ComplianceOne Newsletter – October 2022
ComplianceOne Newsletter – October 2022
The topics discussed in this monthly newsletter are as follows:
1. The SFC Considers Authorization of Virtual Asset Futures Exchange Traded Funds (VA Futures ETFs)
2. HKEX Announces the Launch of Core Climate - A New International Carbon Marketplace
3. Court orders Sound Global (0967.HK) Chairman to Purchase Shares from Investors
4. SFC Reprimands and Fines Asia Research & Capital Management Limited HK$1.75 million and Bans its MIC of Compliance
5. Former Account Executive of Fullbright Securities Limited Convicted of Securities Fraud
6. Court Convicted Wong King Hoi for Obstruction of SFC's Search Operation
7. SFC Bans a Former Licensed Staff of China Galaxy for Violation of Company's Staff Dealing Policy
MARKET NEWS
1. The SFC Considers Authorization of Virtual Asset Futures Exchange Traded Funds (VA Futures ETFs)
The SFC would consider authorizing exchange traded funds (ETFs) that obtain exposure to virtual assets (VAs) primarily through futures contracts for public offering in Hong Kong.
Unlike before in 2018 NOV where only professional investors are allowed to have exposure to VAs, and having witnessed the rapid evolution of the VA landscape; a Joint Circular in January 2022 between the SFC and the HKMA has announced that licensed and registered intermediaries are allowed to offer VA Futures ETF to retail investors in HK.
For reasons that it has been observed that there are meaningful developments in the VA ecosystem recently and some of the initial concerns over VA Futures ETFs have become increasingly manageable and could be adequately addressed with proper safeguards, disclosure and investor education.
SIGNIFICANCE:Despite the recent developments and innovations, the exposure to spot VAs are still restricted to professional investors only. Whereas VA Futures ETFs seeking for SFC authorization have to meet applicable requirements including the followings:
(i) Management companies should demonstrate at least three years’ proven track record with relevant experience.
(ii) Only VA futures traded on conventional regulated futures exchanges are allowed currently, only Bitcoin futures and Ether futures on CME are allowed.
(iii) The management company is expected to adopt a flexibility investment strategy in the portfolio composition
(iv) Disclosure of the product key facts statement is required.
(v) Intermediaries are obliged to comply with the applicable requirements under the Code of Conduct when distributing the derivative products.
(vi) Investor education should be provided.
2. HKEX Announces the Launch of Core Climate - A New International Carbon Marketplace
HKEX announced on 20 OCT 2022, the launch of the Core Climate, a new international carbon marketplace that helps connect capital and resources with climate-related opportunities in Hong Kong, Mainland China, Asia and beyond.
The HKEX is committed to provide an easy-access, one-stop, integrated carbon marketplace that includes trading, custody and settlement functions for investors and project owners across the climate value chain, contributing to the realization of global carbon neutrality goals. What is Core Climate:
(i) Trading platform: investors can source, purchase, settle and retire voluntary carbon credits in phases.
(ii) Trusted marketplace: provides best-in-class market infrastructure and effective, transparent and certified carbon credits and instruments that corporates and investors can use to deliver on their commitment to net zero.
(iii) Global community: Core Climate builds Hong Kong’s position as a leading global finance center connecting capital with climate-related products and opportunities in vicinity and around the world.
SIGNIFICANCE:
HKEX is demonstrating to the world that Hong Kong , as an international financial center, also entrusts with itself the obligation to committing to building a more low-carbon and healthy community to our next generations. As CO-Head of Markets Glenda So said: "We see Core Climate developing to become essential infrastructure, part of our highly connected international ecosystem, matching investment capital with new climate projects, technologies and business models. This will accelerate the shared Net Zero transition and secure a sustainable future for coming generations.”
ENFORCEMENT NEWS
3. Court orders Sound Global (0967.HK) Chairman to Purchase Shares from Investors
The Securities and Futures Commission (SFC) has obtained an order in the Court of First Instance against the chairman and executive director of Sound Global Ltd. (Sound Global), Mr. Wen Yibo, to purchase shares held by the other shareholders of the company at a price to be determined by the Court – after he was found to have orchestrated a scheme to falsify the company’s bank balances and fabricated relevant bank statements and balance confirmations. And the Court also issued a disqualification order for 12 years against Wen.
