APAC Monthly Private Wealth Legal Developments – January 2024 (2024)

Hong Kong

HKMA and PBoC announce six policy measures to deepen Hong Kong-Mainland financial cooperation

The HKMA and the People’s Bank of China (PBoC) haveannouncedsix policy measures to deepen financial cooperation between Hong Kong and the Mainland. This waswelcomedby the Hong Kong Government anddiscussedby the HKMA’s Chief Executive, Mr Eddie Yue, at a press conference.

The six policy measures include three ‘connection’ and three ‘facilitation’ measures:

• Expanding the list of eligible collateral for the HKMA’s RMB Liquidity Fund to include RMB bonds issued onshore by the Ministry of Finance of the People’s Republic of China and the policy banks of the People’s Republic of China;
• Further opening up the onshore repurchase agreement (repo) market to all foreign institutional investors (including Bond Connect investors) that already have access to the China Interbank Bond Market;
• Publishing amendments to the Implementation Arrangements for the Cross-boundary Wealth Management Connect Pilot Scheme in the Guangdong-Hong Kong-Macao Greater Bay Area (GBA);
• Implementing facilitative measures on the remittances for property purchase by Hong Kong and Macao residents in the Mainland cities in the GBA;
• Promoting collaboration on cross-boundary credit referencing to facilitate corporates’ cross-boundary financing activities;
• Expanding cross border e-CNY pilots in Hong Kong. [24 Jan 2024]

Enhancements to Cross-boundary Wealth Management Connect Pilot Scheme to take effect on 26 February 2024

The SFC hasissuedacircularto inform licensed corporations (LCs) that the People’s Bank of China has revised its implementation arrangements for the Cross-boundary Wealth Management Connect Pilot Scheme in the Greater Bay Area to enhance pilot scheme. The revised arrangements will take effect on 26 February 2024.

These enhancements include allowing eligible LCs to participate in the pilot scheme, expanding the eligible investment product scope, and clarifying the promotion and sales arrangements. The proposals for the enhancements were announced in September 2023 (see ourprevious update).

Following discussion with relevant regulatory authorities and soft consultation with the industry, the SFC has issued a set of guidance for LCs that wish to participate in the Southbound scheme (seeAnnex 1) and Northbound scheme (seeAnnex 2), as well as responses to frequently asked questions (FAQs) (seeAnnex 3). The SFC’s guidance covers, among others, eligible criteria for participating LCs and for investors, scope of eligible products, account opening arrangements, investor quota management, cross-boundary closed-loop fund flow arrangements, and promotion and sales arrangements.

Prior to the launch of any pilot scheme related activities, eligible LCs with the intention to participate in the scheme should:

• partner with an eligible Mainland broker to ensure all preparatory work is properly performed;
• implement adequate systems, internal control measures and operating procedures in accordance with the requirements set out in the SFC’s guidance; and
• demonstrate operational readiness by submitting to the SFC, among other things, their business plan and self-assessment report certified by their managers-in-charge for overall management oversight and for compliance, and their head of internal audit function.

LCs are encouraged to notify and discuss their business plan with their SFC case officer in advance if they wish to participate in the pilot scheme.

The HKMA has also published acircularto provide guidance to registered institutions in respect of the above, including guidance on theSouthbound scheme,Northbound schemeandresponses to FAQs. This circular will supersede the HKMA’s earlier circular of 10 September 2021 and FAQs of 1 December 2021. [24 Jan 2024]

SFC publishes strategic priorities for 2024-2026

The SFC hasreleaseditsstrategic priorities for 2024 to 2026, setting out its approach in developing Hong Kong’s securities markets, addressing risks, and protecting investors via four priorities.

Maintaining market resilience and mitigating serious harm to the markets, achieved through:

• elevating the risk management capabilities of market infrastructure and intermediaries;
• harnessing technology to improve the effectiveness of investigations and enforcement;
• closer collaboration of regulatory counterparts in Hong Kong, Mainland China and overseas; and
• educating the public,

Enhancing the global competitiveness and appeal of the Hong Kong capital markets, achieved through:

• deepening the connection with mainland capital markets;
• expanding overseas networks to broaden Hong Kong’s issuer and investor base; and
• reviewing Hong Kong’s positioning to enhance its IPO fund-raising capability and market quality and liquidity, taking forward the measures in the report by the Taskforce on Enhancing Stock Market Liquidity,

Leading financial market transformation through technology and ESG, by (among others):

• advancing the regulatory regime for virtual asset trading platforms by giving regulatory guidance to new virtual asset activities;
• safeguarding investors interests while embracing tokenisation of traditional products;
• building closer ties with local and international law enforcement agencies to combat crime;
• steering local and regional development of corporate sustainability disclosure standards with a pragmatic approach; and
• stemming greenwashing,

Enhancing institutional resilience and operational efficiency, via

• upholding effective governance (connecting people, functions and technologies);
• digitise application and authorisation processes;
• operational due diligence (cross-divisional workflow);
• streamlining and automation of processes (introducing artificial intelligence to workflows);
• stepping up cyber resilience; and
• robust budgeting and internal controls. [23 Jan 2024]

SFC to commence circularisation exercise and internal control review on safeguarding of client assets in February 2024

The SFC has issued acircularto inform licensed corporations (LCs) that it will commence a circularisation exercise on client accounts of selected securities brokers and an internal control review of such brokers’ safeguarding of client assets in February 2024. The SFC has engaged KPMG Advisory (Hong Kong) Limited (KPMG) to assist with this exercise.

