s) or a plain vanilla index, or (iii) a feeder fund (where the underlying master fund is eligible for FASTrack);
• The fund must not be a derivative fund, and should not contain novel features, have material issues or bear wider policy implications.

There are also other criteria relating to the management company and (if applicable) the investment delegate of the fund.

Under FASTrack, the SFC will aim to take up an application of a simple fund from an MRF jurisdiction meeting the relevant criteria within five business days after receiving it, followed by granting authorisation within 10 business days from the take-up date.

To facilitate the smooth launch of FASTrack, the guide, information checklist and FAQs on authorisation of unit trusts and mutual funds have been updated.  The SFC has also published a pamphlet that provides an overview of the FASTrack process and eligibility requirements.  [21 Oct 2024]

14. SFC issues circular regarding information disclosure on information portal of HKEX integrated fund platform

The SFC has issued a circular to management companies of SFC-authorised unit trusts and mutual funds, explaining how fund information will be disclosed on the information portal of the HKEX's integrated fund platform (see our previous updates here and here for background on the platform).  The HKEX plans to launch the platform in phases from the end of 2024, commencing with the information portal.

The information portal is intended to provide a one-stop access to fund information which is required to be made available to investors.  It will contain relevant public information on funds, which is currently located on public websites and filed by management companies with the SFC.

The public information is expected to cover (among others) the names of the management company and trustee/custodian, fund offering documents, financial reports and notices, relevant fund types, and other information (such as base currency, fund domicile, dealing frequency, fund size , and date of authorisation).

Management companies will not be required to file information separately to the platform's information portal.  If management companies files subsequent updates with the SFC, the SFC will make the filings available to HKEX for publication on the information portal.

The other key components of the platform, consisting of a communication hub and a business platform to facilitate the dealing of funds between fund managers and distributors, are expected to be rolled out subsequently.  The HKEX will release further details in due course.

The circular also reminds management companies regarding document submission requirements, including all filings required under Chapter 11 of the Code on Unit Trusts and Mutual Funds (UT Code).  Management companies are reminded to file all notices to investors with the SFC pursuant to 11.2A of the UT Code, including where no filing form pertains to the particular notice.  [21 Oct 2024]

15. Hong Kong Chief Executive sets out initiatives to deepen reforms and explore new growth areas in 2024 policy address

The Chief Executive of Hong Kong, Mr John Lee, has delivered his 2024 Policy Address to set out initiatives to deepen reforms and explore new growth areas, as well as the Government's vision and objectives for reforms and changes, and the related key measures and key performance indicators. 

The following are some of the areas relevant to the financial services sector:

