ComplianceOne Newsletter - May 2024
The topics discussed in this monthly newsletter are as follows:
2. SFC announces the end of non-contravention period for virtual asset trading platforms
4. SFC facilitates broadening of master-feeder ETFs offerings in Hong Kong
5. SFC suspends Wong Ka Ching for four years for his negligence as an RO
6. Market manipulators convicted of false trading activities in landmark High Court jury trial
MARKET NEWS
1. Dagong Global Hong Kong Limited succeeded in acquiring the Type 10 license of “Providing Credit Rating Services”
ComplianceOne Consulting Limited (“CO”) has assisted Dagong Global Hong Kong Limited ("DGHK", CE Number: BUK036), the wholly-owned Hong Kong subsidiary of Dagong Global Credit Rating Co., Ltd.'s ("Dagong Global"), in successfully applying for Type 10 license of “Providing Credit Rating Services” under the SFC.
Dagong Global has become the only licensed corporation (“LC”) approved by the SFC for the Type 10 License in the past four years, and is also the 9th LC accredited with Type 10 license in Hong Kong as well as the 4th credit rating company originated from mainland China.
As a compliance consultant, CO has provided DGHK with its professional, comprehensive and bespoken consultancy services, including design of the application, and corresponding internal control process, together with seasoned compliance advisory services in addressing queries from SFC amid the application process.
SIGNIFICANCE:
This event signifies an emblem of success of CO in proliferating its licensing advisory services to non-traditional licensing regimes.
2. SFC announces the end of non-contravention period for virtual asset trading platforms
On 28 May 2024, the SFC kindly reminded the virtual asset trading platforms (VATP) of the end of the non-contravention period on 1 June 2024, after which ALL VATPs operating in HK must either be licensed by the SFC, or “deemed-to-be-licensed” VATP (“DTBL-VATP”) applicants under the AMLO.
To facilitate the transition and avoid ambiguities, there are reminders to both investors and DTBL-VATPs as below:
Reminder for investors
(1) Investors are urged to trade virtual assets (VAs) ONLY on SFC-licensed VATPs, where reference can be made from “List of licensed virtual asset trading platforms” on SFC website.
(2) Investors are reminded that DTBL-VATP applicants are NOT formally licensed by the SFC yet; they still have to demonstrate to the SFC of their competence before formal approval be granted.
Reminder to DTBL-VATP applicants
(3) DTBL-VATP applicants must fully comply with all of the SFC’s regulatory and licensing conditions; and are expected NOT to actively market their services or solicit any new clients prior to demonstrating the actual implementation and effectiveness of their policies, procedures, systems and controls to the satisfaction of the SFC and being formally licensed.
(4) The SFC also reminds all VATPs and their ultimate owners, controlling entities of the compliance of all applicable laws and regulations, including but without limitation, preventing Mainland Chinese residents from accessing any of their virtual asset-related services.
(5) The deeming arrangement serves to strike a balance between protecting investors and facilitating market development. DTBL-VATP applicants should bear in mind that it is merely a temporary arrangement whereby any non-compliance will result in refusal of the license application by the SFC swiftly.
(6) In the coming months, the SFC will conduct on-site inspections to the DTBL-VATP applicants to ascertain they are in compliance with the regulatory requirements, with a particular focus on their measures in safeguarding client assets and KYC process.
SIGNIFICANCE:
It should be noted with caution by all existing VATPs not yet on the list of “deemed-to-be-licensed” on 1 June 2024 to cease operation in HK, or otherwise it will constitute a breach of the AMLO as a criminal offence.
The DTBL-VATP applicants are required to engage a qualified external assessor to conduct an assessment of the full implementation and effectiveness of their policies, procedures, systems and controls as demonstration to safeguard the protection of investors
One reminder from the SFC which deserves extra attention is the “prevention of Mainland Chinese residents from accessing any of their virtual asset-related services" to all VATPs.
3. SFC welcomes industry-led public consultation on voluntary code of conduct for ESG ratings and data products providers
On 17 May 2024, the SFC welcomed the launch of a public consultation by an industry-led working group on a voluntary code of conduct (VCoC) for environmental, social and governance (ESG) ratings and data products providers providing products and services in Hong Kong.
Led by the International Capital Market Association (ICMA), the Hong Kong ESG Ratings and Data Products Providers VCoC Working Group (VCWG) modelled the draft VCoC on international best practices recommended by the International Organization of Securities Commissions (IOSCO).
Key elements of the draft VCoC:
(i) it is consistent with the expectations introduced in other major jurisdictions in English and Chinese versions;
(ii) it includes a self-attestation document to provide information relevant to the code by the providers in a structured format to facilitate the end users, like licensed intermediaries, to compare the conduct of ESG ratings and data products providers during their due diligence and ongoing assessment processes.
SIGNIFICANCE:
As Ms Julia Leung, the SFC’s Chief Executive Officer, has said, “The code, together with the self-attestation document, will be vital in fostering greater transparency, quality and reliability of ESG information, as well as comparability of products.”
