ComplianceOne Newsletter – March 2026
The topics discussed in this monthly newsletter are as follows:
Regulatory Updates
Market News
HKMA, SFC, IA and MPFA Launch GenA.I. Sandbox++to foster A.I. innovation across financial services
SFC publishes review on SEHK’s performance in regulating listing matters
Earnings and transaction value surge to five-year highs for Hong Kong’s securities industry in 2025
Enforcement News - Intermediaries
Regulatory Updates
1. SFC drives Asia-Pacific regulatory consensus to strengthen market resilience through collaboration and new technology
On 05 March 2026, the Securities and Futures Commission (“SFC”) led discussions at key International Organization of Securities Commissions (“IOSCO”) Asia-Pacific Regional Committee (“APRC”) meetings in Sydney, Australia. SFC CEO Ms Julia LEUNG chaired the main APRC meeting, fostering consensus on critical regional capital market pathways. The discussion focused on public/ private markets, regional supervisory/enforcement priorities, combating online scams, and regulatory implications of tokenisation and artificial intelligence.
In a keynote speech by Ms LEUNG, she outlined a strategic response to global fragmentation. The approach emphasises:
Building market resilience by broadening regional markets.
Responsible adoption of technology.
Enhancing cross-border partnerships for efficient capital flows.
Strengthening regional cooperation to jointly tackle online scams, financial digitalization, and sustainable finance amidst technological and climate-related challenges.
* Please refer to Ms LEUNG’s speech for more details.
SIGNIFICANCE:
The regulators have essentially outlined what is expected to come. The key now is how relevant companies prepare in advance to seize the opportunities. The companies poised for future success will be those that deliberately pursue digital transformation, proactively foster cross-border partnerships, and consistently advance sustainable finance initiatives.
2. Uncertificated securities market regime – targeted for launch in November 2026
On 30 March 2026, the SFC announced a clear implementation timeline for Hong Kong’s new Uncertificated Securities Market (“USM”) regime. The regime is targeted to be launched on 16 November 2026. Market participants will be invited to participate in testing the USM-related systems and processes in the coming months.
Details and Implementation Arrangements
Item | Timeline/Phase | Description |
Legislative Process | Second Quarter of 2026 | A commencement notice to bring the USM legislation into effect will be tabled before the Council. |
Implementation for New Listings | Upon launch (post-legislation) | All newly listed securities will be required to issue paperless form from the time of listing. |
Transition for Existing Listings | Gradual integration over a five-year period starting from launch | For securities already listed before the launch date, issuers will be gradually integrated into the USM regime. |
Investor Flexibility | Post-launch, with advance notice | Investors holding physical share certificates will have flexibility to decide when to convert to paperless form. Issuers and the market will receive advance notice of specific arrangements. |
How to prepare for the USM regime?
Intermediaries are encouraged to work closely with Hong Kong Exchanges and Clearing Limited (“HKEX”) to prepare for the USM launch.
While the existing nominee structure in Central Clearing and Settlement System (“CCASS”) will be retained, there will be changes, most notably to the process for depositing securities into and withdrawing them from CCASS.
These changes may require adjustments to intermediaries’ business models, operational process, and client documentation. The SFC urges intermediaries to progress their preparation work quickly to be ready for the November launch.
SIGNIFICANCE:
The USM launch is not just a market infrastructure update but a direct operational mandate. It necessitates proactive internal preparation, system update, process redesign, cost structure review, and client communication to ensure a smooth transition and ongoing compliance by the November 2026 deadline.
Market News
3. HKMA, SFC, IA and MPFA Launch GenA.I. Sandbox++to foster A.I. innovation across financial services
On 5 March 2026, the Hong Kong Monetary Authority (“HKMA”), SFC, Insurance Authority (“IA”) and Mandatory Provident Fund Schemes Authority (“MPFA”), in collaboration with the Hong Kong Cyberport Management Company Limited (“Cyberport”), jointly announced the launch of the Generative Artificial Intelligence (“GenA.I.”) Sandbox++ initiative.
Building on the success of the original GenA.I. Sandbox launched in 2024, the expanded Sandbox++ now covers multiple financial sectors, including banking, securities and capital markets, asset and wealth management, insurance, mandatory provident fund (“MPF”) schemes, and stored value facilities.
The initiative continues to prioritise three high-impact application areas:
i) Risk management
ii) Anti-fraud measures
iii) Customer experience enhancement
It further advances “A.I. vs. A.I.” strategies — using A.I. technologies to identify, monitor and mitigate risks arising from A.I. adoption itself. Participating financial institutions will benefit from Targeted supervisory guidance from the four regulators; Technical support; and Complimentary access to graphics processing unit (“GPU”) computing resources at Cyberport’s A.I. Supercomputing Centre. This risk-controlled environment enables institutions to develop, pilot and refine generative A.I. use cases more efficiently.