• The Government will require critical infrastructure operators to undertake obligations to protect their computer systems, so as to reinforce their resilience against cybersecurity challenges.  Legislative amendments will be introduced within 2024 (see our previous update).
• The Government will deepen mutual market access and enrich offshore RMB business, including developing the fixed income market infrastructure by, for example, setting up a central clearing system for RMB‑denominated bond repurchase transactions, making RMB sovereign bonds issued in Hong Kong a more popular choice of collateral in offshore markets, enhancing the Cross‑boundary Wealth Management Connect Scheme, and providing more RMB-denominated investment products.
• The Insurance Authority will initiate a review in 2024 to examine capital requirements for infrastructure investment, enriching insurance companies’ asset allocation for risk diversification and driving investment in infrastructure such as the Northern Metropolis.
• The Government will take steps to further enhance Hong Kong's status as an international asset and wealth management centre, including collaborating with sovereign wealth funds in regions along the Belt and Road, enhancing the New Capital Investment Scheme, and expanding the scope of tax concessions for funds and single-family offices.
• The Government will further enhance the securities market, including opening up new sources of capital overseas (such as launching exchange traded funds tracking Hong Kong stock indices in the Middle East), striving for more listing of enterprises in Hong Kong, optimising the vetting of listing applications, and boosting market efficiency and lowering transaction costs, such as reviewing the arrangement for deposit of margin and refining the requirements on placement of margin and collateral.
• The Government will facilitate members of the public in making cross‑boundary transactions and payments.  For example, the HKMA and the People’s Bank of China are pushing forward the linkage of fast payment systems in the two places to facilitate real‑time, cross‑boundary small‑value payments by residents on both sides.
• The HKMA will roll out the Sustainable Finance Action Agenda.  The Financial Services and the Treasury Bureau (FSTB) will launch a roadmap on the full adoption of the International Financial Reporting Standards – Sustainability Disclosure Standards within 2024.
• The Government will continue to promote the development of innovative financial services including Central Bank Digital Currencies (CBDCs), mobile payment, virtual banks, virtual insurance and VA transactions.  The FSTB will shortly issue a statement setting out its policy stance regarding the application of artificial intelligence in the financial market.  Other measures include promoting the use of CBDC for cross-boundary payment, enhancing the regulation of VA trading (including over-the-counter trading of VA and the licensing of VA custodian service providers), promoting real-world asset tokenisation and developing a digital money ecosystem, introducing legislative proposals to regulate fiat-referenced stablecoin issuers, and launching the Digital Bond Grant Scheme to encourage more financial institutions and issuers to adopt tokenisation technology in capital market transactions.
• The HKMA will adjust the maximum loan‑to‑value ratio for residential properties to 70%, regardless of the value of the properties, whether the properties are for self‑use or held by companies, and whether the purchasers are first‑time home buyers, while the maximum debt servicing ratio will be adjusted to 50%.  For non‑residential properties, the maximum loan‑to‑value ratio and maximum debt servicing ratio will be adjusted to the respective same levels.  See HKMA's announcement and circular.
• Enhancements will be made to the SME Financing Guarantee Scheme.  HKMC Insurance Limited will follow up with the lending institutions on the implementation details of the new measures, aiming to roll them out within November 2024.

The SFC, the Insurance Authority, and the Accounting and Financial Reporting Council welcome the initiatives in the Policy Address.  [16 Oct 2024]

16. SFC highlights asset manager misconduct in managing private funds and discretionary accounts and provides guidance and case examples

The SFC has issued a circular flagging various deficiencies and substandard conduct identified during its supervision of licensed corporations engaged in managing private funds and discretionary accounts (asset managers).  In many cases, the misconduct was egregious and demonstrated a lack of integrity on the part of the asset managers and their senior management, as well as a failure by the senior management to provide effective supervision.

The circular highlights cases involving breaches of regulatory requirements in areas ranging from conflicts of interest, risk management and investment within mandate, information for investors, to valuation methodologies.  It also sets out the obligations applicable to asset managers in these circumstances, as well as case examples (see Appendix to the circular).

The SFC stresses that the board and senior management of asset managers, including the managers-in-charge (MICs) of core functions and responsible officers (ROs), bear primary responsibility for ensuring the maintenance of appropriate standards of conduct.  They are expected to critically review the areas of concern discussed in the circular and give priority to strengthening their supervisory and compliance programmes, including their policies, procedures as well as systems and controls, to ensure compliance with all applicable regulatory requirements.

Where practicable, an independent and objective audit should be conducted on the asset manager’s compliance with the obligations discussed in the circular.  Should an asset manager become aware of any material breach, infringement or non-compliance with any regulatory requirements, it should report to the SFC immediately, providing particulars of the breach as well as relevant information and documents as required under paragraph 12.5 of the SFC's main code of conduct.

To combat asset management misconduct, the SFC will commence a thematic on-site inspection of asset managers to detect any material breaches or non-compliance with applicable regulatory requirements among other issues.

The SFC states that it will not hesitate to take decisive action against these asset managers and their management, including relevant MICs and ROs, for their misconduct and failure to discharge their supervisory duties.  [9 Oct 2024]

17. FSTB and Bloomberg establish strategic collaboration to enhance Hong Kong's family office ecosystem

FSTB has announced the establishment of 'Hong Kong Family Office Nexus', a strategic collaboration between the FSTB and Bloomberg L.P. (Bloomberg) aimed at attracting family offices globally to establish or expand their presence in Hong Kong.