A set of more international-based standards in ESG ratings and data products are essential resources in furnishing common benchmarks for the market participants to adhere to with recognizable quality, reliability of the ESG information.
4. SFC facilitates broadening of master-feeder ETFs offerings in Hong Kong
The SFC published a revised circular on 16 May 2024 to allow SFC-authorised feeder ETFs under master-feeder structure to invest in overseas-listed master ETFs , including actively managed ETFs, from different markets under streamlined requirements provided certain conditions are met.
The asset under management (AUM) of the global ETF market continued to grow rapidly, reaching USD12.7 trillion at first quarter end of 2024. Product issuers are expressing to the SFC of their keen interest in bringing well-established actively managed ETFs from overseas to Hong Kong, potentially through the route of a master-feeder fund structure. And the SFC considers appropriate to extend the existing streamlined requirements for master ETFs to actively managed ETFs as previous exemptions apply to passively managed master ETFs only.
SIGNIFICANCE:
A master-feeder fund structure refers to a fund (the feeder fund) that invests 90% or more of its total net asset value in another single fund (the master fund). These funds are permitted under the Code of Unit Trusts and Mutual Funds provided that both the feeder-fund and master-fund are authorized by the SFC (previous requirement). Actually, the SFC has been streamlining the requirements since December 2019 to allow SFC-authorized feed ETF to invest in an eligible overseas-listed master ETF without SFC authorization on a case-by-case basis.
As Ms Christina Choi, SFC’s Executive Director of Investment Products, has said, “Further streamlining the requirements for master-feeder ETFs will bring cost-saving and provide flexibility to ETF issuers, and broaden investment choices for investors, whilst ensuring appropriate level of investor protection remains in place.”
ENFORCEMENT NEWS
5. SFC suspends Wong Ka Ching for four years for his negligence as an RO
On 28 May 2024, the SFC has suspended Mr Wong Ka Ching, former responsible officer (RO) of China On Securities Limited (China On), for four years from 28 May 2024 to 27 May 2028.
The SFC considered China On’s failures was due to Wong’s consent or connivance, or were attributable to his negligence as an RO and a member of the senior management. The SFC also found that Wong acted in gross negligence or recklessly in handling the share placement and failed to ensure the maintenance of appropriate standards of conduct and adherence to proper procedures by China On.
It was also found that Wong:
· allowed an individual, a purported consultant of China On, to be heavily involved in the operations of China On without ensuring that he was fit and proper or otherwise qualified to act in such capacity;
· disclosed confidential contents of the SFC’s investigation to this individual; and
· knowingly provided false or misleading information to the SFC about the same individual.
SIGNIFICANCE:
As the concluding remark by SFC, it was pointed out that Wong had disclosed confidential contents of the SFC’s investigation to this same individual and acting dishonestly by furnishing false information to SFC, a four-year suspension of license was to deliver a message of deterrent to the industry that disclosure of the details about the SFC’s investigation and negligence of conduct will not be tolerated!
6. Market manipulators convicted of false trading activities in landmark High Court jury trial
On 29 May 2024, the Court of First Instance today convicted three individuals, Ms SIT Yi Ki, Ms LAM Wing Ki and Mr TAM Cheuk Hang of conspiracy to carry out false trading in the shares of Ching Lee Holdings Limited (Ching Lee) following an historic 22-day market manipulation trial by jury.
This is a highly sophisticated and complex market manipulation case and the criminal prosecution was brought by the Department of Justice following extensive investigations by the SFC. This also marks the first time that an offence under the Securities and Futures Ordinance (SFO) has been tried at the Court of First Instance.
The prosecution stemmed from the SFC’s investigations which revealed that, between the seven months from March 2016 to September 2016, SIT, LAM and TAM conspired together with Ho Ming Hin, Simon Suen Man and other unknown persons to carry out a complex scheme of market manipulation. Through conducting manipulative transactions among 156 securities accounts, they created false and misleading appearance of active trading, and it lasted for more than five months with illicit profits of over HKD124 million.
SIGNIFICANCE:
The SFC’s Executive Director of Enforcement, Mr Christopher Wilson, said: “We welcome the verdicts by the jury. The outcome of this case sends a strong deterrent message on the legal consequence of undermining the integrity of Hong Kong’s securities markets and the confidence of the investing public.” And Mr Wilson further added that “the successful prosecution of these manipulators is the latest in the SFC’s all-out efforts to combat market misconduct and other forms of financial crime in Hong Kong.”
For more details, please click on the title of the topic above.
=================================
~ Make It Right Today, Better Tomorrow ~
=================================
The Newsletter is for general information purpose only and is not intended to constitute legal or other professional advice.
For enquiries, please email to support@complianceone.hk or WhatsApp us at (852) 95164607.
Unit 1104, 11/F, 299QRC, 287-299 Queen's Road Central, Sheung Wan, Hong Kong
Tel: (852) 39550277 www.complianceone.hk