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The topics discussed in this monthly newsletter for insurance are as follows ComplianceOne Insurance Newsletter - Jul 2024 The topics discussed in this monthly newsletter are as follows: I. IA Regulatory Updates (1) Individual licensees are reminded to submit their CPD Declaration directly to the IA via the Insurance Intermediaries Connect (“ IIC ”) by 30th September 2024 (7 June 2024) (2) Responsible Officers of Licensed Broker Companies are required to attend two RO specific CPD (“ RO-CPD ”) hours in the coming CPD Assessment Period (28 June 2024) (3) The IA put Key Person in Control Function (“ KPIC ”) of Authorized Insurers – related topics into a pilot scheme for CPD training (28 June 2024) (4) The IA will start charging fees for processing insurance intermediary license applications and related notifications starting 23 September 2024 (31 July 2024) (5) The IA issued a Practice Note to provide guidance in respect of the investment choices and premium allocations under Investment-Linked Assurance Scheme Policies (“ ILAS Policies ”) (5 July 2024) (6) The IA and the HKMA carried out join inspection exercise on Premium Financing (“ PF ”) and provided certain findings (27 June 2024) (7) The Hong Kong Federation of Insurers launched a Reference Checking Scheme to standardize the reference check process (5 July 2024) (8) The Hong Kong Federation of Insurers launched a Reference Checking Scheme to standardize the reference check process (5 July 2024) II. Enforcement News (9) Tahoe Life became the first insurer to be taken over by the regulators in Hong Kong to protect policy holders’ interests (27 July 2024) (10) China Taiping’s former employees were charged by ICAC for dummy agent scam and money laundering activities (17 July 2024) (11) The IA bans Chan Hung Fei from the industry within 34 months due to misappropriation of premium payments (12 July 2024) (12) The IA imposes a pecuniary fine against a broker company and a technical representative for mishandling of insurance policy (24 June 2024) I. IA Regulatory Updates (1) Individual licensees are reminded to submit their CPD Declaration directly to the IA via the Insurance Intermediaries Connect (“IIC”) by 30th September 2024 (7 June 2024) The IA issued a circular on 7 June 2024 that sets out the procedures for reporting CPD attainment for the Assessment Period 2023/2024 (1 August 2023 to 31 July 2024). Key deadlines are: 31 July 2024: Complete CPD hours. 30 September 2024: Submit CPD Declarations. 31 October 2024: Appointing principals report CPD compliance to the IA. Licensees and principals can manage CPD requirements via the Insurance Intermediaries Connect (“ IIC”) platform , with daily updates and final lists available on 1 August 2024 . I. CPD Declarations by Individual Licensees : Direct Submission to IA via IIC: Before 31 July 2024: Only if CPD hours are completed. 1 August to 30 September 2024: All licensees can submit, even if incomplete. 1 October to 15 November 2024: Update status if CPD hours were incomplete. Notification to Appointing Principals: Licensees must inform principals of their submission. Licensees without Appointing Principals: Report directly to the IA via IIC or email. II. CPD Declarations to Appointing Principals : Before 31 July 2024: Principals report compliance for licensees who fulfilled CPD requirements. 1 August to 31 October 2024: Principals report compliance for all licensees, including new ones. CPD Penalty Framework : Minimum 15 CPD hours, including 3 hours on “Ethics or Regulations” (3 total for restricted scope travel insurance). SIGNIFICANCE : According to the CPD Non-Compliance League Table (see above), CPD compliance increased from 90% to 96.1%, but the incentive target is 100%. The IA will continue to publish CPD non-compliance rankings. (2) Responsible Officers of Licensed Broker Companies are required to attend two RO specific CPD (“RO-CPD”) hours in the coming CPD Assessment Period (28 June 2024) The Continuing Professional Development (“CPD”) requirements set out in the Guideline on Continuing Professional Development for Licensed Insurance Intermediaries (“GL24”) . The Guideline mentions ROs must complete 15 CPD hours annually, including 3 hours in “Ethics or Regulations.” This requires completion, during each annual CPD Assessment Period (which runs from 1 August to 31 July ). The pilot scheme for the 2024-2025 CPD period requires ROs to complete a 2-hour RO-specific CPD course, which counts towards the 15-hour requirement and 2 of the 3 compulsory “Ethics or Regulations” hours. This course will be delivered through Professional Insurance Brokers Association (“PIBA”) and Confederation of Insurance Brokers (“CIB”) . The IA encourages every ROs of a brokerage firm to attend an RO-CPD course offered by PIBA or CIB during the 2024/2025 CPD Assessment Period (i.e. 1 August 2024 to 31 July 2025). While attendance is not mandatory, records will be kept and absence may impact the IA’s assessment of the broker company’s conduct risk profile. SIGNIFICANCE : The IA emphasizes the importance of representative institutions adhering to the principle of "treating customers fairly". If the pilot project is successful, the continuing professional development requirements for representative institutions may be formally implemented in the future. (3) The IA put Key Person in Control Function (“KPIC”) of Authorized Insurers – related topics into a pilot scheme for CPD training (28 June 2024) While most control functions of Key Person in Control Function (“KPIC”) already existed, the Intermediary Management Control Function was newly introduced on 23 September 2019 which stated out the function of KPIC for Intermediary Management (“KPIM”). To assist KPIMs understand their roles, the IA has issued circulars and conducted training through the Hong Kong Federation of Insurers (“HKFI”). Moreover, the IA is launching a pilot Continuing Professional Development (“CPD”) training for KPIMs during the 2024/2025 CPD Assessment Period (i.e. 1 August 2024 to 31 July 2025). This two-hour course can be attended in person or via recorded sessions. S IGNIFICANCE : The IA mentioned the Polit Scheme attendance is encouraged but not mandatory. However, non-attendance may affect the IA’s assessment of an insurer’s conduct risk profile. The IA emphasizes the importance of KPIMs in upholding the “ treating customers fairly ” principle and maintaining confidence in the insurance market. (4) The IA will start charging fees for processing insurance intermediary license applications and related notifications starting 23 September 2024 (31 July 2024) The IA issued a circular announcing changes to the fees for applications and notifications, effective from 23 September 2024 . Applicants (i.e. individual licensees, insurance agencies, and broker companies) must pay relevant fees specified in Annex 1 to the IA when: applying for a new or renewal license, adding a line of business, seeking approval for a responsible officer, or for appointment and exemption applications. Insurance Intermediaries Connect (“IIC”) gateway update: The gateway without fees for the IA’s e-portal (i.e. Insurance Intermediaries Connect (“IIC”)) will close at 12:00 noon on Friday, 20 September 2024 . Starting from 23 September 2024 , fees for applications and notifications submitted through IIC, must be paid at the time of submission. Access to IIC will be unavailable in between dates mentioned above. SIGNIFICANCE : Applicants should begin preparing their first batch submissions. The updated User Guide for IIC with detailed payment instructions will soon be available on the IA’s website. Additionally, applicants can refer to Annex 2 Q&A section for further understanding. (5) The IA issued a Practice Note to provide guidance in respect of the investment choices and premium allocations under Investment-Linked Assurance Scheme Policies (“ILAS Policies”) (5 July 2024) On 5 July 2024, the Insurance Authority (“IA”) issued a circular and Practice Note outlining regulations for licensed insurance brokers offering services related to investment choices and premium allocations under Investment-Linked Assurance Scheme Policies (“ILAS Policies”). Effective on 1 October 2024 . The Practice Note applies to Broker Companies, Technical Representatives (“Broker”), and Responsible Officers (“RO”), addressing execution-only services, advisory investment services, and discretionary investment management services. Annex A pertains to individuals, while Annex B covers the IA’s expectation of Broker Companies’ internal controls and procedures. Annex A - outlines the competency requirements for personnel (i.e. Brokers and ROs) who offer advisory investment services and discretionary investment management services which apply to all ILAS Polices issued on or after 1 October 2024 . Under the grandfathered investment-linked life insurance policy, those who fail to meet the new competency requirements and wish to continue providing relevant services before 31 July 2027 is required to complete an additional 2 hours of mandatory Continuing Professional Development (“CPD”). Annex B - outlines the IA’s expectations for corporate governance, controls, and procedures related to ILAS Policies, applicable from 1 October 2024 . Broker Companies must ensure that policyholders receive and understand transparent information about terms, remuneration and service charges that are independent of the investment life policy feature. SIGNIFICANCE : Broker companies and ROs may consider the grandfathered arrangements as the temporary alternative solution if issues arise during the license (i.e. Type 4 and Type 9) application before 1 October 2024 . (6) The IA and the HKMA carried out join inspection exercise on Premium Financing (“PF”) and provided certain findings (27 June 2024) The Insurance Authority (“IA”) and the Hong Kong Monetary Authority (“HKMA”) jointly completed an inspection on premium financing (“PF”) activities in late 2023 to assess compliance with the New Supervisory Standards (the “Standards”) introduced on 1 January 2023 . The inspection found that most authorized insurers and licensed intermediaries complied with the standards, often adopting stricter thresholds to prevent over-leveraging. The “ Important Facts Statement – Premium Financing ” (IFSPF) disclosure requirement was widely implemented. Good Practices and Findings The inspection revealed several good practices among insurers and intermediaries, such as: Conservative affordability analysis, Displaying leverage ratios in financial needs analysis (FNA) forms, and Conducting post-sale calls due to different circumstances instead of just to vulnerable customers. However, issues were also noted, including unawareness of PF standards, Questionable financial reconfirmations, Incorrect bank reference letters, Incomplete IFS-PF forms, premature product recommendations, and Inadequate credit assessments by banks. SIGNIFICANCE : Insurers and intermediaries are reminded to adhere to the Standards, especially in the current high-interest environment. Details of the observations of two regulators can be found in the Annex for further understanding. (7) The Hong Kong Federation of Insurers launched a Reference Checking Scheme to standardize the reference check process (5 July 2024) On 5 July 2024, the Hong Kong Federation of Insurers (“HKFI”) introduced the Reference Checking Scheme for Insurance Intermediaries with long-term businesses. The Insurance Authority (“IA”) endorsed and supported this Scheme through a Circular issued on the same date. The Scheme will come into effect on 1 September 2024 under the IA regulate requirement. Key Aspects of the Scheme In accordance with the Scheme’s requirement, when Long Term Insurers (the “Recruiting Insurer”) consider appointing a candidate who has previously worked for other Long Term Insurers (the “Responding Insurers”) within the past 7 years , the Recruiting Insurer must conduct reference checks with the Responding Insurers. The assessment should be reviewed by the Key Person in Control Function for Intermediary Management (“KPIM”) . The IA expects Long Term Insurers and their KPIMs to implement the Scheme with internal controls (i.e. due diligence, vetting procedures etc.) as part of their regular onboarding procedures. The IA’s Supervisory Approach Any Long Term Insurer does not participate in the Scheme or fails to meet its obligations, the IA views this as a sign of internal control weaknesses. As such, the insurance company may expect the enhance supervisory on the adequacy of recruitment and onboarding controls by the IA. This may result in the insurance company's application for any insurance license (i.e. new license and renewal) being scrutinized more closely and taking a relatively longer time. SIGNIFICANCE : As the circular mentions that the IA is currently evaluating the possibility of expanding the scheme to cover all types of insurance institutions, it is expected that the scheme will soon be applicable to all insurance intermediaries. Insurance intermediaries currently exempt from participating in the Scheme should consider the Scheme as the “best practice” and implement it gradually. II. Enforcement News (8) Tahoe Life became the first insurer to be taken over by the regulators in Hong Kong to protect policy holders’ interests (27 July 2024) On 26 July 2024 , the Insurance Authority (“IA”) appointed to take full control of Tahoe Life Insurance Company Limited ("Tahoe Life”)’s affairs and property in Hong Kong. By order of the Supreme Court of Bermuda dated 26 July 2024 , Mr Marcin Czarnocki of Deloitte Financial Advisory Ltd., Mr Derek Lai and Mr Forrest Kam of Deloitte Touche Tohmatsu, and Mr Oliver Cheng of Deloitte Advisory (Hong Kong) Limited as the Joint Provisional Liquidators (the “JPLs”) of Tahoe Life as a coordinated regulatory action with the IA to protect policy holders’ interests. This coordinated action aims to protect policyholders’ interests by ring-fencing Tahoe Life’s assets rather than winding up the company. Both the IA and Bermuda Monetary Authority (“BMA”) are cooperated under the International Association of Insurance Supervisors Multilateral Memorandum of Understanding (“MMoU”) to ensure effective regulatory oversight and recovery solutions for Tahoe Life. SIGNIFICANCE : Back in 2020, Tahoe Group experienced its first debt default. On 28 July 2023, the Shenzhen Stock Exchange terminated its listing qualifications. Just two weeks after Tahoe Group was delisted, the IA appointed a special advisory team from PricewaterhouseCoopers (“PWC”) to provide professional advice on investment strategy and dividend policy for Tahoe Life . This move aimed to ensure the protection of policyholders’ interests. As Tahoe Group’s issues worsened, the IA finally took action. Within a year, Tahoe Life was taken over, marking the first instance of a life insurance company being taken over in Hong Kong’s history. (9) China Taiping’s former employees were charged by ICAC for dummy agent scam and money laundering activities (17 July 2024) The Independent Commission Against Corruption (“ICAC”) charged five former employees of China Taiping Life Insurance (Hong Kong) Company Limited (“China Taiping”) for their involvement in a dummy agent scam and providing false information in insurance policy applications, defrauding the company of $4.25 million in commissions and other payments. Three of the dummy agents were also charged with handling over $2.3 million in crime proceeds. Court proceedings are still ongoing. In accordance, charges of this case contain the following: Fraud (Section 16A(1) of the Theft Ordinance) - could face imprisonment up to 14 years. Dealing with proceeds of an indictable offence (Section 25(1) of the Organised and Serious Crimes Ordinance) - could face imprisonment up to 14 years and fine up to HKD 5 million. Forgery (Section 71 of the Crimes Ordinance) - could face imprisonment up to 14 years. Penalties vary based on the offence’s severity and the court’s discretion, considering prior records and other factors. SIGNIFICANCE : Despite China Taiping has not received any penalties and fully cooperated with the investigation, as a regulated insurance company, it is responsible to ensure the fit and proper of its appointed agents and brokers, as well as supervising and preventing such incidents. Insurance companies should learn from this incident by conducting their own or third-party compliance reviews, strengthening internal controls, enhancing monitoring processes, and preventing similar incidents in the future. (10) The IA bans Chan Hung Fei from the industry within 34 months due to misappropriation of premium payments (12 July 2024) The IA has banned Chan Hung Fei (“Mr Chan”) from applying for a licence for 34 months due to misappropriating premiums from two policyholders. Between 2019 and 2021, Mr. Chan directed HK$36,093 in premiums to his personal bank account instead of passing them to AXA, causing the policies to lapse. He also failed to inform the policyholders about the status of their policies and upcoming payments. After complaints were filed, Mr. Chan returned the premiums, reinstated the policies, and reimbursed medical expenses for one policyholder. The IA emphasized the importance of intermediaries adhering to professional and ethical standards, regardless of personal relationships with clients. Policyholders are reminded to make premium payments through official insurer channels. SIGNIFICANCE : As concluded by the IA, considered Mr. Chan’s return of premiums, admission of misconduct, and cooperation in deciding the disciplinary action, aiming to achieve a strong deterrent effect. (11) The IA imposes a pecuniary fine against a broker company and a technical representative for mishandling of insurance policy (24 June 2024) The Insurance Authority (IA) fined a licensed insurance broker company HK$37,270 and a licensed technical representative HK$7,000 for mishandling a client’s insurance policy. The broker company admitted its wrongdoing and compensated the client HK$62,730 for property damages. Consequently, the IA imposed a fine of HK$37,270 on the broker company and HK$7,000 on the technical representative due to the seriousness of the wrongdoing. SIGNIFICANCE : The IA remains vigilant and will take disciplinary actions against those who fail to properly discharge their duties. Further details can be found in the “Enforcement News” section on the IA’s website. [End of ComplianceOne Insurance Newsletter – July 2024] 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