The strategic collaboration is a result of a meeting in New York in April 2024 between the Secretary for Financial Services and the Treasury, Mr Christopher Hui, and the Founder of Bloomberg and Bloomberg Philanthropies, Mr Michael Bloomberg.  Their discussions centred on Hong Kong's policy initiatives to transform the city into a global hub for family offices and philanthropic activities, and how the two parties shall collaborate to further the efforts.

The FSTB, Invest Hong Kong (InvestHK) and the Hong Kong Academy for Wealth Legacy (HKAWL) will work together with Bloomberg on various initiatives to bolster Hong Kong's family office ecosystem, focusing on four key pillars:

• Community building: Parties will co-organise seminars for family office industry professionals covering topics such as impact investing and alternative asset allocation.  Bloomberg will establish a dedicated digital content hub – the Hong Kong Family Office Nexus Knowledge Hub – in the coming months to host information related to Hong Kong's family office sector.
• Knowledge sharing: Bloomberg will curate a family office guidebook to provide guidance on setting up family offices in Hong Kong and introduce relevant policy initiatives, such as tax concessions and the New Capital Investment Entrant Scheme.
• Technology support: Bloomberg will support InvestHK's family office clients by offering access to Bloomberg's suite of family office solutions, including Bloomberg Terminal trials, a range of financial and alternative data, and opportunities to learn from Bloomberg's global network of experts.  Bloomberg will also join InvestHK's Network of Family Office Service Providers to contribute insights and expertise on the latest trends of technology solutions for the sector.
• Philanthropic collaboration: The HKAWL will collaborate with Bloomberg Corporate Philanthropy on opportunities for family offices and high-net wealth individuals to engage in Hong Kong's philanthropic community.

Bloomberg will also introduce a new summit in Hong Kong focused on wealth management in March 2025, which will complement the FSTB's annual flagship event, the Wealth for Good in Hong Kong Summit.  Other initiatives of the Hong Kong Family Office Nexus will commence in phases in late 2024.  [9 Oct 2024]

18. SFC concludes consultation on proposals to enhance REIT regime and SFO market conduct regime for listed CISs, and aims to complete legislative process by end of 2025

The SFC has released the conclusions to its consultation (see our previous update) on proposals to introduce a statutory scheme of arrangement and compulsory acquisition mechanism for real estate investment trusts (REITs), and an enhanced market conduct regime for listed collective investment schemes (CISs) under the Securities and Futures Ordinance (SFO).

Under the proposals:

• REITs will be able to conduct privatisation and corporate restructuring in a clear and orderly manner, with similar safeguards and protections for investors as embodied in the Companies Ordinance Part 13 framework (REIT Scheme Proposal); and
• the market conduct regimes under the SFO, including the market misconduct regime (comprising offences of insider dealing, market manipulation and other market misconduct), the disclosure of inside information regime, and the disclosure of interests regime (under Parts XIII, XIV, XIVA and XV of the SFO) will be extended to explicitly cover listed CISs including REITs, with refinements (Listed CIS Proposal).

The proposals received general support during the consultation.  The SFC will work with the Government to introduce an amendment Bill into the Legislative Council (LegCo), with the aim of completing the legislative process by the end of 2025.

The regime relating to the REIT Scheme Proposal will become effective upon the LegCo’s passage of the Bill.  The regime relating to the Listed CIS Proposal will become effective as soon as possible on a date to be appointed by a commencement notice in the Gazette, subject to any subsidiary legislation revisions as may be required.

The SFC will issue further guidance to the industry following the passage of the Bill where appropriate.  [8 Oct 2024]

19. HKSCC publishes information paper and hosts introductory briefings for implementation of USM

Following the SFC's consultation conclusions in July 2024 on the proposed subsidiary legislation, code and guidelines for implementing an uncertified securities market (USM) in Hong Kong (see our previous update), the Hong Kong Securities Clearing Company Limited (HKSCC) has issued a circular notifying clearing participants and custodian participants (CPs) that an information paper has been published to facilitate their preparation for the USM.  The USM regime is expected to be implemented towards the end of 2025, subject to the completion of the legislative process.