Client asset protection has been a top priority in the SFC’s supervision of LCs. The SFC issues circulars and management letters to LCs from time to time and conducts regular circularisation exercises so that both the SFC and the brokers’ management could obtain direct confirmations from clients on their account positions and identify any potential misconduct such as unauthorised trading and misappropriation of client assets.

• The SFC reminds brokers to ensure that their clients’ personal information is accurate and up-to-date, as KPMG may seek assistance from brokers to contact the selected clients to: (i) confirm the clients’ identities and contact details; (ii) request the clients to check their account positions; and (iii) sign and return their replies directly to KPMG.
• The SFC’s internal control review will cover the selected brokers’ internal control systems for protection of client assets, such as controls over client information maintenance, client money and securities reconciliation, and distribution of account statements and trade documents. The review will also assess the brokers’ compliance with the expected regulatory standards in various SFC circulars from 2018 to 2022 on safeguarding client assets and prevention of fraud. These circulars are listed in thepresent circular.

The SFC may share the findings of this exercise with the industry where appropriate. [23 Jan 2024]

HKMA launches public consultation on proposal for sharing of customer information among AIs for preventing and detecting financial crime

The HKMA hasissuedaconsultation paperon its proposal to allow authorised institutions (AIs) to share information on customer accounts for the purposes of preventing and detecting financial crime. Feedback on the proposals is required to be submitted by 29 March 2024.

The HKMA has noted a sharp global increase in financial crime, especially digital fraud, in recent years. Large-scale digital fraud could undermine public confidence in the use of new digital financial services, and information sharing has been internationally recognised as an effective tool for addressing financial crime. While Hong Kong has achieved positive outcomes through public-private information sharing partnerships, there is a need for faster sharing of information to further support the advanced use of technology and analytics to detect and disrupt fraud and mule account networks and intercept illicit funds more effectively.

This consultation seeks views and suggestions on the need to facilitate sharing among Ais of information on customers, accounts, and transactions by allowing AIs to alert each other to potential fraud and money laundering / terrorist financing concerns.

The information to be shared would depend on the circ*mstances of individual cases, which could include (among others) bank account numbers, personal data of a customer, and details of transactions including counterparties.

Sharing will be via secure channels including dedicated electronic platforms such as FINEST. There will be appropriate measures to ensure that these channels are subject to strict cyber security and other relevant requirements, including restricting access to dedicated staff at AIs. Only AIs that are technically and operationally ready and can demonstrate that they have implemented appropriate systems and controls will be permitted to access the electronic platforms.

Sharing of information among AIs is proposed to be voluntary and separate from the obligation to file suspicious transactions reports to the Joint Financial Intelligence Unit.

AIs will be given legal protection or a ‘safe harbour’, such that provided that they comply with all applicable requirements, disclosure of information under the proposed mechanism would not be treated as a breach of legal, contractual or other restrictions on disclosure of information. AIs disclosing information would also not be liable for any claimed loss arising out of such disclosure. The ‘safe harbour’ should only apply where information is shared among AIs for the purpose of detecting or preventing financial crime.

Mr Eddie Yue, the Chief Executive of the HKMA, has published aninSight articleto explain the proposals.

Depending on the responses to the consultation, the HKMA aims to issue its consultation conclusions with a view to preparing the necessary legislative amendments in the second half of 2024. [23 Jan 2024]

SFC defers margin requirements for non-centrally cleared single-stock options, equity basket options and equity index options by two years to 4 January 2026

The SFC has issued acircularto inform licensed corporations that it will defer the effective date of its margin requirements for non-centrally cleared single-stock options, equity basket options and equity index options from 4 January 2024 to 4 January 2026 to align with the latest global developments.

• On 18 December 2023, the UK’s Prudential Regulation Authority and Financial Conduct Authority published a joint policy statement which extended the temporary exemptions for single-stock equity options and index options from the UK bilateral margining requirements from 4 January 2024 to 4 January 2026.
• On 20 December 2023, the European Supervisory Authorities published the joint draft regulatory technical standards under the European Market Infrastructure Regulation, proposing an extension to the equity option exemption from bilateral margining by two years until 4 January 2026.

The SFC has decided to align the effective date of its margin requirements with the UK and the EU’s timelines to prevent regulatory arbitrage, and in light of the fact that licensed corporations’ exposures to the above non-centrally cleared options are currently insignificant.

Schedule 10 of the SFC’s main code of conduct has beenamendedwith effect from 15 January 2024 to reflect the above. [15 Jan 2024]

HKFE to include currency futures and options in derivatives holiday trading from 29 March 2024, subject to regulatory approval

The Hong Kong Futures Exchange (HKFE) has issued acircularto inform exchange participants that it plans to include the currency futures and options listed in the attachment to thecircularin derivatives holiday trading starting from 29 March 2024, subject to regulatory approval.

The derivatives holiday trading arrangement first commenced in May 2022 (see ourprevious update).

Upon inclusion of the currency futures and options in derivatives holiday trading, exchange participants (EPs) supporting trading activities during Hong Kong public holidays can continue to trade currency futures and options on both business days and public holidays.

EPs who are non-holiday trading EPs are required to unwind their positions of currency futures and options before the close of T session of 20 March 2024 (unless they become holiday trading EPs by then), and the HKFE will remove their trading access to currency futures and options after 20 March 2024.

Existing holiday trading EPs are required to notify their staff and all interested clients about the inclusion of currency futures and options in derivatives holiday trading, and ensure that all trading, clearing, and back office systems are ready in order to ensure a smooth operation upon the inclusion. Additionally, EPs should ensure that their staff are fully aware of the above and will exercise caution when dealing in the currency futures and options in derivatives holiday trading and advising their clients. The HKATS testing environment will be set up in due course. [15 Jan 2024]

Green and Sustainable Finance Cross-Agency Steering Group announces three key initiatives to support Hong Kong’s sustainable finance opportunities

The Green and Sustainable Finance Cross-Agency Steering Group hasannouncedthree key initiatives to support Hong Kong in capitalising its sustainable finance opportunities.