天匯合規的聯營公司 億東金融科技有限公司 本年已正式推出東查查反洗錢客戶管理系統 (Screen-X AML/CRM Solutions)。 ComplianceOne Fintech Solutions - Screen-X AML/CRM Solutions 天匯合規金融科技解決方案 – 東查查反洗錢/客戶管理系統 天匯合規的聯營公司 億東金融科技有限公司 本年已正式推出東查查反洗錢/客戶管理系統 (Screen-X AML/CRM Solutions)。 憑藉 天匯合規 在監管合規和資訊科技領域的豐富經驗，我們透徹地了解香港、大灣區、以至全球金融監管的框架，專注為受監管的金融機構和企業提供合規科技解決方案，深入了解監管政策和行業痛點，因此，我們研發了 東查查 ，務求為金融機構提供 全自動化的反洗錢系統 ，以符合監管機構的要求，並協助金融機構 在營運上減低合規風險及提升營運的效率 。 東查查反洗錢/客戶管理系統集 認識你的客戶及客戶盡職審查 、 風險評估 、 持續監察 、 備存紀錄 等功能於一身，為您的合規工作護航，以下會詳細說明。 1. 認識你的客戶及客戶盡職審查 東查查可快速完成客戶身份驗證，包括個人和法人（公司）客戶。系統支持多種身份證件驗證，如身份證、護照、營業執照等，並可自動與國內外公開資料庫進行比對，有效降低KYC過程中的人工核查成本。 2. 客戶風險評估 東查查配備風險評估功能，根據客戶背景、行為、交易等多維度數據，自動計算客戶風險，並針對不同風險級別設定持續監察頻率，幫助您更好地管控合規風險。 3. 持續監察 東查查可設定持續監控客戶的交易活動，實時捕捉可疑交易。同時也能定期審查客戶資料，確保與實際活動保持一致。若客戶的交易模式突然變化或與其聲稱的業務模式不符，會建議進行進一步調查。 4. 備存紀錄 東查查提供客戶管理功能，能協助用戶備存必要的記錄和文件，以便日後監管審查和調查。我們採用嚴格加密及系統安全措施，例如︰數據儲存於阿里雲﹑對數據庫的數據進行加密﹑登錄加密﹑每天備份﹑接口加密，以保護極度敏感的客戶數據免受未經授權的訪問，及確保信息的機密性和完整性。 客戶反饋例 資產管理公司 東查查能準確識別高風險客戶，提供的分析報告也清楚易明，減省了大量人工審查的時間，令同事的工作變得更高效，提升了工作效能。 信託或公司服務提供者（TCSP） 公司一直非常重視反洗錢合規管理，但隨著業務快速增長，傳統的人工盡職調查已難以滿足需求。東查查的價格相宜，可以在網上自行完成購買和使用，操作非常簡便快捷。系統的客戶盡職審查和風險評估功能，大幅提升了我們的工作效率，同時又能確保合規風險的有效管控。 東查查的數據庫供應商介紹 Acuris 自2015年的收購提供了獨特的合規數據集和全球運力 作為擁有專屬的政治公眾人物 (PEPs)、制裁和負面新聞的數據提供者 由全球擁有超過200名懂多種語言的分析師組成的專屬研究團隊 獲得ISO 27001認證 擁有ACAMS認證的研究團隊 立即試用 如有任何查詢，歡迎以下列方式聯絡我們，謝謝！ If you have any questions about this order, please feel free to contact us. Thank you! https://edon.asia/ info@edon.asia (852) 3543 9099 (852) 9690 0882 https://www.youtube.com/watch?v=29FJ23T0ODc

The topics discussed in this monthly newsletter are as follows: ComplianceOne Newsletter – September 2025 The topics discussed in this monthly newsletter are as follows: REGULATORY UPDATES NASDAQ is pioneering in launching tokenization of stocks SFC consults on extending investor identification regime to exchange-traded derivatives in Hong Kong MARKET NEWS Hong Kong’s securities industry saw continued earnings growth and record transactions in first half of 2025 Only a limited number of licenses will be granted by the HKMA amid 77 applications received for Stablecoin Issuers SFC and Dubai Financial Services Authority bolster ties in supervising cross-border investment management SFC and HKMA unveil roadmap to advance Hong Kong’s vision to be global fixed income and currency hub ENFORCEMENT NEWS SFC Bans Former UBS Advisor Suen Kin-wing for Life Over Money Laundering and Contempt Convictions SFC Bans Former Citigroup Executive Richard Charles Heyes for 5 Years Over Serious Misconducts SFC Reprimands and Fines Instinet Pacific Limited $8 Million for Cross Trade Reporting Failures SFC Upholds Fine on RaffAello Capital for Sponsor Failures in Paprika Listing SFC Reprimands and Fines Roofer Securities $2.1 Million for Client Money Mishandling SFC Secures Disqualification Orders Against Five More Former Directors of Superb Summit Due to misappropriate assets SFC Suspends Former Agg. Asset Management RO Chow Tsz Lam for 12 Months Over Fund Mismanagement SFC Pursues Disqualification Orders Against Former Directors of Century Energy International Holdings Limited Regulatory Updates 1. NASDAQ is pioneering in launching tokenization of stocks In less than two years, the tokenized securities market experienced almost “explosive” growth with on-chain stocks surging from less than 5 million dollars starting from 2024 to 0.42 billion, a more than 80 times increase in two years. The driving wave is originated from the collective entry and accelerated layout of enterprises; both crypto-native companies and traditional financial giants are striving to tap the advantage of being the first-mover in the emerging circuit of tokenized stocks. These moves not only set off a race between crypto and traditional finance, but also a potential “revolution” against the traditional exchange model. Nasdaq, being the world’s second-largest exchange, took the initiative to incorporate tokenized stocks attempting to push itself to be the pioneer in the Wall Street. Some key takeaways we need to know about the moves by NASDAQ: Tokenized stocks are not new stuff, they are new “packaging” for the traditional equity, namely, to connect blockchain’s bookkeeping and settlement capabilities on top of existing financial infrastructure. The appeal of tokenization is that it touched several “core pain points” in the capital market and provide quick solution with: (i) settlement efficiency, (ii) transaction time and accessibility, (iii) programmability of assets. With the completion of the Depository Trust Company (“DTC”) upgrade, and the on-chain settlement function early in Q3 next year, there will already be parallel run of cryptocurrency stocks and traditional stocks this year. SIGNIFICANCE: NASDAQ has officially submitted an application for tokenized Stocks trading with the SEC, a “core attempt” by Wall Street in the digitalization process. The core of this proposal is that tokenized stocks should enjoy exactly the same rights and protections as their underlying securities , transaction matching is still carried out in the existing order book, and DTC is responsible for minting equivalent tokens on the chain. As the CEO of NASDAQ has said, “ Blockchain technology offers unprecedented possibilities for shortening settlement cycles, modernizing proxy voting, and automating corporate actions .” To put in simple words, NASDAQ is not trying to do away with the old order, but rather to upgrade the underlying structure of the market with minimal impact and to ensure that the core principles of investor protection and market transparency remain intact . 2. SFC consults on extending investor identification regime to exchange-traded derivatives in Hong Kong The SFC launched a consultation on 22 September 2025 on the proposed investor identification regime for the exchange-traded derivatives market (“ HKIDR-DM ”) which is expected to further consolidate and reinforce the integrity and sustainable development of Hong Kong’s exchange-traded derivatives markets, while a tentative schedule for implementation is in the first quarter of 2028. The proposed HKIDR-DM was established and based on the successful implementation of the similar regime for the securities markets, i.e. the HKIDR-S (the Hong Kong investor identification regime for securities markets). The scope of the HKIDR-DM comprises of order submissions for futures contracts, options contracts and stock options traded on the trading system of the Hong Kong Futures Exchange Limited (“ HKFE ”). Key takeaways are: the regime will apply to Relevant Regulated Intermediaries (“ RRIs ”), i.e., licensed corporations (“ LCs ”) under the SFC and registered institutions (“ RIs ”) under the HKMA that trade (as principal or agent) futures and options contracts; the requirements under the proposed HKIDR-DM are analogous to those currently set out in the HKIDR-S. RRIs will be required to assign a unique “Broker-to-Client Assigned Number” (“ BCAN ”) to Relevant Clients (it basically refers to the immediate client of a RRI who maintains a trading account with the RRI) placing or intending to place orders in the futures market; RRIs must collect and submit up-to-date client identification data (“ CIDs ”) alongside the BCAN in a file (“ BCAN-CID Mapping File ”) to a central data repository maintained by Hong Kong Exchanges and Clearing Limited (HKEX), the same arrangements as the securities side; SIGNIFICANCE: As Mr. Rico Leung, the SFC’s Executive Director of Supervision of Markets has said, “t o keep up with Hong Kong’s fast-growing derivatives market and align with global best practices, the proposed extension of our investor identification regime represents a major stride in detecting irregularities and protecting investors whilst minimizing operational burden on the industry ”; and he further added that, “ our enhanced cross-market surveillance capabilities will help reinforce market integrity and investors’ confidence – both essential in solidifying Hong Kong’s sustainable development as an international financial center. ” Market News 3. Hong Kong’s securities industry saw continued earnings growth and record transactions in first half of 2025 The latest financial review of the industry issued by the SFC demonstrates a robust growth in the earnings of the securities sector with key promising figures as below: a steady growth momentum with a 14% profit increase to HKD28.9 billion amid record high securities transaction value in the first six months of 2025; a total value of transactions of all securities dealers and securities margin financiers reached a record HKD99.2 trillion in the first half of 2025, a recorded increase of 22% from Q2 of 2024 and 57% (year-over-year); the net profits of all the SEHK participants were up 34% during the previous 6 months to HKD15.6 billion. The main driving forces are attributed to the steady growth of trading commission, reduction in overheads and interest expenses; within the revenue side, the net securities income was up 23% to HKD13.6 billion and income from advising on corporate finance was up 33% to HKD2 billion! One point deserves attention is that the net profits of Category C brokers, which cater for general public and small retail investors, doubled to HKD2.5 billion, implying a holistic recovery of the brokerage business rather than being concentrated on the top category brokers. SIGNIFICANCE: As Dr Eric Yip, the SFC’s Executive Director of Intermediaries, said, “ once again, the solid performance of our licensed corporations showcases the strength and agility of our financial industry in a fast-changing business landscape , underscoring their key role in driving Hong Kong’s continued success as a top international financial centre. ” 4. HKMA to grant limited stablecoin licenses amid 77 stablecoin application Main themes of the press are that: the 77 applicants originated from a range of sectors comprising of banking, technology firms, asset manager, e-commerce platforms, payment companies and Web3 startups; only a limited number of stablecoin licenses will be issued in the initial stage; only applicants meeting strict compliance requirements will be granted approvals. Key takeaways readers should know : the Hong Kong Monetary Authority ("HKMA") would not publish the list of entities showing interests or submitting applications; and reiterated that communications with the applicants did not indicate any hints of regulatory approval; the meetings were only meant to help applicants evaluate the necessity and maturity of their issuance plans before making a formal submission; with the stablecoin licensing regime came into effect on 1 August 2025, it serves as a regulatory reference point to develop the virtual asset framework. As only a limited number of licenses will be granted, some applicants either postpone applications, partner with existing licensees or adopt alternative structures to meet the strict compliance thresholds. These adaptive adjustments amid the screening process help shape the evolving regulatory regime of the nascent stablecoin ecosystem. 5. SFC and Dubai Financial Services Authority bolster ties in supervising cross-border investment management The SFC and the Dubai Financial Services Authority (“ DFSA ”), the independent regulator of the Dubai International Financial Centre (“ DIFC ”), today signed a Memorandum of Understanding (MoU) to deepen cooperation on the regulatory oversight and supervision of collective investment scheme managers in each other’s markets to ensure compliance, governance, and cross-border regulatory alignment. Key takeaways of the MOU: underscoring the significance of cross-border regulatory collaboration and Hong Kong’s growing ties with the Belt and Road jurisdictions; establishing a collaborative framework for consultation, cooperation and the exchange of information in order to enhance the regulators’ supervision and oversight of regulated entities which engage in cross-border investment management or advisory activities; signifying the efforts of joint collaboration of the high-level meetings between the SFC and the DFSA over the years. SIGNIFICANCE: As comments from SFC and DFSA officials, the MOU is a consequence of strengthened SFC-DFSA partnership which underscores the shared commitment to mutual benefits of HK and DIFC as internation financial hubs, and efforts towards regulatory excellence, supervision and cross-border innovation between the two jurisdictions. 6. SFC and HKMA unveil roadmap to advance Hong Kong’s vision to be global fixed income and currency hub The SFC and the HKMA jointly announced Hong Kong’s Roadmap for the Development of Fixed Income and Currency (“ FIC ”) Markets (the “ Roadmap ”) on 25 September 2025 to position the city strategically as a global FIC hub by fostering demand, liquidity and innovation. An overview of the Roadmap is outlined as below with FOUR pillars and TEN initiatives: Reinforcing Foundations Pillar 1: Boosting issuance in primary market Initiative 1: Lead by example through government bond issuance Initiative 2: : Promote Hong Kong’s strengths to issuers and investors in target markets Initiative 3: Expand investor base including family offices, funds and corporate treasury centres Pillar 2: Enhancing liquidity in secondary market Initiative 4: Finalize implementation of over-the-counter FIC derivatives regime Initiative 5: Facilitate development of a repo central counterparty Breaking New Ground Pillar 3: Expand offshore RMB business Initiative 6: Broaden offshore RMB usage Initiative 7: Enhance Connect schemes to increase offshore RMB liquidity and RMB-related product offerings Pillar 4: Next-generation infrastructure Initiative 8: Future-proof FIC financial market infrastructure Initiative 9: Support development of next-generation electronic trading platforms Initiative 10: Facilitate market innovation and implementation of use cases for tokenized FIC products SIGNIFICANCE: The Roadmap will guide the policy making and implementation of the SFC and the HKMA in coming years to support the sustainable and diversified growth of Hong Kong’s capital markets. Comments from key officials highlight the significance of the Roadmap: Dr. Kelvin Wong, Chairman of the SFC: “ The Roadmap is poised to guide our marketevolution that will benefit issuers, investors and intermediaries alike for years to come ”. Mr. Eddie Yue, Chief Executive of the HKMA: “ The Roadmap comprehensively set out our work focuses in the near future . We look forward to implementing the initiatives in collaboration with industry stakeholders. ” Ms. Julia Leung, Chief Executive Officer of the SFC: “ The Roadmap reflects our close collaboration and shared commitment with the HKMA, industry partners and other stakeholders to enhance Hong Kong’ s vital role in bridging Mainland and international capital markets .” Enforcement News 7. SFC Bans Former UBS Advisor Suen Kin-wing for Life Over Money Laundering and Contempt Convictions On 2 September 2025, the SFC has imposed a lifetime ban on Mr. SUEN Kin-wing (“ SUEN ”), a former Associate Director at UBS AG (“ UBS ”), preventing him from re-entering the industry. This action follows SUEN's criminal convictions for money laundering and contempt of court, highlighting serious breaches of trust and regulatory standards. Background of the Case SUEN, who served as a Client Advisor at UBS from January 2014 to June 2018, was responsible for Type 1 and Type 4 regulated activities. The issues stemmed from his dealings with two Mainland Chinese clients who held a joint account at UBS. Facing challenges in transferring RMB funds from Mainland China to Hong Kong, the clients entered into an arrangement with SUEN to facilitate cross-border transfers. Under this setup, the clients deposited over RMB132 million into Mainland bank accounts designated by SUEN between November 2016 and February 2018. SUEN provided what appeared to be legitimate transaction confirmations and bank statements showing the funds had reached the joint account. However, the clients later discovered that a substantial portion of the money was missing. Investigations revealed that over HK$134 million had been diverted into two Hong Kong bank accounts controlled by SUEN. The Court determined these funds were proceeds of crime, as SUEN had defrauded or stolen them from his clients. He used the misappropriated money to fund a luxurious lifestyle, including purchases of high-end vehicles and properties in the UK and Mainland China. Legal Outcomes Charge(s) Remarks Case No. Money Laundering Conviction On June 21, 2024, the Court of First Instance sentenced SUEN to 10 years' imprisonment after he pleaded guilty to two counts of dealing with property known or believed to represent proceeds of an indictable offense. HCCC 77/2021 Contempt of Court In July 2018, the clients secured a worldwide freezing injunction against SUEN to recover the stolen funds, prohibiting him from disposing of assets up to HK$130 million. Despite this, SUEN transferred his interests in several UK properties to a British Virgin Islands (BVI) company he owned, violating the order. On 20 December 2023, he was sentenced to six months' imprisonment for contempt. HCMP 633/2019 SIGNIFICANCE: Given the severity of SUEN's actions, which demonstrated a profound lack of honesty and professionalism, the SFC has deemed him unfit and improper to hold any regulated position in the future. SUEN is currently neither registered with the Hong Kong Monetary Authority (“ HKMA ”) nor licensed by the SFC. This case serves as a stark reminder of the consequences of financial misconduct and the SFC's zero-tolerance policy toward activities that undermine market confidence. Industry professionals are encouraged to review internal controls and compliance measures to prevent similar incidents. 