The information paper provides an overview of the USM and explains the process for securities to participate in the USM regime.  It also explains the changes to the operational procedures for the transfer of securities to and from HKSCC Nominees Limited, and other technical changes under the USM.  Further details on implementation, market rehearsal and compliance / documentation will be included in the information paper in due course.

CPs should read the information paper and make all necessary arrangements to ensure that proper operational procedures and technical support are available upon USM implementation.

The HKSCC will arrange online briefing sessions on 12 November 2024 (Cantonese), 13 November 2024 (Cantonese) and 14 November 2024 (English) to provide an overview of the USM and key information on the changes to the operational procedures.  CPs should register for the sessions via the event section in Client Connect by 5 November 2024.  [2 Oct 2024]

1. MAS: BIS Project Mandala: Streamlining cross-border transaction compliance

MAS has reported that the Bank for International Settlements and its central bank partners have successfully demonstrated with Project Mandala that regulatory compliance can be embedded in cross-border transaction protocols. A compliance-by-design decentralised system was developed that could help streamline cross-border payments by embedding regulatory compliance within a network of financial institutions (FIs) and central banks. This decentralised architecture integrates three core components: a peer-to-peer messaging system, a rules engine and a proof engine.

The project, which has now reached proof of concept stage, aligns with the G20 priority actions for enhancing cross-border payments, as it has the potential to reduce costs and increase transaction speed, while preserving regulatory compliance.

This experimental project is a collaboration with the BIS Innovation Hub Singapore Centre, the Reserve Bank of Australia, the Bank of Korea, and Bank Negara Malaysia.  [28 Oct 2024]

2. MAS and IMDA announce implementation of SRF

The Monetary Authority of Singapore (MAS) and  Infocomm Media Development Authority of Singapore (IMDA) have announced that the Shared Responsibility Framework (SRF) for phishing scams, which was the subject of a consultation in 2023, will be implemented on 16 December 2024. The SRF assigns FIs and telecommunication companies relevant duties to mitigate phishing scams, and sets expectations of payouts to affected scam victims where these duties are breached. In conjunction with the announcement, the Association of Banks in Singapore (ABS) has released a statement noting that it welcomes the SRF and is committed to upholding its principles. [24 Oct 2024]

3. MAS: Response to Parliamentary question on single family offices from emerging markets

MAS has  published  the response to a Parliamentary question on the transparency and legitimacy of funds from single family offices (SFOs) from emerging markets. The response highlighted that SFOs applying for MAS tax incentives are required to open accounts with FIs in Singapore and are subject to the FIs’ due diligence checks. In addition, MAS screens the tax incentive applicants for adverse reports and money laundering or terrorism financing risks.  [16 Oct 2024]

4. MAS consults on regulatory approach to Digital Token Service Providers

MAS has published a consultation setting out the proposed regulatory approach, regulations, notices and guidelines for Digital Token Service Providers regulated under Part 9 of the Financial Services and Markets Act 2022. The consultation topics include: licensing processes and fees; minimum financial requirements; governance arrangements, including the duties of CEOs; requirements in respect of any existing customers onboarded before a license has been obtained; third parties; correspondent account services; bearer negotiable instruments and cash payouts; value transfer requirements; reporting requirements; technology risk management and cyber hygiene; and conduct requirements.

Feedback to the consultation is requested by 4 November 2024.

1. New Bank Indonesia’s Board of Governors Regulation: Foreign Exchange Market Transaction

On 23 September 2024, Bank Indonesia (BI) enacted Member of the Board of Governors Regulation No. 11 of 2024 on Foreign Exchange Market Transaction (Implementing Regulation 11/24, in Indonesian language), implementing Regulation No. 6 of 2024 on Money and Foreign Exchange Market (Regulation 6/24, in Indonesian language) and revoking Member of Board of Governors Regulation No. 24/10/PADG/2022 on the same subject, as well as Member of Board of Governors Regulation No. 24/11/PADG/2022 on Domestic Non-Deliverable Forward (both in Indonesian language). Please refer to our 2 August update for more details on Regulation 11/24.