Adopting International Financial Reporting Standards (IFRS) Sustainability Disclosure Standards locally as appropriate

• A new working group, co-led by the SFC and the Financial Services and the Treasury Bureau, will start engaging with stakeholders to identify Hong Kong-specific circ*mstances that should be considered when adopting the IFRS standards.
• The roadmap for adoption of the IFRS standards will comprise four key areas — sustainability reporting, assurance, data and technology, and capacity building.

Leveraging technology to support sustainability reporting and data analysis

• The steering group will organise an event in Q1 2024 to showcase potential green fintech use cases to scale the sustainable finance market.
• In the coming months, it will launch enhancements to itswebsite, including theClimate and Environmental Risk Questionnaire for Non-listed companies(see ourprevious update) in digital format, and new greenhouse gas emissions calculation and estimation tools. It will also explore new features that would enable broader consent-based sharing of the data collected through the questionnaire.

Supporting the development of transition finance to consolidate Hong Kong’s role as leading sustainable finance hub

• The steering group identified transition finance as a priority for 2024. It will broaden the development of its local taxonomy to cover transition activities, work with regional and international partners on capacity building and elevate Hong Kong’s thought leadership in the net-zero transition.

The steering group is co-chaired by the HKMA and the SFC, and its members include the Insurance Authority, the HKEX and other financial regulators and government bureaus. The Accounting and Financial Reporting Council has just joined a new member. [8 Jan 2024]

SFC and HKEX make minor updates to joint circular to management companies of SFC-authorised ETFs regarding list of potential events triggering ongoing disclosure

The SFC and the HKEX have published anupdated Circular to Management Companies of SFC-authorised Exchange Traded Funds (ETFs) – List of Potential Events Triggering Ongoing Disclosure, superseding the previous version dated 17 December 2018. Only minor referencing changes have been made. [1 Jan 2024]

FSTB and HKMA jointly launch public consultation on legislative proposal to regulate issuers of fiat-referenced stablecoins and announce plan to introduce sandbox arrangements

The Financial Services and the Treasury Bureau (FSTB) and the HKMA havejointly issuedaconsultation paperto gather views on the legislative proposal to regulate issuers of stablecoins. Feedback on the proposal is required to be submitted by 29 February 2024.

The Government considers that a regulatory regime should be introduced for fiat-referenced stablecoin issuers, adopting a risk-based and agile approach that will facilitate proper management of the potential monetary and financial stability risks, and provide transparent and suitable guardrails. This approach received general support in an earlier round of consultation which concluded in January 2023 (see ourprevious update).

The legislative proposal in the present consultation paper has taken into account the feedback received on the earlier consultation, the ongoing engagement exercises with stakeholders, local market conditions and needs, as well as applicable international standards. The key proposals include:

• Introducing a new piece of legislation to implement a licensing regime requiring all fiat-referenced stablecoin issuers that meet certain conditions (ie, who (i) issue an fiat-referenced stablecoin in Hong Kong; (ii) issue a HKD-referenced stablecoin; or (iii) actively market their issuance of fiat-referenced stablecoins to the public of Hong Kong) to be licensed by the HKMA;
• Requiring that fiat-referenced stablecoins be offered only by specified licensed entities (ie, licensed fiat-referenced stablecoin issuers, authorised institutions, licensed corporations and licensed virtual asset trading platforms), and only stablecoins licensed by the HKMA can be offered to retail investors;
• Prohibiting the advertising of (i) fiat-referenced stablecoin issuance by unlicensed entities; or (ii) non-specified licensed entities’ offering of such stablecoins;
• Providing necessary powers for the authorities to adjust the parameters of in-scope stablecoins and activities having regard to the rapid development of the virtual asset market; and
• Providing a transitional arrangement to facilitate the implementation of the regulatory regime.

The HKMA will introduce a sandbox arrangement for communicating supervisory expectations and guidance on compliance to entities having a genuine interest in (and a reasonable plan on) issuing fiat-referenced stablecoins in Hong Kong, as well as obtaining their feedback on the proposed regulatory requirements, with a view to facilitating the subsequent implementation of the regulatory regime and ensuring that it is fit-for-purpose. Details of the sandbox arrangement will be announced separately.

The HKMA Chief Executive, Mr Eddie Yue, has published aninSight articleto discuss the potential use cases and risks of stablecoins and thoughts regarding the proposed regulatory regime. [27 Dec 2023]

SFC issues circular on requirements for authorising funds with specified exposure to VAs for public offering in Hong Kong

The SFC has issued acircularto set out the requirements under which it would consider authorising investment funds with exposure to virtual assets (VAs) of more than 10% of their net asset value (NAV) for public offering in Hong Kong (SFC-authorised VA Funds).

The circular supersedes the Circular on Virtual Asset Futures Exchange Traded Funds issued on 31 October 2022 (see ourprevious update).

The circular is not applicable to recognised jurisdiction schemes (including undertakings for the collective investment in transferable securities (UCITS) funds) and those under mutual recognition of funds arrangements, save for the prior consultation and approval requirement under paragraph 29 of the circular.

The circular sets out the requirements for SFC-authorised funds to:

• Invest directly in the same spot VA tokens accessible to the Hong Kong public for trading on SFC-licensed VATPs (ie, direct exposure); and/or
• Acquire indirect investment exposure to such VA (ie, indirect exposure), for example, through futures traded on conventional regulated futures exchanges and other exchange-traded products.