8. SFC Bans Former Citigroup Executive Richard Charles Heyes for 5 Years Over Serious Misconducts In a significant move underscoring the importance of senior management accountability, the SFC has imposed a five-year industry ban on Richard Charles Heyes (“ Heyes ”), a former key figure at Citigroup Global Markets Asia Limited (“ CGMAL ”). Effective from 15 September 2025 to 14 September 2030, the ban prevents Heyes from re-entering the financial industry in any licensed capacity. Heyes, who served as a RO, Manager-In-Charge (“ MIC ”) of Key Business Line, board member, and Head of Pan-Asia Equities at CGMAL, has been held accountable for serious regulatory breaches and internal control lapses at the firm. These issues stem from a decade-long period (i.e. 2008–2018) where CGMAL's Cash Equities business disseminated mislabelled Indications of Interest (“ IOIs ”) and made misrepresentations to institutional clients during facilitation trades. Key Details of the SFC's Findings: The SFC's investigation highlighted Heyes' failure to fulfill his supervisory and managerial duties, which directly contributed to CGMAL's violations. Specifically: 1. Mislabelled IOIs Heyes overlooked practices at the Equities Sales Trading Desk where IOIs were falsely labelled to elicit client inquiries. Despite a 2014 SFC review flagging concerns with CGMAL's IOI processes, Heyes did not implement adequate controls. Additionally, between 2017 and 2018, he received reports of client complaints about IOI accuracy but took no action to investigate or halt the misconduct. 2. Misrepresentations in Facilitation Trades In 2014, Heyes attended an SFC roundtable that SFC emphasized the need for explicit client consent and pre-trade disclosures for facilitation trades. However, he failed to ensure CGMAL had proper guidelines or monitoring in place. Emails forwarded to him revealed traders disguising facilitation trades as agency trades to boost market share, but these went unaddressed. These lapses allowed a culture prioritizing revenue over client interests and ethical standards to persist within CGMAL. The SFC emphasized that Heyes' neglect enabled the firm's internal control failures to continue unchecked for over ten years. Factors Influencing the Sanction In determining the five-year ban, the SFC considered: The severity of Heyes' neglect, which enabled prolonged regulatory breaches. His extensive industry experience, which should have ensured higher standards as an RO, MIC, board member, and senior manager. The need to send a strong deterrent message to the industry. Mitigating factors, including Heyes' cooperation with the SFC, withdrawal of his appeal to the Securities and Futures Appeals Tribunal, and his otherwise clean disciplinary record. This action follows prior SFC sanctions against CGMAL itself for the same underlying issues. For more details of the case, please refer to the Statement of Disciplinary Action . SIGNIFICANCE: Christopher Wilson, SFC's Executive Director of Enforcement, stated: "Senior management of a licensed corporation bears primary responsibility for ensuring the firm’s maintenance of appropriate standards of conduct and adherence to proper procedures. By exerting significant pressure on the trading desks to grow CGMAL’s market share while failing to be vigilant for telltale signs that his subordinates were achieving this by dishonest means, Heyes neglected and failed to properly discharge his managerial responsibility." Wilson added that the SFC will actively use the MIC regime to hold senior executives accountable, aiming to foster cultural and behavioral changes among intermediaries. This case serves as a stark reminder for financial institutions in Hong Kong and beyond: Senior leaders must prioritize robust compliance frameworks, vigilant oversight, and ethical practices. With regulators increasingly focusing on individual accountability, firms should review their internal controls, training programs, and escalation procedures to prevent similar failures. 9. SFC Reprimands and Fines Instinet Pacific Limited $8 Million for Cross Trade Reporting Failures The SFC has issued a reprimand and imposed an $8 million fine on Instinet Pacific Limited (Instinet) for non-compliance with reporting requirements for direct business transactions, commonly known as cross trades, to The Stock Exchange of Hong Kong Limited (“ SEHK ”). Key Details of the Case The SFC's investigation uncovered that from December 2012 to March 2018, Instinet failed to report 8,817 pairs of cross trades totalling approximately $25.9 billion in value between its clients and an affiliated company. This breach violated the Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission. During this period, Instinet lacked any internal policies, procedures, or monitoring mechanisms for reporting cross trades to the SEHK, and it conducted no reviews of its trade reporting processes. Scope of the Breach: The unreported trades spanned over five years and involved significant transaction volumes, highlighting systemic deficiencies in Instinet's compliance framework. Code and Rule Violations: The failures contravened the SFC's Code of Conduct and Rules of the Exchange, which mandates proper cross trades reporting. In deciding the disciplinary sanction, the SFC has taken into account all relevant circumstances, including the duration of Instinet’s failure, the number of unreported cross trades and the sum involved, and Instinet’s initiative to cease the relevant trade flows and cooperation with the SFC in resolving the SFC’s concerns. For more details of the case, please refer to the Statement of Disciplinary Action . SIGNIFICANCE: This enforcement action reinforces the SFC's commitment to upholding market transparency through strict adherence to reporting obligations. Financial institutions must prioritize robust internal controls, regular reviews, and comprehensive policies to monitor trade reporting. Failures in these areas can lead to significant penalties and reputational damage. Firms are encouraged to audit their compliance systems, particularly for cross trades and affiliated transactions, to align with SEHK and SFC standards. 10. SFC Upholds Fine on RaffAello Capital for Sponsor Failures in Paprika Listing In a recent decision, the Securities and Futures Appeals Tribunal (“ SFAT ”) has affirmed the SFC reprimand and $4 million fine against RaffAello Capital Limited (“ RaffAello ”) for shortcomings in its role as sponsor for Paprika Holdings Limited's Paprika listing application. This case underscores the critical importance of rigorous due diligence in Hong Kong's capital markets, highlighting lapses that could undermine investor confidence. Background on the Case RaffAello, a licensed corporate finance advisor, sponsored Paprika's application for listing on the Growth Enterprise Market (“ GEM ”) of the Stock Exchange of Hong Kong Limited ("SEHK"), submitted in June 2017 but withdrawn in April 2018. Paprika, a handbag and accessories retailer, relied heavily on retail sales, accounting for about 90% of its revenue in the two financial years ending March 2017, with over 80% from physical stores. The SFC's investigation revealed that RaffAello failed to conduct reasonable due diligence and lacked professional scepticism when reviewing Paprika's provided information. Key issues centered on suspicious retail transactions and questionable relationships with key business partners. Key Findings Failings in Retail Sales Due Diligence During a sample walkthrough of retail store transactions from 19 February to 13 March 2016, RaffAello uncovered several red flags: Approximately 230 consecutive cash transactions across stores, involving 1,431 handbags, made up 90% of cash sales and 42% of total sales on those dates. Many occurred within 1-10 minutes. Around 240 bulk credit card purchases of 1,860 handbags by individuals, including owners of Paprika's wholesaler and suppliers, accounting for 83% of credit card sales and 45% of total sales. Invoices marked "POS Test" (point-of-sale system testing) were included in sales records. Despite inquiries, RaffAello largely accepted explanations from Paprika and involved parties without deeper scrutiny. The SFC noted overlooked indicators suggesting potential fabrication to inflate sales figures. Inadequate Scrutiny of Key Partners RaffAello also fell short in verifying the independence of Paprika's largest wholesaler, Novi eBusiness Limited (“ Novi ”) (responsible for over 90% of a 96% wholesale revenue surge from 2016 to 2017), and its fifth-largest supplier, API Trading Company Limited (“ API ”) (part of suppliers accounting for 53.4% of 2017 purchase costs). Red flags included: Bovi and API both were former subsidiaries of a company linked to a 15% Paprika shareholder. Acquisitions facilitated by Paprika's founder, Chairman, and CEO, Mr. Samuel Leung ("Leung"). Novi's owner partnered with Mainland Chinese firms tied to Leung's authorized payment recipients. Owners of both entities made repeated bulk purchases from Paprika stores. Additionally, RaffAello did not sufficiently probe API's business substance, especially after discovering it acted as an intermediary for a pre-existing supplier (i.e. Lung Yiu), with supplies jumping from $41,000 in 2016 to $3.18 million in 2017. SIGNIFICANCE: The SFC initially proposed a $13 million fine but reduced it to $4 million due to RaffAello's financial constraints, a decision the SFAT upheld to avoid liquidation and harm to clients. Chaired by Mr. Michael Hartmann, GBS, the Tribunal emphasized sponsors' duties under the Code of Conduct: when red flags arise, additional due diligence is mandatory, including detailed documentation and consultations (e.g., with reporting accountants) rather than assumptions. The Tribunal noted: "If issues of concern are identified, it is not sufficient for the sponsor simply to investigate the matter, make a bald note of that fact... a coherent note should be made of what has been discovered and what has been resolved." Over-reliance on management's representations was deemed unreasonable. Related actions include a two-year industry ban for Mr. Tsang Kwong Fai , RaffAello's responsible officer overseeing the application. This ruling serves as a stark reminder for sponsors to apply professional scepticism and thorough investigations. It reinforces SFC's commitment to maintaining listing integrity, potentially influencing future due diligence practices in Hong Kong's vibrant IPO market. 11. SFC Reprimands and Fines Roofer Securities $2.1 Million for Client Money Mishandling The SFC has issued a reprimand and imposed a $2.1 million fine on Roofer Securities Limited ("Roofer") for violations related to the improper handling of client funds. This action highlights the SFC's ongoing commitment to enforcing strict segregation rules to protect investor assets in Hong Kong's financial markets. Case Overview The investigation, initiated following a referral from the Hong Kong Exchanges and Clearing Limited (“ HKEX ”), uncovered 12 incidents between 8 February 2021, and 7 July 2022, where Roofer failed to maintain adequate funds in its segregated client account. In one notable instance, the shortfall reached $15.5 million. These breaches stemmed from several operational lapses: Using client account funds to cover margin calls (actual or anticipated) from HKEX which is not paid in accordance with a written direction or standing authority form the client and/or used to meet the client’s settlement or margin requirement. Failure in client money segregation due to inadequate management of daily online bank transfer limits. Human errors by staff. The SFC determined that these failures violated the Securities and Futures (Client Money) Rules and the Code of Conduct for Persons Licensed by or Registered with the SFC. Mitigating Factors and Sanctions In determining the penalty, the SFC considered various factors, including: No clients suffered financial losses due to the incidents. Roofer promptly rectified the under-segregation in each case and implemented remedial measures, such as strengthening internal controls and processes. The firm's full cooperation with the SFC during the investigation. Roofer's clean prior disciplinary record. For more details of the case, please refer to the Statement of Disciplinary Action . SIGNIFICANCE: This case serves as a reminder to licensed corporations of the critical need for robust internal systems to ensure client money segregation. Failures in this area can erode market trust and expose firms to significant regulatory penalties. The SFC's balanced approach factoring in remediation and cooperation, demonstrates its focus on proportionate enforcement while upholding high standards. 12. SFC Secures Disqualification Orders Against Five More Former Directors of Superb Summit Due to misappropriate assets The SFC has successfully obtained disqualification orders from the Court of First Instance against an additional five former directors of Superb Summit International Group Limited (“ Superb Summit ”), bringing the total number of disqualified directors to 10. This latest action emphasizes the SFC's rigorous enforcement of director duties in cases involving misleading acquisitions and non-existent assets. This follows earlier disqualifications in June 2025 against five other former directors: Mr. Lee Chi Kong (10 years), Mr. Wong Yun Kuen (7 years), and Messrs. Lam Ping Kei, Wong Choi Fung, and Yeung Kwong Lun (5 years each). The SFC's investigations and proceedings against additional former directors and officers of Superb Summit continue. Director(s) involved: Director(s) Disqualifications Mr. Chan Chi Yuen (“ CHAN ”) 4 Years Mr. Law Wai Fai (“ LAW ”); and Mr. Cheng Man (“ CHENG ”) 3.5 Years each Mr. Qiu Jizhi (“ QIU ”) 3 Years Mr. Li Jun (“ LI ”) 2.5 Years Details of the Breaches Superb Summit, listed on the Main Board of The Stock Exchange of Hong Kong Limited from September 2001 until its delisting in June 2020, engaged in two problematic acquisitions: 2007 Acquisition : LAW, LI, QIU, AND CHAN failed to adequately review key documents or critically assess the methodologies and assumptions used by professionals during due diligence on the target company's alleged forestry assets. 2009 Acquisition : LAW, CHENG, AND CHAN neglected to properly verify the ownership of the claimed forestry assets. They also approved a company announcement containing false or misleading information about these non-existent assets. The SFC initiated proceedings under section 214 of the Securities and Futures Ordinance in December 2020. The disqualifications were resolved via the Carecraft procedure, where the court approved orders based on agreed facts and proposed sanctions. Overview of the Disqualifications The affected individuals include three former executive directors, LAW, LI and CHENG and two former independent non-executive directors, QIU and CHAN. The orders, effective immediately, prohibit them from serving as directors or participating in the management of any corporation in Hong Kong or elsewhere for periods ranging from two and a half to four years. Additionally, the former directors have been ordered to cover the SFC's costs in the proceedings. These sanctions follow their admissions of breaching duties and negligence related to Superb Summit's acquisitions in 2007 and 2009, which involved purported forestry assets that proved to be fictitious. **For the detail of judgment and the prior disqualifications, please refer to: - the Judiciary’s website (Case No. HCMP 2305/2020 ); or - the SFC’s press release dated 11 July 2025 ,.