Notable provisions in Implementing Regulation 11/24 include:

• foreign exchange transactions against Rupiah for certain economic activities can be carried out through third party intermediaries (e.g. fund transfer administrator, e-commerce service providers) – the types of economic activities are prescribed by BI, which includes foreign direct investments, capital injections, and loans;
• when a foreign exchange transaction is carried out through a third-party intermediary, the intermediary can submit to the relevant bank the same underlying document that the end-client submitted to the intermediary;
• centrally cleared foreign exchange transactions are exempted from underlying transaction requirements;
• specific administrative sanctions for certain incompliances, for example, administrative sanction in form of payment obligation of bank to pay 1% of the value of the violating transaction;
• BI can standardise centrally cleared foreign exchange market transactions, which standarisation will be published on BI's website;
• banks are allowed to carry out cover hedging; and
• prescribed form for consultation with BI for the use of smart contracts.

Provisions Implementing Regulation 11/24 retains the provisions of its predecessor with respect to domestic non-deliverable forward transactions.  [4 Oct 2024]

1. BNM announces proof-of-concept stage for Project Mandala

Bank Negara Malaysia (BNM) has announced that Project Mandala, a collaboration with the Bank for International Settlements Innovation Hub Singapore Centre, the Reserve Bank of Australia, the Bank of Korea, and the Monetary Authority of Singapore, has reached proof of concept stage.

The 'Mandala' system aims to increase the speed and efficiency of cross-border transactions by automating compliance procedures, enhancing transparency of country-specific policies and providing real-time reporting and monitoring for regulators and supervisors.

The project has proved its technical feasibility through two primary use cases:

• cross-border lending between Singapore and Malaysia – Mandala streamlined the compliance processes for capital flow management measures (CFM) and sanctions screening for financial institutions and facilitated real-time compliance monitoring for central banks; and
• cross-border financing for capital investments between South Korea and Australia –Mandala automated the sanctions screening and CFM reporting requirements for an unlisted securities transaction.

Additionally, Mandala successfully integrates with both nascent digital asset settlement systems, such as a wholesale central bank digital currency (wCBDC), and traditional payment messaging systems, such as Swift. This dual integration ensures the Mandala system’s versatility and modularity in supporting both future digital asset ecosystems and existing financial infrastructures. For digital assets, Mandala deployed programmable compliance that can be embedded into smart contracts.  [28 Oct 2024]

2. BNM consults on complaints handling by FSPs

BNM has published an exposure draft on complaints handling, which sets out proposed requirements and expectations aimed at ensuring that complaints handling mechanisms of financial service providers (FSPs) remain relevant, accessible and timely. BNM considers that these enhancements are necessary in view of the rapid digitalisation of business practices of FSPs, the increasing complexity of financial products and services and the heightened expectations of financial consumers for FSPs to be responsive, fair and effective in handling complaints.

Feedback is requested by 8 November 2024.  [8 Oct 2024]

3. SCM unveils regulatory sandbox and initiatives to spur innovation – capital market

The Securities Commission Malaysia (SCM) has announced that it will introduce a regulatory sandbox and enhance its regulatory framework in order to encourage securities tokenisation to help spur innovations in the capital market. The sandbox is among the initiatives unveiled at the SCxSC Fintech Summit 2024 that are aimed at promoting a responsible innovation in the country’s capital market.