The Sandbox++ encourages both sector-specific and cross-sector applications, including but not limited to:
A.I.-driven insurance underwriting and claims processing
Automated suitability assessments for investment product distribution
Intelligent compliance tools for regulatory requirements
Advanced fraud detection systems
Enhanced customer service via intelligent chatbots
Broader industry-wide solutions
Key Statements from Regulators
Mr Eddie YUE, Chief Executive of the HKMA | Mr YUE described the launch as a significant milestone under the “Fintech 2030” strategy, aimed at unlocking A.I.’s potential to drive growth, efficiency and customer-centricity while reinforcing Hong Kong’s position as a leading international financial centre. |
Ms Julia LEUNG, Chief Executive Officer of the SFC | Ms LEUNG highlighted the expansion as a collective commitment to responsible market innovation, urging licensed corporations to participate actively to enhance operational efficiency, resilience and growth through A.I. |
Mr Clement CHEUNG, Chief Executive Officer of the IA | Mr CHEUNG noted that the initiative fosters an accountable, inclusive and prudent environment for A.I. innovation, aligning with the IA’s AI Cohort Programme and supporting talent attraction to strengthen Hong Kong’s regional A.I. hub status. |
Mr CHENG Yan-chee, Managing Director of the MPFA | Mr CHENG encouraged MPF trustees and intermediaries to explore advanced fintech solutions, including A.I., to improve operational efficiency and service quality for scheme members. |
SIGNIFICANCE:
The GenA.I. Sandbox++ represents a landmark cross-regulatory collaboration that significantly broadens the scope for responsible generative A.I. adoption across Hong Kong’s entire financial services ecosystem. By providing supervisory guidance, technical resources and a safe testing ground, including powerful GPU computing access the initiative lowers barriers to innovation while maintaining strong focus on risk management, fraud prevention and customer protection. The emphasis on “A.I. vs. A.I.” approaches and cross-sector applications positions Hong Kong at the forefront of A.I.-enabled financial services in Asia, fostering deeper partnerships between regulators, financial institutions and technology providers.
This coordinated effort not only accelerates practical deployment of high-impact use cases in insurance, securities, banking and MPF, but also enhances the competitiveness, resilience and customer-centricity of Hong Kong’s financial sector, reinforcing its status as a global leader in fintech and responsible innovation.
4. SFC publishes review on SEHK’s performance in regulating listing matters
On 18 March 2026, the SFC released a review report that summarizes its key findings and recommendations on the performance of The Stock Exchange of Hong Kong Limited (“SEHK”) in its listing matters during 2024.
Main Scope of Review:
1) Vetting of Internal Control Reviews by Listed Issuers: Primarily examining how the SEHK required and reviewed independent internal control reviews conducted by issuers, mostly in cases of long suspensions and small number of disciplinary cases.
2) Vetting of Listed Issuers’ Handling of Late Auditor Resignations: Reviewing how the SEHK supervised and reviewed the process and disclosures of issuers and their audit committees when auditors resigned close to the financial results announcement deadline.
Findings and Recommendations:
1) Regarding internal control reviews, the SFC recommends the SEHK should more consistently identify cases requiring such reviews, ensure the review scope is adequate, place greater reliance on independent consultants and external auditors for verification, and enhance assessment of the independence and qualifications of internal control consultants.
2) Regarding late auditor resignations, the SFC recommends the SEHK should take steps to reduce their frequency, enhance scrutiny of the disclosed reasons for resignation, and strengthen supervision of how audit committees fulfil their duties when a late resignation occurs.
SIGNIFICANCE:
The industry market can extract clear signals on rising standards for internal controls, a more interventionist approach to audit committee oversight, a push for greater transparency in auditor changes, and more structured processes for remediating certain listing rule breaches. Relevant listed companies should review their policies and procedures in these areas in anticipation of the SEHK implementing the SFC’s recommendations.
5. Strategic innovation drives growth of Hong Kong’s listing and digital asset markets: SFC Quarterly Report
On 19 March 2026, the SFC issued a report outlining how Hong Kong’s capital market achieved breakthroughs in multiple areas, including Initial Public Offerings (“IPOs”), digital assets and asset management, by the end of 2025 through institutional innovations and product innovations, while also strengthening regulation to consolidate its position as an international financial centre.
The report highlights:
World’s Leading IPO Market: Hong Kong became the world’s top venue for IPOs in 2025, raising over USD 280 billion. The newly established Technology Enterprise Channel performed notably well, attracting a large number of listing applications from pre-profit biotech and specialist technology companies.