SFC-authorised VA Funds should meet the applicable requirements in the Overarching Principles Section and the Code on Unit Trusts and Mutual Funds in the SFC Handbook for Unit Trusts and Mutual Funds, Investment-Linked Assurance Schemes and Unlisted Structured Investment Products. Additional requirements are set out in the present circular as well as the SFC-HKMA joint circular issued on 22 December 2023 (see ‘SFC and HKMA further updates joint circular on intermediaries’ VA-related activities’ below) (such as those relating to distribution).

The requirements in the present circular include those relating to management companies, eligible underlying VAs, investment strategy, transactions and direct acquisitions of spot VAs, custody, valuation, service providers, disclosure and investor education.

Prior consultation with and approval of the SFC are required for both new and existing funds intending to have VA exposure of more than 10% of their NAV. [22 Dec 2023]

SFC and HKMA further updates joint circular on intermediaries’ VA-related activities

In light of the publication of the SFC circular on authorised funds with exposure to virtual assets (VAs) on 22 December 2023 (see ‘SFC issues circular on requirements for authorising funds with specified exposure to VAs for public offering in Hong Kong’ above), the SFC and the HKMA havefurther updated their joint circular(withappendices) to provide updated guidance regarding the distribution by intermediaries of investment products with exposure to VAs.

The updated joint circular supersedes the joint circular issued on 20 October 2023 (see ourprevious update).

The updated joint circular states that the SFC and the HKMA have revised their VA policy in light of the latest market developments, where the SFC has authorised VA futures exchange traded funds (ETFs) and is prepared to accept applications for the authorisation of other funds with exposure to VAs, including VA spot ETFs. Specifically, the updated joint circular:

• clearly specifies the requirements applicable to intermediaries when they distribute VA-related products; and
• sets out the standards of conduct expected of intermediaries when distributing VA funds authorised by the SFC.

VA funds authorised by the SFC for public offering will not be restricted to ‘professional investors only’. The updated joint circular sets out the requirements that apply to the distribution of such funds. Different requirements apply to funds that are listed and traded on the Stock Exchange of Hong Kong, and funds that are not listed (or those that are listed but with trading in their fund units conducted off exchange).

As with the joint circular of 20 October 2023, the updated circular continues to cover intermediaries’ provision of VA dealing services, asset management services in respect of VAs, and VA advisory services. [22 Dec 2023]

SFC publishes updated guidance on streamlined measures for SFC-authorised funds

The SFC has published acircularto provide updated guidance on streamlined measures for SFC-authorised funds, which took immediate effect on 22 December 2023.

Following a recent review and engagement with market participants, the SFC has updated its guidance to set out and clarify various streamlined measures to enhance the operational efficiency and approval processes of SFC-authorised funds in implementing changes and fulfilling the disclosure and reporting requirements for such funds. The updated guidance relates to the following areas (among others):

• Appointment of investment delegates – such as simplifying the application to appoint new investment delegates by an existing SFC-authorised fund;
• Undertakings for the collective investment in transferable securities (UCITS) funds – such as removing the reporting requirement for the pricing errors of UCITS funds which have no Hong Kong investors during the affected period;
• Post-authorisation notifications – such as streamlining of the notification requirements for informing investors of the suspension of a fund’s dealings on the fund’s website, and a shorter prior notice to investors regarding changes where written consents from all affected investors have been obtained;
• Derivative investments – such as dispensation with the SFC’s prior approval for a reduction in a fund’s derivative investments;
• Disclosure guidance – including clarifying that the disclosure guidance set out in the Guide on Practices and Procedures for Application for Authorisation of Units Trusts and Mutual Funds is non-mandatory and for reference only.

Updates to related guides, FAQs, forms and checklists have also been made – see annex tocircularandthis page. [22 Dec 2023]

HKMA issues circular on managing cyber risk associated with third-party service providers

The HKMA has issued acircularonsound practicesfor managing cyber risk associated with the use of third-party service providers with a view to assisting authorised institutions (AIs) in strengthening their overall cyber resilience. The sound practices have been identified from a round of thematic examinations conducted by the HKMA in 2023.

AIs are expected to review their existing controls to manage cyber risk associated with third parties against the guidance. Where gaps are identified, they should consider applying the sound practices in a manner commensurate with their cyber risk exposures and the level of reliance on third parties.

As stated in the HKMA’s various Supervisory Policy Manual modules, including ‘TM-G-1 General Principles for Technology Risk Management’ and ‘OR-2 Operational Resilience’, AIs are required to put in place effective cyber defence covering their own operations as well as linkages with third-party service providers. AIs should (among other things):

• Ensure sufficient emphasis on cyber risk associated with third parties in risk governance framework;
• Holistically identify, assess and mitigate cyber risk throughout the third-party management lifecycle;
• Assess supply chain risks associated with third parties supporting critical operations;
• Expand cyber threat intelligence monitoring to cover key third parties and actively share intelligence with peer institutions;
• Strengthen the preparedness for supply chain attacks with scenario-based response strategies and regular drills; and
• Continuously enhance cyber defence capabilities through adopting the latest international standards, practices and technologies.

The HKMA will continue to monitor international and industry developments in third-party cyber risk management and provide further guidance to the industry as appropriate. [21 Dec 2023]

HKMA issues circular on consumer protection in respect of digital marketing activities

The HKMA has issued a circular to share key observations and sound practices identified in its supervisory work on consumer protection in respect of digital marketing activities. Authorised institutions (AIs) should review their digital marketing activities and make necessary improvements (if any) to ensure that such activities are designed and conducted in such a way that can uphold consumer protection.