** SIGNIFICANCE: These orders reinforce the SFC's stance on accountability for directors, particularly in due diligence and disclosure processes. They highlight the severe consequences of negligence in approving transactions with misleading elements, serving as a cautionary tale for boards in Hong Kong's listed companies to uphold rigorous standards to protect investors and maintain market integrity. 13. SFC Suspends Former Agg. Asset Management RO Chow Tsz Lam for 12 Months Over Fund Mismanagement The SFC has suspended Mr. CHOW Tsz Lam (“ CHOW ”), a former RO and manager-in-charge at the now-dissolved Agg. Asset Management Limited (“ Agg ”), for 12 months effective from 2 September 2025, to 1 September 2026. This disciplinary measure addresses failures in fund management practices that exposed investors to undue risks and conflicts of interest. Investigation Findings The SFC's probe revealed that Agg, acting as investment manager for a Cayman-incorporated fund, allocated up to 100% of the fund's assets into debentures issued by entities controlled by Mr. NG Ka Shun (“ NG ”), Agg's sole shareholder, director, and fellow RO. This approach neglected to mitigate conflicts of interest and adequately manage associated risks (concentration risks and credit risks). Furthermore, Agg directed the fund into two debentures seemingly designed to artificially inflate the fund's net asset value. CHOW, as an RO and senior management member, was found to have fallen short in ensuring Agg operated in the best interests of the fund and its investors, while adhering to regulatory standards. Although primary responsibility lay with NG (who made the investment decisions), CHOW's oversight lapses contributed to these breaches. For more details of the case, please refer to the Statement of Disciplinary Action . SIGNIFICANCE: This case underscores the SFC's emphasis on robust conflict management and risk oversight in asset management, particularly where personal interests intersect with firm operations. It serves as a reminder for ROs and senior executives to prioritize investor protection and regulatory compliance, with self-reporting potentially mitigating penalties. The SFC previously issued a lifetime ban and $1.7 million fine to NG for window-dressing Agg's financial resources and mismanaging two funds (see SFC press release dated 23 December 2024 ). Agg itself faced a restriction notice in April 2020 prohibiting regulated activities, leading to its dissolution in July 2024 and deemed license revocation. 14. SFC Pursues Disqualification Orders Against Former Directors of Century Energy International Holdings Limited The SFC has initiated legal proceedings to seek court orders disqualifying four former directors of Century Energy International Holdings Limited ("CEIHL", formerly known as China Oil Gangran Energy Group Holdings Limited). The action targets individuals accused of misconduct that led to substantial financial losses for CEIHL. Background on CEIHL CEIHL, listed on the Growth Enterprise Market of the SEHK since 18 May 2011, was primarily involved in trading refined oil and methyl tert-butyl ether, as well as manufacturing and selling power and data cords. CEIHL's troubles stem from the loss of control over four major operating subsidiaries in Mainland China, which accounted for over 80% of its total revenue for the year ended 31 March 2018, and more than 40% of its total assets as of that date. These subsidiaries were deconsolidated from CEIHL's accounts effective 1 January 2019, resulting in a staggering loss of $184 million for the fiscal year ended 31 March 2019. Allegations of Misconduct The SFC alleges that these former directors failed to adequately supervise the Mainland subsidiaries and did not act in the best interests of the company. This prolonged lack of oversight contributed to the deconsolidation of the subsidiaries and the ensuing financial losses. Furthermore, Mr. Ho, Ms. Yang, and Mr. Lau are accused of being responsible for the publication of a 2014 circular that contained inaccurate or misleading information about one of the operating subsidiaries. Under section 214 of the SFO , the Court of First Instance may impose disqualification orders preventing individuals from serving as directors or being involved in the management of any corporation for up to 15 years if they are found responsible for conduct involving defalcation, fraud, misfeasance, or other misconduct toward the company or its members. The SFC's proceedings name the following accused directors: Mr. Gregory Ho Chun Kit (“HO”) Former executive director. Mr. Zheng Jian Peng (“ZHENG”) Former executive director, chief financial officer, and company secretary. Ms. Eugenia Yang (“YANG”) Former independent non-executive director. Mr. Vincent Lau Sung Tat (“LAU”) Former independent non-executive director. The SFC alleges that these former directors failed to adequately supervise the Mainland subsidiaries and did not act in the best interests of CEIHL. This prolonged lack of oversight contributed to the deconsolidation of the subsidiaries and the ensuing financial losses. Furthermore, HO, YANG, and LAU are accused of being responsible for the publication of a 2014 circular that contained inaccurate or misleading information about one of the operating subsidiaries. Under section 214 of the SFO , the Court of First Instance may impose disqualification orders preventing individuals from serving as directors or being involved in the management of any corporation for up to 15 years if they are found responsible for conduct involving defalcation, fraud, misfeasance, or other misconduct toward the company or its members. SIGNIFICANCE: This case highlights the SFC's commitment to enforcing corporate governance standards and holding directors accountable for oversight failures in Hong Kong-listed companies. Investors in Hong Kong-listed companies should note the potential risks associated with operations in cross-border subsidiaries and the importance of robust internal controls. 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The topics discussed in this monthly newsletter are as follows: ComplianceOne Newsletter - September 2023 The topics discussed in this monthly newsletter are as follows: 1. The JPEX Fraudulence 2. SFC amended the Codes on Takeovers and Mergers and Share Buybacks with effective from 29 September 2023 3. HKEX FINI to launch on 22 November 2023 with pricing of IPO shortened to T+2 4. SFC commenced a cybersecurity review of selected licensed corporations focusing on cybersecurity management 5. SFC fined Chee Tak Securities Limited $2 million and sanctioned its responsible officer for internal control deficiencies and a host of regulatory breaches 6. SFC revoked Axial Capital Management Limited’s licence for repeated failures to comply with the Securities and Futures (Financial Resources) Rules 7. LO Wai Ming, a former RO of Taiping Securities (HK) Co Limited, was banned by SFC for unauthorized trading of client accounts 8. SFC obtained interim injunction against former director of SMI Culture & Travel Group Holdings Limited (formerly 2366.HK ) MARKET NEWS 1. The JPEX fraudulence On 13 September 2023, the SFC released an astonishing warning statement of its awareness of a virtual asset trading platform (VATP) known as “JPEX” which has been actively promoting its products and services to the Hong Kong public through social media influencers and key opinion leaders (KOLs) as well as over-the-counter virtual asset money changers. The SFC made it clear in the statement that no entity in the JPEX group was licensed by the SFC or had applied to the SFC for a licence to operate a VATP in Hong Kong; and a number of suspicious features about the practices of JPEX had been observed: a) The declaration made by JPEX that it was “a licensed and recognised platform to facilitate the trading of digital asset and virtual currency” was not true. b) JPEX offered very high returns for some of its products. c) The SFC had received complaints from retail investors who were unable to withdraw virtual assets from their accounts maintained with JPEX. d) Some of the products offered by JPEX appeared to be involving virtual asset “deposits”, “savings” or “earnings” which are not allowed under the SFC’s regulatory regime for VATPs. e) JPEX publicised on its website and local advertorials that it had entered into a business cooperation with and received investment from a Hong Kong listed company which in fact had been terminated already. f) KOLs and OTC Shops had made false or misleading statements on social media to suggest that JPEX had applied for a VATP licence in Hong Kong. SIGNIFICANCE: The warning statement aroused the scepticism of many investors, and rendered a large tide of withdrawal requests; strange enough was the subsequent arrangement and feedback of JPEX to restrict the withdrawal amount to a maximum of USDT1000 per request with withdrawal fee of up to USDT999. Such unscrupulous responses to investors triggered a large number of reported cases of fraudulence to the HK Police and it unveiled the undertow that it was merely the “the tip of the iceberg”. More than 1,000 cases were reported at the first around, and with the amount of stake up to HKD1.5 billion! The SFC was rather proactive to respond this time when confronted with criticism from the public that NOT sufficient information was published to enhance the public awareness of the incidence of JPEX despite its high-profile, large-scale social media advertisement which swept over the entire city and conveyed a misleading image that it was a legitimate virtual assets trading platform. It should be noted that the legislations for governing the virtual asset regime and the AML Guidelines were only effected in June 2023 with the “Guideline on Anti-Money Laundering and Counter-Financing of Terrorism (For Licensed Corporations and SFC-licensed Virtual Asset Service Providers)” and “Guidelines for Virtual Asset Trading Platform Operators”, and only after which that the SFC is vested with the authority to regulate the virtual asset regime and to enforce the guidelines for protection of the general public. In light of recent public concerns about unregulated virtual asset trading platforms (VATPs), the SFC put forward a series of measures to reinforce information dissemination and investor education. Some remedial measure had been launched to provide the public with more information from its announcement on 25 September 2023 as a response to the vehement vogue for more transparent status of the licensing status of some ongoing VATPs which included: a) a “List of licensed VATPs”; b) a “List of closing-down VATPs” setting out the names of VATPs required by law to close down within a specified period; c) a “List of deemed licensed VATPs” consisting of the names of VATPs which are deemed to be licensed as of 1 June 2024; d) in light of public demand, a list of VATP applicants. The SFC also took an active role to collaborate with the Police and set up a dedicated channel to share information on suspicious activities of and breaches by VATPs as well as investigate the JPEX incident to bring the wrong-doers to justice. And there were also a couple of press conferences from the SFC and the Police to demonstrate to the public that the JPEX fraudulence ranked top priority on the list with their dedicated mission of the ultimate goal to protect the investors, especially in Hong Kong as an international financial centre, and the recent high-profile roadshow of the HIKSAR government to establish Hong Kong as a pioneer in licensing the virtual asset landscape over the rest of the world. A few days later on 29 September 2023, the SFC made another announcement with a series of “ Lists of virtual asset trading platforms ” to accommodate the vehement vogue for more information of VATP from the public. Besides, a dedicated list of suspicious VATPs was also published to help investors more easily identify suspicious VATPs doing business in Hong Kong and enhance awareness. At this stage, there are more than 2,000 reported cases from investors, and the amount of stake surged up to nearly HKD1.5 billion. It is just the beginning of the story with more than 20 suspects arrested for further investigation by the Police. Ironically, it may be a good opportunity for the HKSAR Government to demonstrate to the world its competence and tactics in settling and sorting out this JPEX scam which is analogous to the incidence of the FTX in the US. 2. SFC amended the Codes on Takeovers and Mergers and Share Buybacks with effect from 29 September 2023 On 21 September 2023, the SFC released the consultation conclusions on its proposed amendments to the Codes on Takeovers and Mergers and Share Buy-backs (the “Codes”) which would then be gazetted on 29 September 2023 and took effect immediately. All the proposals were adopted with minor modifications only. SIGNIFICANCE: It should be noted that the amendments mainly codify existing practices of the Takeovers Executive and clarify the Codes where necessary, including revising the definitions of important terms, streaming the process to enhance efficiency etc. Further be noted that consequential amendments will be made to a number of Practice Notes to the Codes and will be available on the SFC website when the revised Codes take effect. Market practitioners are encouraged to read and get themselves acquainted with the amendments. 3. HKEX FINI to launch on 22 November 2023 with pricing of IPO shortened to T+2 On 27 September 2023, the HKEX was pleased to confirm the launch date for FINI, Hong Kong’s new digitalised IPO settlement platform, on 22 November 2023. FINI is a major new initiative that will significantly shorten the time between the pricing of an IPO and the trading of shares from five business days (T+5) to two business days (T+2). FINI is a cloud-based platform , which will enable different stakeholders such as IPO sponsors, underwriters, legal advisers, banks, clearing participants, share registrars and regulators to collaborate and perform their respective roles in an IPO, digitally. A new public offer pre-funding model is also being introduced in FINI , helping to reduce the scale of locked-up funds in over-subscribed IPOs. SIGNIFICANCE: The launch of FINI is a milestone development in the evolution of the city’s capital markets; it will modernise and digitalise Hong Kong’s IPO settlement process, driving efficiency and supporting the long-term development of Hong Kong as a capital raising centre. 4. SFC commenced a cybersecurity review of selected licensed corporations focusing on cybersecurity management A circular was released on 15 September 2023 saying that the SFC would commence a cybersecurity review of selected licensed corporations (LCs) with a focus on assessing their cybersecurity management and compliance as well as the resilience of their information systems against cybersecurity threats. Cybersecurity has long been a major focus of the SFC’s supervision of LCs which offer internet trading to their clients, and are required to comply with the requirements set out in the Guidelines for Reducing and Mitigating Hacking Risks Associated with Internet Trading (Cybersecurity Guidelines), the cybersecurity frequently asked questions (FAQs) and the expected standards set out in the “Report on the 2019-20 thematic cybersecurity review of internet brokers”. The cybersecurity incidents reported to the SFC by some LCs in recent years and the SFC’s inspection findings show a number of security loopholes and deficiencies, including the use of end-of-life software as well as inadequate controls over remote access and phishing attacks which hackers may easily exploit to infiltrate LCs’ information systems. SIGNIFICANCE: It is a common scenario and arrangement for many LCs to employ third-party technology vendors to supply and support business application systems, posing additional risks in hosting their systems and data in the cloud environment where the responsible officer (“RO”) or the senior management team may not be so conversant in cybersecurity risks. In the light of this and to better assess the industry’s preparedness for and resilience to cyber risks, the SFC would commence a cybersecurity review in September 2023. A snapshot of the key takeaways are as follows: a) the SFC would conduct a survey of selected LCs of different sizes and business types, including securities and futures brokers, leveraged foreign exchange traders, global financial institutions and firms which provide online product distribution platforms; b) the SFC would meet with selected LCs to better understand their cybersecurity governance and controls; and c) the SFC would perform on-site inspections of some of the selected LCs for a deep dive review of their information technology and related management controls and an assessment of their compliance with the Cybersecurity Guidelines and other expected standards. Cybersecurity risk management has become a serious issue deserving imminent attention from senior management of many LCs especially with the upcoming reported cases of phishing attacks which pose unprecedented and irrevocable risk of data leakage. ENFORCEMENT NEWS 5. SFC fined Chee Tak Securities Limited $2 million and sanctioned its responsible officer for internal control deficiencies and a host of regulatory breaches On 18 September 2023, the SFC had fined Chee Tak Securities Limited (CTSL) $2 million for internal control deficiencies and a host of regulatory breaches; and also suspended the license of its responsible officer Kevin Chiu Koon Yu (CHIU) for 10 months. The disciplinary actions followed the SFC’s investigation which found that, between 1 July 2018 and 5 March 2020, CTSL failed to: (i) have in place an order recording policy and observe the order recording requirements; (ii) implement effective internal controls to monitor cross trades between staff members and clients and to ensure fair treatment of clients; (iii) establish and maintain an adequate and effective monitoring system to detect and assess suspicious transactions in client accounts; (iv) set up systems and controls to identify and assess third-party deposits into client accounts; (v) require or obtain written third-party authorisation for the operation of client accounts; and (vi) institute internal controls to monitor employee dealings. SIGNIFICANCE: The failures of CTSL constituted breaches of the Code of Conduct, the Internal Control Guidelines and the Circular to licensed corporations and associated entities – Third-party deposits and payments; and the SFC had considered that CTSL’s failures were attributable to the failures of CHIU in discharging his duties as its responsible officer and a member of its senior management which called into question his fitness and properness. CHIU had been accredited to CTSL since Nov 2004 for nineteen years, and was still not competent to discharge his duties as a RO properly, it unveils the hidden picture that some ROs may not have properly updated themselves with the prevailing guidelines, or are not aware of them during their tenures in the capacity for years. 