The SCM will develop a guidance in early 2025 for intermediaries to understand and manage associated risks in relation to securities tokenisation. Firms have until April 2025 to apply for the first cohort of the sandbox.  [1 Oct 2024]

1. BOT collaborates with HKMA to explore cross-border tokenisation

The Bank of Thailand (BOT) has announced a collaboration with HKMA to explore cross-border tokenisation use cases under Project San and Project Ensemble. Building on a collaboration that began in 2019, the two central banks will explore Payment versus Payment (PvP) and Delivery versus Payment (DvP) tokenisation use cases, including trade payments and carbon credits.  A key aspect of this collaboration will be a proof-of-concept development, exploring the interoperability of new distributed ledger technology integrated financial market infrastructures (DLT FMIs).  [29 Oct 2024]

2. SECT consults on amendments to regulations for the management of PVD

The SECT has published a consultation on proposed principles and draft amendments to the regulations for the management of provident funds (PVD), which cover improvements to the work process and operations related to the switching of investment policy, liquidity risk management policy and tools (LMTs), and verification of the net asset value (NAV) of PVD by the custodian. The proposed amendments aim to enhance the PVD oversight.  [21 Oct 2024]

3. SECT consults on investment in digital assets by MFs and private funds

Following on from the approval for crypto exchange traded fund (ETF) establishment and trading on US stock exchanges, the Securities and Exchange Commission Thailand (SECT) has published a consultation on the principles and draft amendments to the regulations concerning investment in digital assets by mutual funds (MFs) and private funds. The proposed amendments include:

• adding investment tokens as an eligible asset for investment;
• allowing MFs and private funds to invest in cryptoassets under a risk level appropriate for the types of investors;
• the revision of relevant regulations to accommodate the establishment and management of MFs and private funds investing in digital assets, for example: asset custody; calculation of digital asset value; disclosure of information; appropriate advertising; and adjustment of suitability test.

Feedback to the consultation is requested by 8 November 2024.  [9 Oct 2024]

1. SEBI consults on draft SIDs uploading requirement

The Securities and Exchange Board of India (SEBI) has published a consultation on a proposal to reduce the number of days from 21 working days to 5 working days for which the draft Scheme  Information Documents (SIDs) submitted by asset management companies are to be made available on the SEBI website. Responses are requested by 20 November 2024.  [30 Oct 2024]

2. SEBI consults on specifying timelines for deployment of funds collected by asset management companies

SEBI has published a consultation on proposals related to specifying timelines for the deployment  of funds collected by mutual funds in new fund offers (NFO), as per asset allocation of a scheme. Responses are requested by 20 November 2024.  [30 Oct 2024]

3. IFSCA clarifies investment restrictions on retail schemes

IFSCA has published a circular in relation to investment restrictions on retail schemes set up in IFSCs. The circular clarifies that, in the case of investment by retail schemes in unlisted securities issued by an investment fund which is open-ended in nature and is regulated by the concerned regulatory authority in its home jurisdiction, and is permitted for offering to retail investors in its home jurisdiction, certain ceilings/limits shall not apply.

Further, in case of a retail scheme which is in the nature of a fund-of-funds scheme, the fund management entity (FME) shall disclose in the offer document of such retail scheme, the details of the underlying scheme(s) wherein the investments are intended to be made and the nature of association, if any, that the FME has with the manager of the underlying scheme(s).  [29 Oct 2024]

4. SEBI consults on demat accounts in the name of Association of Persons

SEBI has published a consultation on its proposal to permit Association of Persons (AOPs) to open a demat account in the name of the AOP to dematerialise and hold securities (other than equity shares). Responses are requested by 5 November 2024.  [16 Oct 2024]

5. SEBI: Measures to strengthen equity index derivatives framework – investor protection and market stability

SEBI has issued a circular on its decision to adopt measures aimed at strengthening the equity index framework. Of the six measures proposed, four measures are intended to address heightened activity in index options on expiry day. The other two measures seek to ensure continued suitability and appropriateness of index derivatives segment for investors and basic risk hygiene.  [1 Oct 2024]

6. SEBI: Review of stress testing framework for equity derivatives segment

SEBI has decided to introduce additional hypothetical stress testing scenarios/methodologies for determining the minimum required corpus of Core Settlement Guarantee Fund (SGF) in the equity derivatives segment. Clearing corporations and stock exchanges are directed to formulate a joint Standard Operating Procedures (SOP) document within 30 days from the date of issue of this circular and get it approved by their respective risk committees. In addition, they must take the necessary steps to put in place systems for implementation of the circular.  [1 Oct 2024]

[No update for September 2024]

[No update for September 2024]