Thriving Digital Asset Ecosystem: The scale of tokenized retail money market funds, newly introduced in 2025, grew steadily. The market capitalization of Asia’s first batch of virtual asset spot ETFs, launched in 2024, increase significantly.
Robust Growth in Asset and Wealth Management: Hong Kong domiciled funds saw substantial year-on-year growth in net-inflows, asset under management, and total number in 2025. The overall market size expanded markedly driven by the ETF sector.
Regulatory Measures: To ensure market quality, the SFC has issued a circular addressing deficiencies in IPO application documents and sponsor conduct, and will conduct thematic inspections.
Licensing Activity: A 17% year-on-year increase in license applications indicates a growing and competitive marketplace. Licensed Corporations should be prepared for this evolving competitive landscape.
*For more details, please refer to the SFC Quarterly Report
SIGNIFICANCE:
Hong Kong’s capital markets saw a strong finish to 2025, as a wave of strategic innovation drove breakthroughs for the listing and digital asset markets. Licensed Corporations should use this information on strategic market and regulatory update to calibrate their business focus and ensure their compliance frameworks are attuned to these highlighted areas.
6. Earnings and transaction value surge to five-year highs for Hong Kong’s securities industry in 2025
On 31 March 2026, the SFC issued its comprehensive report on the performance of Hong Kong securities sector, covering licensed securities dealers and securities margin financiers. The report primarily uses financial data to benchmark the industry’s health and growth. The industry achieved a record-breaking performance of net profits and total value of transactions in 2025.
Financial Performance Highlights of Hong Kong’s Securities Industry (2024 vs 2025)
Metric | 2024 | 2025 | Change (HKD) | Change (%) |
Net profits (Securities Dealers & Margin Financiers) | 44.4 billion | 71.7 billion | +27.3 billion | +62% |
Total Value of Transactions (Securities Dealers & Margin Financiers) | 144.1 trillion | 219.0 trillion | +74.9 trillion | +52% |
Hang Seng Index (HIS) Closing level (as of 31 Dec) | 20,024* | 25,631 | +5,607 | +28% |
Average Daily Turnover (SEHK) | 131.8 billion | 249.8 billion | +118.0 billion | +90% |
Key Income Streams (Securities Dealers & Margin Financiers)
Income Category | 2024 | 2025 | Change (HKD) | Change (%) |
Net Commission & Gross Interest Income | 65.2 billion | 75.5 billion | +10.3 billion | +16% |
Net Securities Commission Income | 20.2 billion | 30.2 billion | +10.0 billion | +50% |
Advisory & Underwriting Income | 23.6 billion | 29.9 billion | +6.3 billion | +27% |
Asset Management Fee Income | 37.5 billion | 48.6 billion | +11.1 billion | +30% |
Other Income (including Proprietary Trading) | 96.3 billion | 113.5 billion | +17.2 billion | +18% |
Market Structure & Client Data (as of 31 Dec)
Category | 2024 | 2025 | Change |
Number of Securities Dealers & Margin Financiers | 1,397 | 1,475 | +78 |
Total Active Clients (Securities Dealers & Margin Financiers) | 4.4 million | 5.1 million | +0.7 million (+17%) |
Asset Under Management (AUM) | 11.8 trillion | 14.9 trillion | +3.1 trillion |
Outstanding Margin Loans | 177.2 billion | 216.4 billion | +39.2 billion (+22%) |
The report depicts a Hong Kong securities industry that experienced exceptionally strong growth in 2025, marked by record transaction volumes, surging profitability across all business lines and a significantly expanding client base and asset base.
Enforcement News - Intermediaries
7. SFC and ICAC joint operation in alleged insider dealings and corruption involving senior executives of licensed corporations
On March 10 and 11, 2026, the SFC and the Independent Commission Against Corruption (ICAC) conducted a joint operation targeting senior executives of two licensed corporations and a hedge fund management company. The ICAC arrested six men and two women who were then the senior executives of a licensed securities firm who accepted over HKD 4 million bribe from the owner of the licensed hedge fund management firm to disclosure of confidential, material non-public information concerning the share placements of several Hong Kong-listed companies prior to their public announcements.
Following receipt of the material non-public information, the implicated hedge fund management company established short positions in the relevant stocks. Subsequent to the public announcement of the share placements, these positions generated illicit profits of approximately HKD 315 million.
As this case remains an active investigation, no further comments will be provided by the SFC or the ICAC at this time.
SIGNIFICANCE:
This incident serves as a critical wake-up call to licensed corporations. It necessitates an immediate re-evaluation of culture, controls, ethics training and practical enforcement of compliance measures to prevent insider dealing and bribery.