6. SFC revoked Axial Capital Management Limited’s licence for repeated failures to comply with the Securities and Futures (Financial Resources) Rules On 11 September 2023, the SFC had revoked the licence of Axial Capital Management Limited (Axial) for repeated failures to comply with the Securities and Futures (Financial Resources) Rules (FRR), the SFO and the Code of Conduct. Meanwhile, the responsible officer, Mr Eugene CHUNG, whose license would also be suspended for five years to September 2028. The investigation of the SFC found that Axial failed to maintain its required liquid capital of $100,000 for a consecutive period of 19 months starting from 28 March 2019, and Axial only notified the SFC 18 months later! In addition, Axial also failed to submit the semi-annual FRR returns and the audited financial statements from 2019 to 2022, despite repeated reminders from the SFC to do so. SIGNIFICANCE: The SFC's view that Axial’s failures were attributable to the failure of CHUNG in discharging his duty as the firm’s senior management and RO is something " a fact beyond controversy "; the crucial point in this case here is its prolonged period of time and repeated patterns of omissions which a competent licensed person is NOT supposed to overlook! 7. LO Wai Ming, a former RO of Taiping Securities (HK) Co Limited, was banned by SFC for unauthorized trading of client accounts. On 18 September 2023, the SFC had prohibited Mr LO Wai Ming (LO), a former responsible officer of Taiping Securities (HK) Co Limited (TSCL), from re-entering the industry for seven months from 16 September 2023 to 15 April 2024. The disciplinary action followed an SFC investigation which found that between 2 January 2018 and 28 September 2018, LO had, unbeknownst to TSCL, logged into two clients’ internet trading accounts and placed orders for them. As a result, trades in the clients’ accounts were effectively disguised as if they have been placed by the clients themselves . SIGNIFICANCE: It was obvious that LO intended to circumvent TSCL’s internal policies by concealing the fact that he was trading on behalf of the two clients, and avoided the conflict of interest to be monitored under the regular routines. Such dishonest deeds and intention to play around with the loopholes should definitely be reprimanded in the eyes of the SFC. 8. SFC obtained interim injunction against former director of SMI Culture & Travel Group Holdings Limited (formerly 2366.HK) On 25 September 2023, the SFC had obtained an interim injunction order at the Court of First Instance (CFI) against Ms Leung Anita Fung Yee Maria (LEUNG), former chief executive officer and executive director of SMI Culture & Travel Group Holdings Limited (SMI Culture & Travel Group), to preserve assets for satisfying a compensation order that the court might impose at the conclusion of legal proceedings brought by the SFC. The application for an interim injunction order to prohibit LEUNG from disposing assets in Hong Kong and elsewhere mainly for reason of indication that there was a real risk of dissipation of assets by LEUNG. The SFC alleged that at the material times between 2010 and 2012, LEUNG, Wong Yu Hong (WONG) and/or Tsiang Hoi Fong implemented a fraudulent scheme under the guise of numerous non-genuine sale and purchase agreements in relation to TV licence rights with a total consideration of HKD327.75 million, while the unjust profits gained by LEUNG or Wong was in the range of HKD35.2 million to HKD74.27 million, being the sums transferred to LEUNG and/or companies owned by LEUNG or WONG. A further step of legal action, the SFC was also seeking disqualification orders, and a compensation order for losses suffered by SMI Culture & Travel Group or alternatively an order to account for any profits gained by the respondents as a result of the alleged fraudulent scheme. 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 To unsubscribe, please click “ unsubscribe ”.

The topics discussed in this monthly newsletter for insurance are as follows: ComplianceOne Insurance Newsletter – Nov 2024 The topics discussed in this monthly newsletter are as follows: 1. Asian Insurance Forum 2024: Navigating Global Volatility 2. CPD Course for Insurance Brokers on Grandfathered ILAS Policies 3. The SFC Announces First Batch of Brokers for Wealth Management Connect Pilot Scheme and Insights on Insurance Connect IA News Updates 1. Asian Insurance Forum 2024: Navigating Global Volatility The IA's annual flagship event, the Asian Insurance Forum (“AIF”), will be held on 10 December 2024 , themed “Rising to the Challenge amidst Global Volatility.” This event will feature prominent speakers from the insurance and financial sectors, as well as regulators and government officials from Hong Kong and around the world. Keynote speakers include Mr. John Lee, Chief Executive of the HKSAR, Mr. Paul Chan, Financial Secretary of the HKSAR, and Mr. Jonathan Dixon, Secretary General of the IAIS. Panel discussions will cover: Global supervisory priorities. Strengthening the headquarters economy. Insurance solutions in wealth management, along with a dialogue with IA leadership. Participants can register online to join the forum virtually for free. For more details and the full program, visit the AIF 2024 website . 2. CPD Course for Insurance Brokers on Grandfathered ILAS Policies The IA published the circular on 8 November 2024 which provides additional details on the CPD course required for compliance with the Grandfathering Arrangements. From 1 October 2024, licensed insurance brokers offering advisory or discretionary investment services for ILAS Policies must meet new competency requirements as per the Practice Note . Grandfathering Arrangements: Licensed insurance brokers unable to meet the new requirements by 1 October 2024 can continue servicing policies issued before this date (Grandfathered ILAS Policies) until 31 July 2027, provided they comply with the Additional CPD requirement. This entails completing 2 additional CPD hours annually in the following periods: 1 August 2024 to 31 July 2025 1 August 2025 to 31 July 2026 1 August 2026 to 31 July 2027 Firs run of the Course for Insurance Brokers on Grandfather ILAS Policies The Hong Kong Securities and Investment Institute (“HKSI”), in collaboration with the Professional Insurance Brokers Association (“PIBA”) and The Hong Kong Confederation of Insurance Brokers (“CIB”), is launching the first Course on 26 November 2024 , which fulfills the Additional CPD requirement under the Grandfathering Arrangements established by IA. Market News 3. SFC Announces First Batch of Brokers for Wealth Management Connect Pilot Scheme and Insights on Insurance Connect SFC has announced that 14 LCs are now eligible to participate in the Cross-boundary Wealth Management Connect Pilot Scheme (“WMC”) in the Guangdong-Hong Kong-Macao Greater Bay Area (“GBA”). This scheme enhances connectivity between Hong Kong and Mainland China, offering new business opportunities for financial services. Impact on Insurance Brokers and Future of Insurance Connect The success of the WMC is seen as a positive indicator for the potential implementation of similar mechanisms, such as the anticipated Insurance Connect. This would allow Hong Kong and Macau insurance companies to sell insurance products directly to Mainland residents without establishing local branches. However, current Mainland regulations conflict with this approach, and a pilot for Insurance Connect is not yet feasible. Licensed insurer(s), insurance broker companie(s) shall see the WMC as a best practice to get ready for the eventual establishment of Insurance Connect. By familiarizing themselves with cross-boundary operations and regulatory requirements, they can smoothly transition once the Insurance Connect is approved. SIGNIFICANCE: Despite the delay in Insurance Connect, preparations for establishing insurance after-sales service centers in Nansha and Qianhai are in their final stages. These centers will offer policy management and claims services for Hong Kong policyholders in the GBA. [End of ComplianceOne Insurance Newsletter – November 2024] 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

The topics discussed in this monthly newsletter for insurance are as follows: ComplianceOne Insurance Newsletter – Sep 2024 The topics discussed in this monthly newsletter are as follows: Statistics showed Hong Kong insurance industry posted first increase in gross premiums in 3 years IA hosting AML/CTF Seminars for insurance practitioners in Oct 2024 Hong Kong’s pivotal role in supporting Belt and Road projects Sigma Report on World Insurance 2023: Hong Kong’s role as international financial center IA News Updates 1. Statistics showed Hong Kong insurance industry posted first increase in gross premiums in 3 years The Insurance Authority (“IA”) has published the Hong Kong insurance business statistics for 2023, referring audited returns and actuarial data submitted by authorized insurers. The total gross premiums for the year marking a 0.8% increase compared to 2022. Key Highlights: Total Gross Premiums : HKD $542.1 Billion, up by 0.8% from the previous year. General Insurance Business : Gross premiums of HKD $67.3 Billion, a 4.6% increase Long Term Business : Total revenue premiums of in-force long term business were $474.8 billion, increased by 0.3% compare with previous year, continued to be dominated by the Individual Life category. SIGNIFICANCE: The 0.8% growth is particularly notable as it represents the first increase in gross premiums since the IA began releasing provisional statistics of the Hong Kong insurance industry in 2021. 2. IA hosting AML/CTF Seminars for insurance practitioners in Oct 2024 The IA will host two AML/CTF seminars on 28 and 29 October 2024 , at the Hong Kong Science Museum in Tsim Sha Tsui. These seminars aim to enhance insurance practitioners’ awareness and understanding of AML/CTF regulatory requirements and recent ML/TF trends. Who Should Attend? Compliance Officers, Money Laundering Reporting Officers, and relevant personnel responsible for AML/CTF systems and control measures. Each company may nominate up to 3 representatives. CPD Hours: The seminars are categorized as Type 7 Continuing Professional Development (CPD) activities under GL24. Attendees will receive 3 CPD hours in the “Ethics or Regulations” category. SIGNIFICANCE: Each Company should only submit one enrolment form by 7 October 2024 , via the provided Enrolment Link . Please also find the below Schedule Table for your reference. 3. Hong Kong’s pivotal role in supporting Belt and Road projects On 11 September 2024, the IA hosted a breakout session at the Belt and Road Summit to explore the pivotal role of captive insurance in supporting Belt and Road projects, especially those focusing on less coal-intensive energy. The session emphasized how Hong Kong’s insurance professional services ecosystem can facilitate these projects. Key Topics : Captive Insurance : Managing risks from overseas energy projects and addressing challenges of energy transition. Risk Management : Opportunities in sectors like electric vehicles benefiting from sustainable development. Hong Kong’s Role : As an international risk management hub, Hong Kong is positioned to support captive insurers and serve as a preferred domicile for Mainland enterprises expanding globally. SIGNIFICANCE: The panel moderator highlighted the growing use of captives by Mainland enterprises to manage overseas project risks and enhance intra-group risk management. Emphasized Hong Kong’s readiness to provide comprehensive professional services to captive insurers. 4. Sigma Report on World Insurance 2023: Hong Kong’s role as international financial center Hong Kong remains a global financial hub, as highlighted by the IA and the Sigma 3/2024 – World Insurance by Swiss Re. With the highest insurance penetration rate and second highest insurance density globally, Hong Kong’s total premiums reached HK$550 billion, ranking it 16th worldwide. Robust regulatory framework developments: Risk Based Capital (“RBC”) Regime: Introduced in July 2024, this regime ensures that capital requirements are more sensitive to each insurer’s asset-liability profile, promoting sophisticated risk management. Public Disclosure: The focus is now shifting to public disclosure under Pillar 3 of the RBC regime, with ongoing industry collaboration to ensure transparency and mutual trust. Quality Operating Environment: IA is dedicated to reviewing and optimizing the RBC regime parameters to incentivize insurer and brokers to conduct more business in Hong Kong. SIGNIFICANCE: Hong Kong’s unique advantages such as the “One Country, Two Systems” principle and “Dual Circulation” strategy strengthen its role as a key connector in Asia. The Guangdong-Hong Kong-Macao Greater Bay Area (“GBA”) further boosts its appeal as a top international financial center. [End of ComplianceOne Insurance Newsletter – September 2024] 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