The HKMA notes that digital channels (such as third-party digital platforms and social media influencers) are gaining more prominence as marketing and promotion channels of financial institutions. AIs should implement appropriate consumer protection measures when conducting marketing activities through these digital channels.

The HKMA recently completed a thematic review on the digital marketing activities of general banking products (such as bank accounts, personal loans, and credit cards) with a focus on consumer protection. The HKMA identified common issues that AIs should address, including (among other things) the review of marketing materials, selection of third parties (such as personal financial service platforms and influencers), editorial controls over third-party marketing materials, informed decision making by customers, and influencer marketing. The HKMA also observed some sound practices during the review which AIs may find useful.

This follows the publication by the industry associations of the revised Code of Banking Practice on 7 December 2023 (see our previous update), which included enhancements to customer experience and protection in the digital banking environment. [20 Dec 2023]

HKEX issues FAQs on position limits and large open position reporting requirements to facilitate understanding of new rules taking effect on 22 December 2023

Further to its announcement that enhancements to derivatives position limits would be implemented on 22 December 2023 (see ourprevious update), the HKEX has issuedFAQsto facilitate the market’s understanding of the rule changes.

The HKEX notes that the requirements and examples set out in the FAQ are by no means exhaustive, and participants should always take into consideration their own circ*mstances and adopt appropriate internal controls and measures to ensure compliance with the relevant rules and regulations. [20 Dec 2023]

SFC announces implementation date of 22 December 2023 for enhanced position limit regime

The SFC hasannouncedthat the amendments to the Securities and Futures (Contracts Limits and Reportable Positions) Rules would come into effect on 22 December 2023. These amendments were subject to consultation which concluded in June 2023 (see ourprevious update).

The amendments aim to enhance clarity regarding the requirements relating to funds, facilitate compliance, and provide greater flexibility in the market, including (among others):

• Clarifying the application of the rules to asset managers who manage funds or sub-funds of umbrella funds and the regulatory expectations for trustees in respect of the Rules’ requirements;
• Expanding the list of ‘specified contracts’ for granting excess position limits;
• Introducing an excess position limit regime for clearing participants;
• Raising the statutory position limits for certain futures and options contracts;
• Prescribing position limits and reporting levels for some new contracts; and
• Imposing large open position reporting requirements for holiday trading contracts.

The SFC has also published anFAQand anupdated guidance noteon related regulatory requirements.

The HKEX issued circulars on 15 December 2023 to notify participants that amendments to the relevant trading and clearing rules for the purpose of implementing enhancements to the position limit rules would come into effect on 22 December 2023 (see ourprevious update). [19 Dec 2023]

SFC updates FAQs relating to OFCs

The SFC has updated itsFAQs relating to open-ended fund companies(OFCs):

• Question 21AB (as to whether a sub-fund of an OFC has to apply to apply for a waiver from disclosure of its financial position and results in the annual report of an umbrella OFC where the sub-fund is not yet launched) has been added; and
• Question 21A (as to whether an OFC may be exempted from the requirement to prepare and publish an annual report) has been updated. [18 Dec 2023]

Singapore

MAS: Speech by MD on sustainable finance growth

The Monetary Association of Singapore (MAS) haspublisheda speech by its Managing Director, Chia Der Jiun, at the launch of the Singapore Sustainable Finance Association (SSFA). The Managing Director first highlighted Singapore’s leading role in sustainable finance in Asia and beyond. He then discussed three key areas for the strengthening of sustainable finance growth – standards, solutions and skills – and the role the SSFA can play in achieving this. [24 Jan 2024]

MAS: Explanatory brief on The Financial Institutions (Miscellaneous Amendments) Bill 2024

MAS has published an explanatory brief on The Financial Institutions (Miscellaneous Amendments) Bill 2024. The Bill aims to enhance and rationalise MAS’ investigative, reprimand, supervisory and inspection powers across various Acts under MAS’ purview.

Major amendments to the Bill following consultation comprise four key areas: enhancing MAS’ investigative powers; clarifying applicability of MAS’ reprimand powers; expanding MAS’ powers to issue directions to capital markets services licence holders that conduct unregulated business; and enhancing supervisory and inspection powers. [10 Jan 2024]

MAS: Remittances to PRC through non-bank and non-card channels

The MAS hasissuedanoticedirecting licensed payment service providers providing cross-border money transfer services (remittance companies) to suspend for the next three months the use of non-bank and non-card channels when transmitting money to persons in the People’s Republic of China (PRC). This restriction follows reports of remittances to China made by individuals through remittance companies in Singapore being subsequently frozen in their beneficiaries’ bank accounts in China. The restriction will last for a period of 3 months, from 1 January 2024 to 31 March 2024.

In a separatepress release, MAS notes that the Singapore Government is working with the PRC Government to assist people whose remittances have been frozen. With the Singapore Police Force, MAS advised that remittances to the PRC should be made through channels such as banks and card networks to prevent any inadvertent freezing of monies or accounts. [18 Dec 2023]

China

PBOC consults on draft notice on further supporting foreign institutional investors in carrying out bond repurchase business in interbank bond market

The People’s Bank of China (PBOC) has published for consultation a draft notice on further supporting foreign institutional investors in carrying out bond repurchase business in the interbank bond market. Feedback on the draft notice is required to be submitted by 23 February 2024.

The draft notice proposes to expand access to the interbank repo market by foreign institutional investors. At present, sovereign institutions, overseas RMB clearing banks and overseas participating banks can carry out bond repurchase business in the inter-bank bond market through direct market entry channels. In order to respond to the demands of foreign investors and enhance the attractiveness of China’s bond market, the PBOC and the State Administration of Foreign Exchange (SAFE) have drafted the above notice to support various types of foreign institutional investors who have already conducted spot trading in the inter-bank bond market to participate in bond repurchase business.