As Mr Ashley Alder, the SFC’s Chief Executive Officer said: “The share purchase order represents an important milestone in the SFC’s efforts to protect the investing public from wrongful conduct by management of listed companies and our determination to deploy our full range of regulatory tools to tackle market misconduct and uphold market integrity.”
The SFC has reprimanded and fined Asia Research & Capital Management Limited (ARCM) HK$1.75 million for failures relating to its non-compliance with the European Union’s short selling reporting requirements (EU Regulation) and to promptly notify the SFC of its material regulatory breaches.
The SFC has also banned Mr. Billy Wong Yim Chi, ARCM’s former Head of Compliance and Operations and Manager-In-Charge (MIC) for Compliance for two months from 10 October 2022 to 9 December 2022 for reason that ARCM’s failures to comply with the EU Regulation were directly attributable to Wong’s failure to discharge his duties as ARCM’s MIC for Compliance and a member of its senior management during the material time. The SFC also considers Wong’s conduct fell short of the standard required of him as MIC for Compliance.
SIGNIFICANCE:
This case seems to be the first instance since the introduction of the MIC regime that a person entrusted with MIC function is sanctioned by the SFC for his incompetence in discharging the duties for the licensed corporation. It conveys a signal to the licensed corporations and the MIC candidates that non-licensed personnel taking the roles of MIC are supposed to assume the same degree of accountability in the eyes of the SFC.
5. Former Account Executive of Fullbright Securities Limited Convicted of Securities Fraud
The Eastern Magistrates’ Court has convicted Mr. Danny Fung Kwong Shing, a former account executive of Fulbright Securities Limited, of the offences of engaging in fraud or deception in transactions involving securities under the Securities and Futures Ordinance (SFO) in a criminal prosecution brought by the SFC.
Fung admitted that he had employed a fraudulent scheme of effecting transactions between two accounts, one of his friend and one of his client (without proper authorization from the client), rendering the client a loss and his friend a profit instead.
Fung was remanded in custody pending sentence on 27 October 2022 after pleading guilty to all 25 charges; and was later sentenced to two-and-a-half months’ imprisonment following his conviction.
6. Court Convicted Wong King Hoi for Obstruction of SFC's Search Operation
The Eastern Magistrates’ Court has convicted Mr. Wong King Hoi (aka「摸魚」) after he pleaded guilty to a charge of obstructing employees of the SFC in the execution of a search warrant. When the SFC executed the search warrant at Wong’s residence, Wong allegedly delayed in giving the SFC search team access to his residence and attempted to dispose of four objects including two mobile phones and two notebooks.
Wong was remanded in custody pending sentence on 10 November 2022.
7. SFC Bans a Former Licensed Staff of China Galaxy for Violation of Company's Staff Dealing Policy
The SFC has banned Ms. Tang Shiyi, a former licensed staff of China Galaxy International Securities (Hong Kong) Co., Limited and China Galaxy International Futures (Hong Kong) Co., Limited (collectively, CGI), from re-entering the industry for 10 months from 29 October 2022 to 28 August 2023.
The disciplinary action follows an SFC investigation which found that between July 2019 and February 2021, Tang:
(i) failed to obtain CGI’s approval to open and maintain two securities trading accounts with an external brokerage firm and conducted 148 personal trades through the said accounts;
(ii) dealt in a stock on CGI’s restricted list;
(iii) engaged in day-trading on two occasions, in violation of CGI’s staff dealing policy;
(iv) concealed the above securities trading accounts by providing a false and misleading declaration to CGI.
The SFC considers that Tang’s conduct, which was willful and dishonest, calls into question her fitness and properness to be a licensed person.
SIGNIFICANCE:
Tang circumvented CGI’s internal control policies and her conduct prevented CGI from monitoring and reviewing its employees’ trading activities to ensure compliance with laws and regulations. It reminds the licensed persons that taking a frivolous attitude in complying with internal policies will not be construed by the SFC as a lesser breach as compared to violation of prevailing governing rules.
For more details, please click on the title of the topic above.
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