The topics discussed in this monthly newsletter are as follows: ComplianceOne Newsletter – Nov 2024 The topics discussed in this monthly newsletter are as follows: 1. SFC concludes consultation on market sounding guidelines 2. The first batch of 14 brokers joining Wealth Management Connect Pilot Scheme 3. SFC hosts AML/CFT Regtech Forum in November 4. Stay aware of the inherent risks in use of Generative AI Language Models 5. SFC bans former RO of Tarascon Capital for false trading of shares 6. SFC commences MMT proceedings against Ding Yi Feng for market manipulation 7. SFC sanctions Zuo Ping for breaches of the Takeovers Code 8. SFC suspends Yuanta’s former employee Wang Shian-tang for violation of employee dealing policy 9. China Forestry’s former chairman and CEO sanctioned for insider trading Market News 1. SFC concludes consultation on market sounding guidelines On 31 October 2024, the SFC published the conclusions of its consultation on the proposed guidelines for market soundings. The guidelines gazetted on 1 November 2024 and will become effective on 2 May 2025. Intermediaries will have a six-month transitional period to comply with the new guidelines, ensuring a smooth implementation process. The guidelines are designed to uphold market integrity by setting protocols for protecting confidential information during market soundings. Respondents generally supported the objectives, providing constructive feedback that led to refinements in the guidelines. To address their comments, the SFC has refined the scope of the guidelines, clarified some requirements, and incorporated respondents’ feedback in the guidelines as appropriate. The SFC has provided practice guidance and examples through frequently asked questions to aid intermediaries. As Ms Julia Leung, the SFC ‘s Chief Executive Officer has said, “ the guidelines tackle the misuse of confidential information during market soundings, and lead to an unfair market, these guidelines will enhance investor confidence in Hong Kong’s capital markets by clarifying regulatory expectations and deterring substandard conduct. “ SIGNIFICANCE: The new “ Guidelines for Market Soundings ” are well complied to provide Four Core Principles, namely, (i) handling of information, (ii) governance, (iii) policies and procedures, (iv) review and monitoring controls; with specific requirements for Disclosing Persons (a sell-side broker) and Recipient Persons (a buy-side firm). 2. The first batch of 14 brokers joining Wealth Management Connect Pilot Scheme On 1 November 2024, the SFC announced the 14 licensed corporations (“LC”s) eligible to participate in the Cross-boundary Wealth Management Connect Pilot Scheme (“WMC”) in the Guangdong-Hong Kong-Macao Greater Bay Area (“GBA”). This initiative aims to enhance connectivity between financial markets in the GBA and foster Hong Kong's wealth management business. The guidelines will be effective immediately . The 14 LCs include: China Galaxy International Securities (Hong Kong) Co., Limited, China Industrial Securities International Brokerage Limited, China International Capital Corporation Hong Kong Securities Limited, China Merchants Securities (HK) Co., Limited, China PA Securities (Hong Kong) Company Limited, China Securities (International) Brokerage Company Limited, CITIC Securities Brokerage (HK) Limited, GF Securities (Hong Kong) Brokerage Limited, Guosen Securities (HK) Brokerage Company, Limited, Guotai Junan Securities (Hong Kong) Limited, Huatai Financial Holdings (Hong Kong) Limited, SDICS International Securities (Hong Kong) Limited, Shenwan Hongyuan Securities (H.K.) Limited, and Zhongtai International Securities Limited. The above-mentioned LCs will work in partnership with their Mainland partner brokers, the list is to be confirmed by the relevant Mainland regulatory authority, namely, the China Securities Regulatory Commission. SIGNIFICANCE: As commented by Ms Julia Leung, the Chief Executive Officer of the SFC, that “T oday’ s announcement marks another significant milestone for the brokerage industry and the WMC scheme in terms of enhancing the connectivity of financial markets in the GBA and fostering Hong Kong’ s wealth management business. “ With respect to the WMC Scheme, a set of guidance (the three Annex ) for LCs have already been posted in January early this year which covered essentially the following items: eligible criteria for participating LCs; eligible criteria for investors; scope of eligible investment products; account opening arrangements; investor quota management; cross-boundary closed-loop fund flow arrangements; and promotion and sales arrangements. 3. SFC hosts AML/CFT Regtech Forum in November On 4 November 2024, Ms Julia Leung, the Chief Executive Officer of the SFC , made a speech in the “SFC Regtech Forum”, main points of the speech are as below. Regtech progress and compliance pain points as its driver (1) A “Report on the Adoption of Regtech for Anti-Money Laundering and Counter-Financing of Terrorism” has been published to highlight use cases as helpful guidelines. (2) Many firms have already adopted the Regtech solutions in their AML processes like name screening, customer due diligence and transactions monitoring. (3) Conventional AML approaches are losing efficacy as bad actors are using novel techniques to launder crime proceeds, the situation is aggravated with increasing number of customers and transaction data faced by the firms. (4) Firms are struggling with backlog of pending reviews due to high volume of false positive alerts from name screening and transaction monitoring. (5) False alerts from traditional rule-based solutions fail to cater for multiple dynamic parameters, providing misleading solutions and causing futile investigations and operational inefficiencies, especially when real red flags are missed. Regtech use cases burgeoning With the advent of Regtech and the application of automation, data analytics and AI, a huge mass of data can be processed swiftly to spot out for suspicious activities. Regtech can now be adopted in many stages throughout the AML process with the use cases conducted by the SFC ranked by the usage rates. (i) Client onboarding: mostly used to authenticate client’s identity and collect digitised customer data for subsequent AML processes. (ii) Name screening: with a usage rate of 92% of the firms with robot process automation (“RPA”) to extract relevant customer information and compare it against the system alerts. (iii) Transaction monitoring: with usage rate of 69% as another important process to detect unusual or suspicious transactions and activities. (iv) Third-party deposit identification and due diligence: with a lower usage rate of 34%, attributed to its late introduction of the relevant guidelines & requirements published in May 2019 and uniqueness of the securities sector. Responsible adoption is key Alike other AML controls, the responsibility are still rested on the licensed firms to regularly review all Regtech solutions including AI models, and protect the customers and transaction data with robust data protection and cybersecurity measures. SIGNIFICANCE: The adoption of technology helps alleviate the repetitive and onerous data processing and analyses routines, and streamline the AML and KYC processes which are particularly crucial amid the sophisticated use of novel technologies by bad actors to circumvent the traditional monitoring tools. 4. Stay aware of the inherent risks in use of Generative AI Language Models On 12 November 2024, the SFC published a circular concerning the use of generative Artificial Intelligence language models (“AI LMs”). There the SFC notes that firms are using the AI LMs in all facets of their services provided including response to client enquiries via public chatbots, generating research reports, identifying investment signals etc. The SFC also pointed out that the use of AI LMs may amplify existing risks and pose additional risks on top of those from traditional AI. The key takeaways are: Risk in relation to AI LMs AI LMs’ output can be inaccurate, biased, unreliable and inconsistent. For instance: (i) AI LMs are prone to hallucinations risk, (ii) bias may exist in data used to train the AI LMs, (iii) there may be heightened risk of cyberattacks and leakage of confidential information, (iv) over-reliance on certain limited number of external service providers. In the light of the increased risks, LCs are advised to make reference to the Appendix which provided a list of non-exhaustive risk factors to be aware of in the process of adopting any AI LMs. Scope of this circular This circular is applicable regardless of whether the AI LM is developed or provided by the LC itself, its group company, an external service provider (Third Party Provider) or comes from an open source. Risk-Based approach An LC may implement the requirements in this circular, including the Core Principles, in a risk-based manner commensurate with the level of risk incurred by the application of the AI LM . It should be noted that an AI LM used by LCs for providing investment recommendations, advice or research to investors or clients are considered as high-risk use cases by the SFC. The FOUR Core Principles are: (1) Senior Management Responsibilities (2) AI Model Risk Management (3) Cybersecurity and Data Risk Management (4) Third Party Provider Risk Management Notification Requirements For LCs which intend to adopt AI LMs in high-risk use cases, they are reminded to comply with the notification requirements under the Securities and Futures (Licensing and Registration) (Information) Rules (Information Rules). SIGNIFICANCE: This circular, together with the Appendix, provide the LCs with a set of fully comprehensive guidance in relation to the use of AI LMs in the provision of their services. LC are strongly advised to seek reference and get acquainted with the requirements before adopting the AI LMs which may be a double-edged instrument if no used properly. Enforcement News 5. SFC bans former RO of Tarascon Capital for false trading of shares On 6 November 2024, the SFC announced that Mr Jonathan Dominic lu Wai Ching (“Iu”) has been prohibited from re-entering the industry for 15 years. Key Findings: Iu, a former responsible officer of Tarascon Capital Management (Hong Kong) Limited, engaged in false trading of shares. lu used the brokerage accounts of a hedge fund and his mother, gaining $5.6 million for his mother’s account. SFC determined that Iu is not fit and proper to be licensed due to his serious and dishonest conduct over two months, violating client trust. This action serves as a deterrent to prevent similar future misconduct. SIGNIFICANCE: This ban highlights the SFC's dedication to maintaining market integrity and enforcing ethical standards. By imposing severe consequences on Iu, SFC aims to deter other practitioners from engaging in dishonest behaviour and emphasizes the importance of trust and compliance in the financial industry. 6. SFC commences MMT proceedings against Ding Yi Feng for market manipulation SFC commenced proceedings in the Market Misconduct Tribunal (“MMT”) against Mr Sui Guangyi (“SUI”), former chairman and non-executive director of Ding Yi Feng Holdings Group International Limited (“Ding Yi Feng”), two corporate entities and 28 other suspects for alleged manipulation of the shares of Smartac International Holdings Limited ( 00395.HK ). The SFC alleged that between 31 October 2018 and 11March 2019, SUI and other suspects manipulated the trading of Smartac shares to push up the price and turnover, creating a false and misleading appearance of active trading. The increase in share price contributed to an investment gain by Ding Yi Feng, which held a 21.68% of the share in its gross assets as of 31 December 2018. The SFC had issued restriction notices to freeze securities accounts linked to the suspected market manipulation of Smartac shares which still remain in force. SIGNIFICANCE: This action by the SFC emphasizes its commitment to combating market misconduct and maintaining market integrity. The proceedings against Mr. Sui and others are a clear signal that the SFC will take stringent measures against manipulative trading practices. Cooperation between the SFC and the China Securities Regulatory Commission underscores the importance of regulatory collaboration in addressing cross-border market manipulation. 7. SFC sanctions Zuo Ping for breaches of the Takeovers Code On 15 November 2024, the SFC publicly censured and imposed a six-year cold shoulder order against Ms ZUO Ping (“ZUO”) for breaching the mandatory general offer obligation under the Takeovers Code. ZUO made a number of acquisitions and disposals of shares in CBK Holdings Limited ( 08428.HK ) on the market between 2 November 2023 and 20 November 2023, and her interest in CBK increased from 0% to 30.22% of CBK’s issued capital on 20 November 2023, triggering a mandatory general offer obligation under Rule 26.1 of the Takeovers Code. Yet ZUO did not make any general offer then. Zuo acknowledged her breach of the Takeovers Code, and agreed to the disciplinary action. SIGNIFICANCE: The SFC emphasizes the importance of adhering to the Codes on Takeovers and Mergers, advising parties to seek professional advice when in doubt. The order denies Zuo access to the Hong Kong securities market from 15 November 2024 to 14 November 2030. 8. SFC suspends Yuanta’s former employee Wang Shian-tang for violation of employee dealing policy The SFC suspended the licence of Mr Wang Shian-tang (“WANG”), a former licensed representative of Yuanta Securities (Hong Kong) Limited (“Yuanta”) for 26 months from 20 November 2024 to 19 January 2027. In the investigation, it was found that WANG entered into a private profit-sharing agreement with a client on discretionary trading services without Yuanta’s knowledge or consent; and WANG would be entitled to 10% of any annual profits made for the client. It was also found that WANG maintained another account with an outside broker for conducting 10 warrant trades with a total transaction value of HKD350,000; yet these were not disclosed to Yuanta which violated the employee dealing policy of the company, depriving the company to monitor his personal dealings. SIGNIFICANCE: With the false and disingenuous representations to the SFC regarding his personal account and trades, the SFC considered WANG had displayed dishonest behaviour that undermined the interests of his then employer and its clients, as well as the integrity of the market. 9. China Forestry’s former chairman and CEO sanctioned for insider trading The Market Misconduct Tribunal (MMT) ordered Mr Li Han Chun (“LI”), the former chief executive officer (CEO) of China Forestry Holdings Company Limited ( 00930.HK ), and his investment vehicle, Top Wisdom Overseas Holdings Limited (Top Wisdom), to disgorge $353,430,000 which represents the loss they avoided by insider dealing of China Forestry’s shares. The MMT also imposed the following orders against LI and Mr Li Kwok Cheong (“LIKC”), the former chairman of China Forestry, for disclosing false or misleading information in China Forestry’s IPO prospectus, annual results announcement, and annual report for the year ended 31 December 2009, inducing transactions in the company’s shares: Disqualification orders for five years Cold shoulder order for five years Cease and desist orders Please see the SFC’s press releases dated 7 August 2024 and 28 June 2018 . And LI, LIKC and Top Wisdom had to pay the costs and expenses incurred by the Government and the SFC as well. SIGNIFICANCE: This case underscores the importance of transparency and integrity in the financial markets, with severe penalties for insider dealing and disseminating false information to maintain market trust and investor confidence. 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

The topics discussed in this monthly newsletter are as follows: ComplianceOne Newsletter – January 2023 ComplianceOne Newsletter – January 2023 The topics discussed in this monthly newsletter are as follows: 1. FUTU and TIGER were ordered by the China Securities Regulatory Commission (CSRC) to rectify their cross-border "illegal operations”; 2. "AML-CTF (Amendment) Ordinance 2022" will take effect on 1 June 2023; 3. HKEX Publishes "Review of Issuers’ Annual Reports - 2022"; 4. HKIDR will be launched shortly on 20 March 2023; and 5. SFAT affirms SFC decision to fine Cardinalasia Consulting Limited $1.5 million for failures in managing private fund. MARKET NEWS 1. FUTU and TIGER were ordered by the China Securities Regulatory Commission (CSRC) to rectify their cross-border "illegal operations" At the end of 2022, the CSRC made an announcement making it explicit that the activities conducted by the two firms, namely Futu Securities International (Hong Kong) Limited (“FUTU”) and Tiger Brokers (HK) Global Limited (“TIGER”), have been construed as engaging in illegal securities business without proper license in China. Though licensed in Hong Kong under the SFC, FUTU and TIGER are considered as conducting regulated activities in securities across the border in China (i.e. cross-border online brokerage) without acquiring approval from the CSRC. Both FUTU and TIGER had been reprimanded by the CSRC as having involved some sort of "cross-border regulatory arbitrage (跨境監管套利)", which means taking advantage of the great difference in political and regulatory systems between two regions by engaging in a less stringent regulatory regime and thus circumventing the onerous documentation process in the stringent regime in another region. SIGNIFICANCE: The regulatory measures taken by the CSRC seems like playing an art of reconciliation by deploying a “ 有效遏制增量，有序化解存量” towards FUTU and TIGER ; instead of an “once-off ban for all ”, a more pragmatic approach, has been adopted. In essence, it means the follow ings: (1) The two firms are not allowed to accept new customers and new accounts as these activities have been construed as conducting unlicensed regulated activities; (2) Both FUTU and TIGER can continue to serve the existing accounts on condition that no additional funds can be accepted which may constitute a breach of the foreign exchange restriction, which is implemented to prevent an outflow of funds from the country, imposed by the Chinese Government. 