According to the explanatory note, the draft notice focuses on five key areas:

1. Defining the scope of foreign institutional investors – They refer to the foreign foreign institutional investors who have already conducted spot trading in the inter-bank bond market;
2. Supporting the integration of bond repurchase business in the inter-bank bond market with internationally accepted practices – Foreign institutional investors that participate in the bond repurchase business in the inter-bank bond market (be it pledged repurchases or buyout repurchases) must complete the sale and transfer of the underlying bonds to facilitate the disposal of reverse repurchases;
3. Defining the obligations of responsible entities – Foreign institutional investors are required to abide by Chinese laws and regulations, such as inter-bank bond market bond repurchase business management regulations, and funds and account management regulations;
4. Infrastructure services and industry self-regulation – Relevant financial market infrastructures should strengthen services and monitoring, and the inter-bank market industry self-regulatory organisations should strengthen self-regulatory management of the bond repurchase business in the market.
5. Supervisory measures and administrative penalties – Those who fail to comply with the relevant laws and regulations will be subject to supervisory measures or administrative penalties from POBC or SAFE. [24 Jan 2024] Chinese regulators reported to have reimposed requirement on securities firms to avoid becoming net sellers of equities

According to Financial Times and Regulation Asia, Chinese regulators have reimposed their requirement on securities firms to avoid becoming net sellers of equities.

Since October 2023, Chinese regulators had been providing private instructions in the form of “window guidance” to certain institutional investors which prevented them from becoming net sellers of equities on certain days. This measure helped spur a rebound of around 3% for the benchmark CSI 300 stock index in the final week of 2023.

Early in the 2024 new year, the requirement was eased for some securities firms and smaller mutual funds to allow them to meet the demand for redemptions, and the CSI 300 stock index reversed its gains. According to Financial Times, regulators have since reimposed the requirement on securities firms, particularly those with proprietary trading arms. [16 Jan 2024]

SAFE issues voluntary trial measures to enhance foreign exchange business processes

China’s State Administration of Foreign Exchange (SAFE) has issued a set of trial measures to enhance banks’ ability to conduct foreign exchange business, promote the facilitation of cross-border trade, investment and financing, and prevent risks of cross-border capital flows. The trial measures took effect on 1 January 2024, and compliance with such measures is voluntary.

Under the trial measures, banks should:

• Establish a scientific and effective foreign exchange compliance management organisational structure with clear responsibilities;
• Establish a comprehensive, systematic and standardised internal control system together with information system controls;
• Conduct customer due diligence effectively;
• Manage customers according to their foreign exchange risk levels;
• Monitor and handle foreign exchange compliance risks in a timely manner; and
• Comply with all other relevant requirements. [29 Dec 2023]

NFRA updates rules on operational risk management of banking and insurance institutions, to take effect on 1 July 2024

China’s National Financial Regulatory Administration (NFRA) has revised its Guidelines on Operational Risk Management of Commercial Banks, to be known as the Rules on Operational Risk Management of Banking and Insurance Institutions. The revised rules will come into force on 1 July 2024.

The revised rules adhere to the principles of prudence, comprehensiveness, proportionality and effectiveness, and cover the following key aspects:

• Risk governance and management responsibilities – The rules clarify the responsibilities of the board of directors, supervisors and senior management, defines the specific scope and responsibilities of the three lines of defence, and stipulates the operational risk management responsibilities of branches and subsidiaries.
• Basic requirements of risk management – Banking and insurance institutions should establish basic operational risk management regimes, operational risk preferences and transmission mechanisms, establish and improve operational risk management information systems, and cultivate a sound operational risk management culture.
• Management process and tools – The rules stipulate the requirements relating to internal controls, business continuity management, cybersecurity, data security and business outsourcing management, as well as the reporting mechanism for operational risk and major operational risk events. They also provide for three basic management tools and new tools.
• Supervision and management responsibilities – NFRA and local offices will assess the soundness and effectiveness of the operational risk management systems of banking and insurance institutions, and industry associations should implement self-discipline measures.
• Further clarification and explanation of some of the provisions in the rules (set out in the appendix).

The revised rules will supersede the Guidelines on Operational Risk Management of Commercial Banks (2007) and the Notice on Strengthening the Prevention of Operational Risk (2005). [27 Dec 2023]

Note: Please also see the Hong Kong and Singapore sections above for developments involving Mainland China.

Taiwan

FSC requests local banking association to formulate self-regulatory standards for responsibility mapping system in banking industry

Taiwan’s Financial Supervisory Commission (FSC) requested the local banking association to formulate self-regulatory standards for a responsibility mapping system in the banking industry, with reference to the UK’s senior managers regime. The rules are targeted to be implemented on 1 January 2025.

It is intended that the standards will apply to the chairman of the board, general manager, deputy general manager and other senior managers who have decision-making power over business or management activities of a bank.

Banks should allocate high-level management functions to high-level management personnel, and ensure that such personnel clearly understand their responsibilities (as set out in the responsibility mapping system) and sign a statement of responsibility. The board of directors should also supervise the implementation of the responsibility mapping system by setting up a committee with responsibility for supervision (or assigning such responsibility to an existing committee). [23 Jan 2024]

FSC consults on draft regulatory amendments to enhance ESG internal controls within listed companies and securities and futures service providers

The FSC has published for consultation various amendments to the Regulations Governing Establishment of Internal Control Systems by Public Companies and the Regulations Governing the Establishment of Internal Control Systems by Service Enterprises in Securities and Futures Markets. Feedback on the proposed amendments is required by 16 March 2024.

