ComplianceOne Newsletter – August 2022
ComplianceOne Newsletter – August 2022
The topics discussed in this monthly newsletter are as follows:
1. Regulators to enhance Stock Connect trading calendar
2. Hong Kong Securities and Futures Commission (SFC) sets out the way forward for green and sustainable finance
3. Creating and accumulating wealth with diversified fund structures—by Financial Services and the Treasury Bureau
4. SFC reprimands and fines TC Capital International Limited $3 million and suspends its responsible officer for sponsor failures
5. SFC commences MMT proceedings against hedge fund manager over alleged false trading
6. SFC issues restriction notice to a broker to freeze client account linked to suspected insider dealing
7. Retail investors convicted and fined for illegal short selling
MARKET NEWS
1. Regulators to enhance Stock Connect trading calendar
The SFC and the China Securities Regulatory Commission (CSRC) today jointly announced their in-principle approval for changes to the trading calendar for Stock Connect. The changes would apply to both northbound and southbound trading.
Because different public holidays are observed in the Mainland and Hong Kong, investors currently cannot trade through Stock Connect on certain days. The proposed changes enable Stock Connect trading on any day when both the Mainland and Hong Kong markets are open, even when the corresponding settlement day falls on a public holiday
Significance:
As Mr. Ashley Alder, the SFC’s Chief Executive Officer had said: “Stock Connect provides a unique opportunity for Mainland and Hong Kong investors to participate in each other’s market. The enhancements will allow investors to better manage their portfolios through Stock Connect and support the further expansion of the programme.”
2. SFC sets out the way forward for green and sustainable finance
The SFC published its “Agenda for Green and Sustainable Finance” to set out further steps to support Hong Kong’s role as a regional green finance center with key focus on:
a) Enhancing corporate disclosures;
b) Monitoring the implementation of and enhancing existing measures relating to environmental, social and governance (ESG) funds and expectations for fund managers; and
c) Identifying an appropriate regulatory framework for any proposed carbon markets.
As a speech of Mr. Ashley Alder, the SFC’s Chief Executive Officer, has made it explicit that: “Climate change and sustainability are cross-border issues which require a coordinated response, and Hong Kong has a critical role to play as a regional and international green finance center. The SFC will continue to lead global regulatory development in this space to ensure that domestic policies and international standards are aligned.”
Significance
The SFC as a robust regulatory body in HK plays a pro-active role in navigating and allocating more resources to attaining an intricated balance between global economic growth and the preservation of environment from climate risk given the existing scenario where the private sectors, if left to its own device, would not be so dedicated to implementing the measures in a sound and efficient manner than otherwise spearheaded by a regulatory body a like SFC.
3. Creating and accumulating wealth with diversified fund structures
Last year, the assets managed by Hong Kong stood at HK$35.5 trillion (US$4.6 trillion), which was 12 times the size of our GDP. The HKSAR has been striving to develop Hong Kong as a premier international asset and wealth management center in the Asia-Pacific region; and among the measures taken is the introduction of new fund structures, which includes the set-up of open-ended fund company (OFC), is of prior significance.
Ever since commencement of the OFC regime, 88 OFCs have been set up or re-domiciled to Hong Kong, and the number of registered OFCs recorded a more than four-fold year-on-year increase as at end July this year. To further enhance the attractiveness of the OFC regime, a three-year grant scheme was launched in May 2021, and subsidies have been provided to 52 OFCs set up in/re-domiciled to Hong Kong.
Significance:
The HKSAR plays a proactive role in developing the asset and wealth management regime, given the advantages enjoyed by OFC as follows:
(1) Tax concession
(2) Cost-savings
(3) Easy management
(4) Facilitate international distribution
(5) Cater for public/private funds
(6) Eligible Products under the Cross-boundary Wealth Management Connect Scheme in the Greater Bay Area and ETF Cross-listing Scheme
Coupled with the introduction of the grant scheme, and the fact that OFCs are qualified products under the Cross-boundary Wealth Management Connect Scheme, it is expected that market practitioners would be delighted to show great interest among the industry in this new fund structure and anticipate further growth of the OFCs
ENFORCEMENT NEWS
4. SFC reprimands and fines TC Capital International Limited $3 million
The SFC has reprimanded and fined TC Capital International Limited (TC Capital) $3 million for failing to discharge its duties as the sponsor in the listing application of China Candy Holdings Limited (China Candy). It is found that TC Capital failed to:
a) conduct reasonable due diligence on the third party payments made on behalf of two top customers of China Candy; and
b) maintain proper records of the due diligence work allegedly done in relation to the listing application
Although TC Capital was aware of the third party payments, their RO and transaction team members did not make any further queries and assess if such payment method was legitimate or not; and no follow-up due diligence was conducted. Apart from the lack of proper records in due diligence, there was also no audit trail showing that TC Capital had turned its mind to the issues at all.
Significance:
It demonstrates to the market practitioners again the crucial importance of due diligence on any third party payments which are signal of red flags that necessitate serious attention and follow-up remedial action from licensed corporation in the eyes of SFC.
5. SFC commences MMT proceedings against hedge fund manager over alleged false trading
The SFC has commenced proceedings in the Market Misconduct Tribunal (MMT) against Mr. Jonathan Dominic Iu Wai Ching, a responsible officer of Tarascon Capital Management (Hong Kong) Limited (Tarascon), for allegedly engaging in false trading in the shares of two Hong Kong-listed companies.
The SFC alleges that Iu executed matched trades between the brokerage accounts of the hedge fund and of his mother between August and September 2014, which had the effect of creating a false or misleading appearance of active trading or of the price for dealings in the listed shares concerned.
The SFC has issued a restriction notice to Bright Smart Securities International (H.K.) Limited (Bright Smart), prohibiting it from disposing of or dealing with certain assets held in a client account that holds proceeds of suspected insider dealing.
Significance:
The SFC considers that the issue of the restriction notice, which prevents dissipation of proceeds of suspected insider dealing held in the account, is desirable in the interest of the investing public or in the public interest.
7. Retail investors convicted and fined for illegal short selling
The Eastern Magistrates’ Court today convicted Ms. Chan Siu Tai and her sister Ms. Janice Chan after they pleaded guilty to illegal short selling in prosecutions brought by the SFC.
The sisters were fined a sum of $114,000 and ordered to pay the SFC’s investigation costs.
For more details, please click on the title of the topic above.
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