2. "AML-CTF (Amendment) Ordinance 2022" will take effect on 1 June 2023 The Anti-Money Laundering and Counter-Terrorist Financing (Amendment) Ordinance 2022 (the Amendment Ordinance) will take effect on 1 June 2023. Apart from the introduction of new licensing regime, namely the Virtual Asset Service Providers (VASP), which deserves attention to brokers who are currently involved in virtual assets trading; there are other AML-CFT amendments which cannot be missed out as well. The key takeaways are as follows: (1) Under the Amendment Ordinance, Politically exposed person (PEP) is re-defined as " an individual who is or has been entrusted with a prominent public function in a place outside the People’s Republic of China Hong Kong ”. (2) Former politically exposed person (former PEP) , which means “ an individual who, being a politically exposed person, has been but is not currently entrusted with a prominent public function in a place outside Hong Kong ”, is introduced. With such amendment in place, the licensed corporations can be exempted from taking special requirements or additional measures in relation to a former PEP who happens to be a client onboarded. Instead, a risk-based approach can be adopted. (3) The use of a recognized digital identification system (“RDIS”) is allowed in situations where a customer is not physically present for identification purposes (i.e., non-face-to-face). If the Customer Due Diligence (CDD) requirements are met using reliable and independent digital identification systems, the Enhanced Due Diligence (CDD) requirements can be exempted. SIGNIFICANCE: With the amendment of definition of PEP , the special requirements apply not only to a PEP from a place outside “the People’s Republic of China” but also a PEP from a place “outside Hong Kong”. And with the new definition of former PEP , there is no longer a “once a PEP, always a PEP” scenario. Licensed corporations have the flexibilities to adopt a risk-based approach provided that there is sufficient assessment to justify that the former PEP no longer poses a high AML risk as before. The Amendment merely defines RDIS as " a digital identification system that is a reliable and independent source that is recognized by the relevant authority ”. However, no specific example or further detail has been provided in the Amendment. 3. HKEX Publishes Results of Review of Issures’ 2021 Annual Reports On 20th January 2023, the Hong Kong Exchanges and Clearing Limited (HKEX) published a report on the findings and recommendations in its Review of Issuers’ Annual Reports – 2022 (the “Report”). The Listing Division of the Exchange undertakes an on-going programme to review issuers’ annual reports as part of its monitoring activities. In the review, HKEX considered the actions taken by the issuers and their directors to safeguard company’s assets, and whether material information was disclosed to allow shareholders to properly assess the relevant matters reported on. HKEX also assessed issuers’ compliance with the Listing Rules and specific accounting standards in financial statements. In addition, HKEX also reviewed issuers’ compliance with annual report disclosure requirements under the Listing Rules. According to the Report, most issuers continued to achieve a high rate of compliance with annual report disclosure requirements with only a few issuers did not adequately substantiate the fairness of asset reported values (including loan receivables) due to deficiencies in their financial reporting, risk management and internal controls. HKEX also identified areas of improvement in some issuers’ disclosure of their material loan receivables and has made the following recommendations to issuers: (1) Financial reporting and related controls – deploy adequate resources to maintain risk management and internal controls, with special regard to the accounting estimates and the reasonableness of the assumptions behind. (2) Material lending transactions – critically assess the commercial rationale, whether their terms are fair and reasonable, and whether the use of funds is in the interests of the issuer and its shareholders. (3) Financial statement disclosure under accounting standards – maintain good communications with auditors on emerging issues identified during the audit, and take prompt actions to address auditors’ concerns. 4. HKIDR will be launched shortly on 20 March 2023 With reference to the Circular dated 12 December 2022, Relevant Regulated Intermediaries ( RRIs ) have to get themselves ready for launch of the HKIDR on 20 March 2023. RRIs are reminded to submit the BCAN-CID Mapping File that contains Broker-to-Client Assigned Number ( BCAN ) and client identification data ( CID ) of their clients to the SEHK effective 19 December 2022. RRIs are strongly advised now to ensure that they can login via the SEHK’s Electronic Communication Platform ( ECP ) web interface and / or the ECP ( SFTP ) interface, and submit the BCAN-CID Mapping Files as soon as possible so as to allow the SEHK with sufficient time to verify the data and rectify any error discovered during the file submission process For compliance with the applicable data privacy ordinance, RRIs should have obtained the necessary consent from the individual clients before submitting their BCAN and CID to SEHK. SIGNIFICANCE: Once again, the prioritized aim of the introduction of BCAN and HKIDR is to enhance the effectiveness of market surveillance by improving the transparency of the identity behind who initiates an order to the market, and reduce the investigation and execution costs of regulatory institutions. ENFORCEMENT NEWS 5. SFAT affirms SFC decision to fine Cardinalasia $1.5 million for failures in managing private funds The Securities and Futures Commission (SFC) has reprimanded and fined Cardinalasia Consulting Limited (CCL) $1.5 million over its failures in acting as a principal investment adviser to five private funds between August 2014 and October 2017. The licence of CCL’s responsible officer, Mr Edward Lee Shiu Lun, has also been suspended for nine months. The Securities and Futures Appeals Tribunal (SFAT) imposed a heavier penalty than proposed by the SFC, as the SFAT’s chairman the Hon Justice Hartmann said: “ The clear importance of an investment adviser in protecting the interests of investors lies in the simple, single fact that the person so appointed acts in an independent way ”, even the advice is contrary to that of the investment managers. Also, the SFC’s Executive Director of Enforcement, Mr Christopher Wilson, has said: “ This case serves as a timely reminder to fund managers and advisers of the high standards of conduct the SFC expects of them ”; and “ the SFC is determined to crack down on asset management misconduct and will impose harsher penalties going forward to deter such misconduct .” SIGNIFICANCE: The message delivered from the regulator is explicit that “ the role of an investment adviser is a role of real substance ” which seems to be perceived as a lesser role in conventional practice. The investment advisor should always uphold its independent role in giving advice even that advice is not in line with those higher in the delegated chain of management. 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 call us at (852) 39550277 . Unit 1104, 11/F, 299QRC, 287-299 Queen's Road Central, Sheung Wan, Hong Kong Tel: (852) 39550277 www.complianceone.hk To unsubscribe, please simply reply with “ I don’t like to know more about Compliance ”.

The topics discussed in this monthly newsletter are as follows: ComplianceOne Newsletter – February 2023 ComplianceOne Newsletter – February 2023 The topics discussed in this monthly newsletter are as follows: 1. The Asset and Wealth Management Activities Survey 2022; 2. SFC and CSRC enter into an MoU on regulatory cooperation; 3. SFC consults on proposals to regulate virtual asset trading platforms; 4. SFC reprimands and fines Jinrui Futures (Hong Kong) Limited $4.8 million; and 5. SFC bans Chan Wai Chun for life MARKET NEWS 1. The Asset and Wealth Management Activities Survey 2022 As an annual exercise to collect information on asset and wealth management activities in Hong Kong for regulatory and market facilitation purposes and to develop a better understanding of the state of the asset and wealth management industry in Hong Kong, the SFC has issued the Asset and Wealth Management Activities Survey 2022 (the “AWMAS”), and licensed corporations are expected to complete and submit on or before 21 April 2023. For those licensed corporations (LCs) which had gross operating income derived from: (i) asset management, (ii) giving advice on funds/portfolios, and/or (iii) private banking / private wealth management business in 2022; they are required to complete the whole questionnaire accordingly. In case where the licensed corporation did not engage in any of the above activities through the previous year, they are also required to fill in the part of General Information in the questionnaire as well. SIGNIFICANCE: The survey is like a full-fledged scrutiny of the AUM structure of the licensed corporation containing the following details: (1) Total AUM of the company; (2) AUM sub-contracted to related companies; (3) AUM managed in / outside Hong Kong; (4) AUM breakdown by means of asset classes, geographical locations; (5) AUM sourced from HK, or non-HK investors; (6) AUM sourced from Mainland China in the form of QDII / other investors; (7) AUM breakdown by client types, product types. By compiling the collected information, the SFC will be able to have a clearer picture in depth of the underlying structure and nature of AUMs under management by the existing LCs, as well as their financial soundness to sustain survivability in case a LC has no active AUM under management at all! 2. SFC and CSRC enter into an MoU on regulatory cooperation A Joint Announcement of the China Securities Regulatory Commission (CSRC) and the Hong Kong Securities and Futures Commission (SFC) was published with an aim to further strengthen cross-boundary regulatory cooperation on matters concerning the listing of Mainland enterprises in Hong Kong, the CSRC and the SFC have agreed to enter into a Memorandum of Understanding (MoU) which will come into effect on 31 March 2023. SIGNIFICANCE: The MoU clarifies the arrangements and procedures for share issuance and listing, cross-boundary enforcement, supervision of intermediaries, and exchange of information between the CSRC and the SFC. The MoU will facilitate the CSRC and the SFC in discharging their supervisory functions, jointly combating cross-boundary offences and misconduct, safeguarding the legitimate interests of investors and ensuring the steady and healthy development of both markets. It should also be noted that the CSRC had announced the《 證券經紀業務管理辦法 》which took effect on 28 February 2023, providing a more solid regulatory framework on cross-border sales solicitation of local Hong Kong based licensed corporations in Mainland China. 3. SFC consults on proposals to regulate virtual asset trading platforms The SFC published a Consultation Paper on the proposed regulatory requirements for virtual asset (VA) trading platform operators licensed by the SFC in preparation for the new licensing regime of centralized VA trading platform for trading of non-security tokens. The key takeaways are: (i) the Guideline for Virtual Asset Trading Platform Operators (VATP Guidelines) will supersede the previous VATP Terms and Conditions under the SFO; (ii) SFC’s proposal to allow retail access to Hong Kong licensed VA trading platforms subject to robust investor protection measures as proposed in the VASP Consultation Paper; (iii) VA trading platform operators should conduct reasonable due diligence on certain tokens to be traded to ensure that they fulfil the token admission criteria and be monitored on an ongoing basis that the token thus traded in the platform continue to fulfil the criteria as required; (iv) Pre-existing VA trading platforms which would like to be qualified provider must submit a completed license application online under the AMLO VASP regime between 1 June 2023 and 29 February 2024, and to demonstrate that it has the arrangements in place to ensure compliance with the regulatory requirements. For VA trading platforms which do not operate in Hong Kong immediately before 1 June 2023 must not carry on business in Hong Kong unless they have been formally licensed under the AMLO VASP regime; (v) DUAL Licenses: upon commencement of the AMLO regime in June 2023, the SFC will regulate the trading of security tokens under the existing SFO regime and regulate the trading of VA trading platforms (for non-security tokens) under the AMLO VASP regime. It is suggested that VA trading platforms to be dual licensed under both SFO And AMLO regime in order to ensure a sustainable business operation; (vi) External assessment report: to streamline the application process, the SFC proposes that VA trading platforms should engage an external assessor to submit a “Phase 1 Report” and a “Phase 2 Report” demonstrating the readiness of the VA trading platform operators before the SFC’s decision to grant a final approval upon satisfaction of the Phase 2 Report findings. SIGNIFICANCE: The past 12 months have been a turbulent year for the virtual asset markets, the collapse of the Luna token and Terra stablecoin, along with the subsequent collapse of the FTX, explicitly unveiled the underlying fragility of the regulatory regime of the VA markets. In the light of these adverse scenarios, most major jurisdictions are aware of the imminent need to take a more pro-actively approach in regulating the VA markets, particularly with the prior concern of protecting investors from engaging in fraudulent or unsound trading platforms. As advocated by the HKSAR government before of its stern determination to develop Hong Kong as one of the international financial hubs for virtual assets markets, the SFC is keen to launch the AMLO (Amendment) Bill which will be in effect in June, coupled with this consultation on VATP, the HK government is definitely on the right track to be a pioneer in nurturing a full-fledged regulated VA trading environment ahead of other financial centre over the world. Last but not least, the SFC is actively soliciting views, particularly on whether to allow licensed VA trading platforms to serve retail investors, and subsequently, the necessary measures to be implemented to ensure retail investors are adequately protected. ENFORCEMENT NEWS 4. SFC reprimands and fines Jinrui Futures (Hong Kong) Limited $4.8 million for failures in complying with AML/CFT The SFC has reprimanded and fined Jinrui Futures (Hong Kong) Limited (Jinrui Futures) $4.8 million for failures in complying with anti-money laundering and counter-terrorist financing (AML/CFT) and other regulatory requirements between April 2015 and June 2018. Apart from this, the licenses of two responsible officers of Jinrui Futures, namely, Shen Chun and Jiang Xiaoqing, were suspended for 6 months and 5 months respectively. The SFC’s investigation found that Jinrui Futures, which permitted 258 clients to use customer supplied systems (CSSs) for placing orders during the material time, had failed to conduct adequate due diligence on the CSSs; thus, was not in a proper position to assess and manage the AML-CFT risks with the use of CSSs. The SFC also found that some of the deposits made into four clients’ accounts were unusual and inconsistent with the clients’ declared net worth, and the subsequent follow-up enquiries were not sufficient to explain the issues. It was further found that Jinrui Futures had failed to comply with its account opening procedures which require its staff to conduct AML screening on its clients including identifying if the clients were politically exposed persons or under the terrorist sanction list before accounts were approved. Such omissions constituted a breach of the AML-CTF Ordinance, the Guideline on Anti-Money Laundering and Counter-Terrorist Financing and the Code of Conduct. SIGNIFICANCE: The underlying potential risk of granting clients the use of CSSs to connect with the BSS of the broker really poses high risks since these CSSs are developed by external system vendors where the brokers do not have sufficient knowledge of how the CSSs actually operate, and the true identities of the underlying users who place orders through the CSS from the clients’ side of the API which cannot be identified or detected, not to mention any due diligence on the users or the CSSs per se. It is the reason why the adoption of CSSs by the clients constitutes substantially high AML risk. The ironic dilemma is that those clients opting for their CSSs are always the dominant clients contributing a substantial portion of the commission incomes to sustain the LCs themselves! 5. SFC bans Chan Wai Chun for life The SFC has banned Mr Chan Wai Chun, a former customer relationship manager of Dah Sing Bank Limited (DSB), from re-entering the industry for life following his conviction for fraud. The District Court found that in March 2021, Chan persuaded an elderly customer of DSB to redeem her investment in a fund and reinvest the redeemed amount in another fund to earn higher interest yield. However, Chan never invested in any new fund for the customer even the documents were signed, and instead, later transferred $1,195,000 from the customer’s account to his personal account and used the money to repay his own debts. Chan is considered by the SFC as not a fit and proper person to be licensed or registered to carry on regulated activities as a result of his criminal conviction. 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 call us at (852) 39550277 . Unit 1104, 11/F, 299QRC, 287-299 Queen's Road Central, Sheung Wan, Hong Kong Tel: (852) 39550277 www.complianceone.hk To unsubscribe, please simply reply with “ I don’t like to know more about Compliance ”.