The proposals require listed companies and securities and futures service providers to include the management of sustainable information in their internal control systems, as well as include the information as a mandatory item in annual audits. A transitional period is proposed and the amended regulations are proposed to take effect on 1 January 2025. [16 Jan 2024]

FSC launches new website focusing on sustainable finance

The FSC has launched a new dedicated website on sustainable finance. The website contains information including policy plans, regulations and guidelines, areas pertaining to sustainable finance (such as sustainable financing, investment, bonds, indices, and other products), statistics, sustainability related assessments, education and training, domestic and international weblinks, and latest news, acting as a “one-stop shop” for market participants and the public. [10 Jan 2024]

FSC issues update on industry’s use of digital identity verification

The FSC launched an initiative in 2022 to encourage financial institutions and fintech companies to propose innovative digital identity verification solutions for testing under a supervision sandbox and business trial. In its latest progress report, the FSC noted that the support from the industry has been positive – 17 financial institutions submitted a total of 25 requests for guidance, and 10 financial institutions submitted business trial applications.

The FSC issued the following guidelines during the period from 2022 to now:

1. Guideline on digital identity verification for financial services industries;
2. Guideline on security controls of financial institutions using rapid identification mechanisms.

In order to encourage financial institutions and fintech companies to continue using technology and innovation to deliver diversified digital financial services, the FSC will launch further fintech promotion activities with different themes in the future. [4 Jan 2024]

FSC consults on draft guidelines on use of AI in financial industry

The FSC has published for consultation draft guidelines on the use of artificial intelligence (AI) in the financial industry. This follows the publication by the FSC of core principles and policies on the use of AI in October 2023. Feedback on the draft guidelines is required to be provided within 60 days of 28 December 2023.

The draft guidelines provide considerations for financial institutions when adopting or utilising AI and fall under the category of administrative guidance. The draft guidelines aim to encourage financial institutions to adopt, use, and manage AI in a risk-controlled environment. They consist of “General Provisions” and six main chapters. The “General Provisions” outline common considerations such as AI-related definitions, the AI system life cycle, risk assessment frameworks, a risk-based approach to the implementation of the core principles, and the supervision of third-party entities. The six main chapters illustrate recommended measures for implementing the core principles in the financial industry based on the assessed risks in the AI life cycle. Each chapter includes the purpose, key concepts, relevant considerations for each principle, and suggested approaches or measures for implementation. A summary of the key content is provided here. [28 Dec 2023]

Japan

Japanese cabinet reported to have approved proposal to end tax on unrealised crypto gains, which is expected to take effect on 1 April 2024 subject to approval by parliament

According to Regulation Asia and Coindesk, the Japanese cabinet has approved tax reforms to allow companies to have cryptocurrency holdings without having to pay taxes on unrealised gains.

Currently, unrealised gains on crypto assets at the end of each fiscal year are included in mark-to-market taxation. However, this has been criticised for placing an undue burden on companies and hindering innovation. Under the proposed reforms, crypto assets issued by third party organisations can be held by companies without being marked-to-market for taxation, unless they are used for short-term trading purposes. Companies will therefore only be taxed on profits generated from the sale of cryptocurrency.

The proposal is expected to take effect on 1 April 2024, subject to approval by the parliament. [22 Dec 2024]

FSA establishes Asset Management Forum preparatory committee

On 14 December 2023, Japan’s Financial Services Agency (FSA) published a policy plan to promote Japan as a leading asset management centre, under which efforts will be made to encourage new domestic and foreign entrants and promote competition in Japan’s asset management sector. To this end, the FSA has announced that it will launch an Asset Management Forum in collaboration with domestic and overseas related businesses and investors. A preparatory committee has been established for this purpose, comprising of representatives from asset management firms, with the FSA and Bloomberg LP acting as secretariat. [22 Dec 2023]

Malaysia

BNM and CyberSecurity Malaysia sign MoU on cybersecurity for financial sector

Bank Negara Malaysia (BNM) and CyberSecurity Malaysia havesigneda memorandum of understanding (MoU) to jointly develop robust cybersecurity strategies for Malaysia’s financial sector. [26 Jan 2024]

SCM: ASCR to consult on the use of ISSB standards in Malaysia

The Securities Commission Malaysia (SCM) hasannouncedthat the Advisory Committee on Sustainability Reporting (ACSR) will hold a consultation next month on the use of the sustainability disclosure standards issued by the International Sustainability Standards Board (ISSB) in Malaysia. [8 Jan 2024]

BNM: Policy document on responsibility mapping

BNM hasissueda policy document on responsibility mapping, setting out requirements to clarify and strengthen individual accountability of members of senior management, who bear the primary responsibility for planning, directing or controlling the activities of financial institutions. A statement has been issued concurrently with the policy document, covering BNM’s responses to key areas of comments received during the consultation period. The policy document comes into effect on 1 January 2026. [29 Dec 2023]

India

IFSCA: FAQs on registration/authorisation of FMEs, Schemes or Funds under the Fund Management Regulations

The International Financial Services Centres Authority (IFSCA) haspublisheda frequently asked questions (FAQ) documenton registration of a Fund Management Entity (FME) and authorisation of a Scheme or Fund under the IFSCA (Fund Management) Regulations, 2022. [17 Jan 2024]

SEBI consults on additional proposals regarding the framework for issuance of subordinate units – REITs, InvITs

SEBI haspublisheda consultation on additional proposals pertaining to the framework for issuance of subordinate units by real estate investment trusts (REITs) and infrastructure investment trusts (InvITs):

• specification of a ceiling on the extent of subordinate units that can be issued;
• bringing uniformity in the nature of rights conferred on subordinate units; and
• dealing with changes in terms and conditions of the subordinate units post issuance.