8. SFC bans KUO Che-jung for four and a half years and fines him HKD 1 million for executing match trades that are advantageous to his beneficial interest
On 19 March 2026, the SFC has prohibited Mr KUO Che-jung, a former responsible officer of Yuanta Securities (Hong Kong) Company Limited, from re-entering the securities industry for four and a half years, from 19 March 2026 to 18 September 2030, and has fined him HKD 1,000,000.
This action follows findings that between 02 July 2020 and 24 November 2020, Mr KUO engaged in market misconduct by executing 25 matched trades in Hang Seng Index options between Yuanta’s proprietary trading account and a securities account held in his wife’s name at an external broker. These trades were executed at prices systematically favourable to his wife’s account and disadvantageous to Yuanta’s account.
Furthermore, Mr KUO failed to disclose his beneficial interest in his wife’s account and two other personal trading accounts, a direct violation of Yuanta’s staff dealing policies. This non-disclosure prevented the firm from monitoring his personal trading activities and managing the resultant conflicts of interest.
*For more details of the background, please refer to the Statement of Disciplinary Action.
SIGNIFICANCE:
This case serves as a clear reminder to all licensed corporations and licensed individuals that robust personal account dealing policies are not merely administrative but also essential for market integrity and effective supervision. Staff dealing policies must be strictly implemented and abide by the relevant individuals.
9. SFC bans LUI Pak Tong for life and fines him HKD 17.43 million involving a conflict of interest of five unsecured loans to a company under his control
On 24 March 2026, the SFC imposed a lifetime prohibition from re-entering the securities industry on Mr LUI Pak Tong, a former licensed representative of Thunder Capital Limited.
The action follows findings of egregious misconduct. It was determined that between September 2017 and June 2022, a company under Mr LUI’s control entered into five unsecured loan agreements, securing a total of HKD 22.5 million from segregated portfolios managed by Thunder Capital. This arrangement yielded illicit financial benefits of approximately HKD 17.43 million for his company.
Crucially, Mr LUI intentionally failed to disclose his involvement in the borrowing company to Thunder Capital’s Investment Committee, thereby concealing the material conflicts of interest. This deliberate non-disclosure constituted a severe breach of fiduciary duty, as it prevented the firm from taking necessary steps to ensure fair treatment for the investors in the affected portfolios.
*For more details of the background, please refer to the Statement of Disciplinary Action.
SIGNIFICANCE:
A lifetime prohibition is the most severe individual sanction available, reserved for cases involving dishonesty, fraud, misconduct that causes substantial investor loss. This case signals that the misappropriation of client funds and intentional concealment of conflicts for personal enrichment will be met with the ultimate career-ending penalty, underscoring the zero-tolerance for acts that strike at the heart of investors’ confidence.
10. Enforcement Reporter: No Safe Harbour: Holding Intermediaries to Account
On 31 March 2026, the SFC published its 7th Edition of Enforcement Reporter themed as “No Safe Harbour: Holding Intermediaries to Account”. This is the official enforcement recap of the SFC that sends a clear message to licensed corporations and its senior management that fund mismanagement, conflict of interest, client-asset misuse, window-dressing of financial resources and provision of false information will attract serious regulatory action, including revocation of license, lifetime industry bans, substantial fines and operational restrictions.
This issue spotlights significant cases in the asset-management sector.
Fund Manager Misconduct Cases | ||
Entity Name | Misconduct | SFC Action |
Agg Asset Management Limited | Two former responsible officers engaged in serious misconduct such as window-dressing liquid capital, investing fund assets in conflicted related-party debentures, misappropriating investor subscriptions, and failing to manage conflict of interest and risks. |
|
Nerico Brothers Limited and Amber Hill Capital Limited | Misuse and misappropriation of client funds and provision of false information to the SFC, investors, and auditors. |
|
Sponsor Misconduct Cases | ||
Entity Name | Misconduct | SFC Action |
RaffAello Capital Limited | Failed to properly investigate red flags in the applicant’s retail sales data and its dealings with key suppliers, relying excessively on untested management representations during due diligence. |
|
Changjiang Corporate Finance (HK) Limited | Serious and extensive failures that includes Inadequate prospectus disclosures, misapplication of Listing Rules, systemic record-keeping failures. |
|
SIGNIFICANCE:
The 7th Edition of Enforcement Reporter illustrates the SFC’s heightened enforcement stance as warned in its circular in 09 October 2024 where there will be zero tolerance for dishonesty, imposing severe penalties like license revocation, suspension and lifetime bans for serious misconducts involving misappropriation and fabrication. Licensed Corporations should conduct a compliance gap analysis to mitigate similar risk.
[End of ComplianceOne Newsletter – March 2026]
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 1605, 16/F, West Tower, Shun Tak Centre,168-200 Connaught Road Central,
Sheung Wan, Hong Kong
Tel: (852) 39550277 www.complianceone.hk