Responses to the consultation are requested by 31 January 2024. [11 Jan 2024]

RBI: Amendment to the Master Direction on KYC – PEPs

The RBI haspublishedan amendment to the Master Direction on know-your-customer (KYC); the amendment relates to the definition of politically exposed persons (PEPs). [4 Jan 2024]

SEBI: CP on settlement cycles

SEBI hasissueda consultation paper (CP) on the introduction of the facility for clearing and settlement of funds and securities on T+0 and instant settlement cycle on optional basis in addition to the existing T+1 settlement cycle in secondary markets for equity cash segment. The aim is to make markets more efficient and safer for its participants, with a special focus on retail participants. Responses are requested by 12 January 2024. [22 Dec 2023]

RBI: AIF investments by Res

The RBI hasissueda notice regarding certain transactions of regulated entities (REs) involving Alternative Investment Funds(AIFs) that have raised regulatory concerns. To address these concerns, the RBI has advised that:

• REs shall not make investments in any scheme of AIFs which has downstream investments either directly or indirectly in a debtor company of the RE;
• if an AIF scheme, in which RE is already an investor, makes a downstream investment in any such debtor company, then the RE shall liquidate its investment in the scheme within 30 days from the date of the investment by the AIF;
• if REs are not able to liquidate their investments within the above-prescribed time limit, they shall make 100 percent provision on such investments; and
• investment by REs in the subordinated units of any AIF scheme with a ‘priority distribution model’ shall be subject to full deduction from RE’s capital funds. [19 Dec 2023]

Thailand

SECT: Amendments to disclosure regulations for PVDs

The Securities and Exchange Commission Thailand (SECT) hasissuedamendments to the regulations related to disclosure and submission of provident funds (PVD) factsheet and pooled fund data report. The amendments aim to provide PVD fund committees and members with comparable information to support their investment decision making, and to facilitate the use of SECT open date for industry analysis by interested parties. The amended regulations will take effect on 1 June 2024.[17 Jan 2024]

SECT consults on digital asset business licensing process and creditability of digital asset business operators

The Securities and Exchange Commission (SECT) haspublisheda consultation on proposed amendments to the digital asset business licensing process and draft regulations on the creditability of digital asset business operators.

The proposals aim to enhance the efficiency of the licensing process and ensure the clarity and appropriateness of the regulatory framework regarding digital asset business operators.

Responses to the consultation are requested by 9 February 2024. [9 Jan 2024]

SECT amends regulations on approval of offer for sale of newly issued bonds of foreign entities

The Securities and Exchange Commission Thailand (SECT) hasannouncedthat it has amended the regulations on approval of offer for sale of newly issued bonds of foreign entities, effective from 1 January 2024.The amendments aim to enhance suitability for the risk profile of the foreign issuer and alignment with the changing contexts and landscape of the bond market. [2 Jan 2024]

Philippines

SECP: Guidelines on minimum commission charged by stockbrokers

The Securities and Exchange Commission Philippines (SECP) hasissueda draft circular on the guidelines on the reduction of the minimum commission charged by stockbrokers.

Responses are requested by 26 January 2024. [18 Jan 2024]

SECP: Implementation of revised SRG and SuRe

The Securities and Exchange Commission Philippines (SECP) hasannouncedthat it has deferred the implementation of the revised Sustainability Reporting Guidelines (SRG) for Publicly Listed Companies (PLCs) and the SECP Sustainability Reporting Form (SuRe form). These will now be released in 2024, with compliance applicable to data covering the year 2024, and reporting due in 2025. [29 Dec 2023]

Indonesia

New implementing regulation for Bank Indonesia consumer protection rules

On 14 December 2023, Bank Indonesia issuedBoard of Governors’ Regulation No. 20 of 2023on Implementation of Consumer Protection (PADG 20, in Indonesian language). PADG 20 is an implementing regulation toBank Indonesia Regulation No. 3 of 2023on Bank Indonesia Consumer Protection (in Indonesian language), which wasissuedas a follow-up to the landmark financial sector omnibus law and a successor toBoard of Governors’ Regulation No. 23/17/PADG/2021(in Indonesian language).

PADG 20 tightens certain consumer protection requirements compared to its predecessor. Some notable provisions are as follows:

• express requirements for financial institutions (FI) to include the statement that it is ‘licensed by and under the supervision of Bank Indonesia’ in such FI’s website, advertisem*nts, offering documents, and other marketing materials;
• FIs are now required to establish a dedicated consumer education function, and such function must carry out documented biannual consumer education;
• consumer’s consent to data disclosure can be revoked after the fact and
• more robust provisions on consumer complaints and consumer disputes, including that FIs are allowed to outsource handling of consumer complaints and may be liable to pay monetary compensation to consumers in certain scenarios.

PADG 20 came into effect immediately upon its issuance. [12 Jan 2024]

Vietnam

SBV directs commercial banks, gold trading companies and payment intermediaries to strengthen anti-money laundering practices

According to Viet Nam News, the State Bank of Vietnam (SBV) has issued a document on compliance with the law on preventing and combating money laundering and terrorist financing, directing commercial banks, gold trading companies, and payment intermediary companies to strengthen customer identification procedures and report any suspicious transactions to the SBV’s Department of Anti-Money Laundering.

Among other things, commercial banks and the mentioned companies must ensure that customer identification and transactions are carried out in accordance with information about the customer, business activities, money laundering risk level, and origin of customer assets. They must also comply with relevant legal and regulatory requirements, including those relating to reporting of large value transactions and electronic money transfer transactions. [28 Dec 2023]