The topics discussed in this monthly newsletter are as follows: ComplianceOne Newsletter – September 2022 ComplianceOne Newsletter – September 2022 The topics discussed in this monthly newsletter are as follows: 1. Auditors from the Public Company Accounting Oversight Board (PCAOB) reached Hong Kong on issues of continual listing of Chinese stocks in US 2. SFC-HKMA’s joint product survey shows increasing participation of intermediaries and investors 3. What should investors do if their broker plans to cease operation? 4. SFC suspends a responsible officer for breach of KYC and AML/CFT for eight months 5. Court sets pre-trial review date for unlicensed activities prosecution 6. Court dismisses challenge to SFC’s power of issuing restriction notices 7. SFAT affirms SFC decision to suspend hedge fund manager Christopher James Aarons 8. Thirteen people charged following SFC and Police joint operation against ramp-and-dump syndicate 9. Kindly Reminder: Climate-related Risk Disclosure by Fund Mangers MARKET NEWS 1. Auditors from the PCAOB reached Hong Kong on issues of continual listing of Chinese stocks in US A team of auditing experts had arrived in Hong Kong by the end of Sep 2022 with a mission to scrutinize the audit records of the Chinese stocks listed in the US exchanges, following the insistence from Washington that US officials should be given access to the accounts of the Chinese companies listed; or otherwise, these stocks will be forced to delist as early as 2023. Some important messages required to know: (1) The US inspectors were sent to Hong Kong with an aim at resolving the long-standing argument over the access to audit records of Chinese companies which are held in China and not accessible for national security reasons. (2) All the inspectors and investigators are from Public Company Accounting Oversight Board (PCAOB), which will select a couple of companies for inspection with targets like Alibaba, Yum Chin, JD.com etc. (3) The inspections are conducted in Hong Kong with the necessary documents transferred across the border from China in both paper and electronic forms. However , there are still obstacles to get full access the audit records as some may be deemed as "restricted data" not to be disclosed, especially for those “state owned enterprise” where most data is considered as “state secret”! Significance: Beijing and Washington need to reach a consensus on the listing issues as a big stake is involved there. The amount raised through the Chinese companies in the US was around US$85 billion through primary and secondary offerings. A more subtle issue here is the diverse opinion of interpreting what is considered as “state secret” and “confidential information”. The China Securities Regulatory Commission (CSRC) and the Securities and Exchange Commission (SEC), under the premise that "each is serving its own master", both sides have to hammer out a solution on a sustainable basis for benefits of investors on both sides. 2. SFC-HKMA’s joint product survey shows increasing participation of intermediaries and investors A joint survey of the SFC and the HKMA show that notwithstanding the continued pandemic and difficult market environment, the number of investors who purchased investment products increased 5% to 770,000. The total number of firms engaged in the sale of investment products increased slightly to 390. Major findings from the survey included: (1) Structured products ($2,385 billion or 48%) remained the predominant product type sold by firms, followed by collective investment schemes (CIS) ($1,491 billion or 30%) and debt securities ($818 billion or 16%). (2) The total transaction amount of equity-linked structured products increased by 5% to $1,674 billion; while the sales of authorized CIS helped drive the 5% increase in the overall transactions in CIS to $1,491 billion. (3) Weighed down by uncertainties in interest rates outlook, the total transaction amount for debt securities dropped 23% to $818 billion. (4) A total of 70 firms used online platforms to distribute investment products, up 21% from the last survey. CIS remained the most popular product type, accounting for 91% of total online sales. The survey reveals increased retail participation in the investment market, notwithstanding the difficult market environment, and an increasing trend for firms to use online platforms for distribution,” and provides more useful information for regulators to better serve the interests of the retail investors. Significance: The findings reveal the resilience of the HK financial market and the observation that investors become more mature after the painful experience of crucial episodes especially after the 2008 credit default crisis. From the regulatory aspect, “this joint product survey strengthens the supervisory collaboration between the SFC and the HKMA, and enhances surveillance of the market by the regulators,” as added by Mr. Arthur Yuen, Deputy Chief Executive of the HKMA. 3. What should investors do if their broker plans to cease operation? Despite the SFC grants licences to intermediaries every year, there are still some licensed intermediaries which are determined to cease operation for their own business reasons. Here below are some useful hints investors concerned are supposed to know. Under the existing regulatory regime, intermediaries are required to maintain segregated client accounts to separate clients’ assets from their own asset. If a broker plans to cease operation, it is general practice to give advance notice to its clients of the subsequent arrangements, including things like the date where the services is to be terminated, the procedures of asset withdrawal, and the transfer of money back to designated banks of the clients. Clients should liaise with the broker about transferring the outstanding holding of stocks to any of their accounts maintained with other brokers. In order to facilitate the process, clients are advised to contact the broker, and to update their contact details such that the broker can keep them abreast of any remedial procedures. Under the circumstances where the broker cannot reach the its clients, the broker will apply for payment of the clients’ assets into the court under the Trustee Ordinance; and it incurs additional costs in terms of time and money for the broker and the clients themselves. ENFORCEMENT NEWS 4. SFC suspends a responsible officer for breach of KYC and AML/CFT for eight months The SFC has suspended Mr. Tang Kai Shing, responsible officer (RO) and managing director of Rifa Futures Limited (Rifa), for eight months from 2 September 2022 to 1 May 2023 for breach of KYC, AML/CFT and other regulatory requirements between May 2016 and October 2018. The SFC considers Rifa’s breaches were attributable to Tang’s failure to discharge his duties as an RO and a member of senior management. The investigation found that Rifa, without conducting adequate due diligence, was unable to assess the above -mentioned risks associated with allowing its clients to use their client supplied system (CSS) in placing orders. Besides, Rifa was also found to have failed to conduct adequate ongoing monitoring of clients’ fund movements to ensure they were consistent with the clients’ business nature , risk profile and source of fund. Significance: It demonstrates again the fact that intermediaries permitting the clients in using their own CSS poses serious potential regulatory risks to the intermediaries per se. It can be observed that the use of CSS is usually associated with abnormal fund movements and trading pattern differing from the clients’ own risk profile for reason that the ultimate persons who originated the orders cannot be identified under the use of CSS. 5. Court sets pre-trial review date for unlicensed activities prosecution The Eastern Magistrates’ Court today fixed the pre-trial review date for prosecutions against Mr. Tony Choi Yick Man and Mr. Ma Yau Tim after they pleaded not guilty to charges by the Securities and Futures Commission (SFC) for unlicensed activities. The SFC commenced criminal proceedings on 30 June 2022 against Choi for carrying on a business in asset management without a SFC licence between 2010 and 2019 and Ma for aiding and abetting Choi’s unlicensed activity. The pre-trial review is scheduled for 27 October 2022. 6. Court dismisses challenge to SFC’s power of issuing restriction notices The Court of First Instance has dismissed a judicial review application against the SFC relating to restriction notices issued in an ongoing investigation into a suspected “ramp-and dump” scheme; the review was brought by Mr. Tam Sze Leung, Ms. Kong Chan and Ms. Lee Ka Lo, who sought to challenge the restriction notices issued by SFC to freeze their assets in various trading accounts held with certain licensed corporations. “We welcome the Court’s decision, said by SFC’s Chief Executive Officer, Mr. Ashley Alder; and he further stated that the “restriction notes” were important during the course of investigation to the SFC in carrying out its function under the SFO, and they enable the SFC to take immediate action to protect investors and the public interest. Significance: The decision of the Court was justified in the sense that the assets of the suspects might be the proceeds from their “ramp-and-dump” scheme. And the protection of the statutory power of the SFC entitled from SFO should not be challenged, or otherwise more upcoming judicial reviews will be expected afterwards. 7. SFAT affirms SFC decision to suspend hedge fund manager Christopher James Aarons The SFC has suspended Mr. Christopher James Aarons, responsible officer (RO) and chief executive officer of Trafalgar Capital Management (HK) Ltd . (Trafalgar), for two years by the Securities and Futures Appeals Tribunal (SFAT) followed administrative proceedings against Aaron in South Korea. The Korean regulatory authorities found that Aarons had breached Korean legislation by dealing in the shares of a securities company listed on the Korea Exchange (KRX) based on material non-public information in circumstances that prohibited such dealing. The information concerned a block trade of shares of the KRX-listed securities company which Aarons had obtained from a sell-side broker during a “market sounding” call. Aarons was not wall-crossed during the call with the broker, but he arranged a short swap in the company’s shares to take advantage of the information, and derived a profit of KRW337.3 million as a result. Significance: As Mr. Ashley Alder, the Chief Executive Officer of SFC, had said: “The SFAT’s determination sends an unmistakable message to the market that both sell-side brokers and buy-side participants have obligations to uphold market integrity by maintaining the confidentiality of non-public information on block trades or private placements during the market sounding process. Misuse of such information and individuals who abuse the process warrant severe sanctions! 8. Thirteen people charged following SFC and Police joint operation against ramp-and-dump syndicate Thirteen suspects were charged with various criminal offences following an earlier joint operation of the Securities and Futures Commission (SFC) and the Police against a sophisticated ramp-and-dump syndicate . The alleged syndicate members organized and executed “ramp-and-dump” schemes in the shares of two target stocks by using different social media platforms and manipulated the trading of a large volume of those shares through the use of a substantial number of nominee accounts. Prices of the target stocks were driven up to lure investors to purchase those shares after which the syndicate then disposed of their shares aggressively at a profit, and the prices drastically collapsed as a result of such profit-taking by the syndicate. Significance: It is obvious that such “ramp-and -dump” scheme to lure investors into purchasing the target stocks, together with the drastic plunge afterwards can never to tolerated in the eyes of the SFC, particularly from which the public interests of the general investors were adversely and severely jeopardized; and more importantly, the integrity and fairness of the financial market status of Hong Kong must be upheld at all times! A Kindly Reminder: Climate-related Risk Disclosure by Fund Mangers With amendment of the Fund Manager Code of Conduct, Fund Managers are required to take the climate-related risks into consideration in constructing their investment and risk management process, and make appropriate disclosure according and commensurate to nature of their funds. Key elements are as below: I. Governance II. Investment Management III. Risk Management IV. Disclosure Fund Managers have to bear in mind of the following timelines: (1) Submission in AUG 2022: for LARGE Fund Managers with AUM>HKD8 billion (2) Submission in NOV 2022: for Fund Managers with less AUM size Apart from Baseline Requirements, the LARGE Fund Managers have to comply with additional “Enhanced Standards” with respect to Risk Management and Disclosure. Fund Managers are supposed to follow the guidelines published by the SFC in fulfilling their obligations in climate-related risk disclosure while bearing in mind the following key hints: (1) Is the fund managed delegated with investment discretion, and the extent of discretion entitled to the Fund Manager (2) Are climate related risks “relevant and material” to the fund? Relevancy and Materiality determine how far and to what extent the Fund Manager has to comply with the applicable requirements (3) Is the Fund Manager “responsible for overall operation of the fund” (ROOF)? 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 call us at (852) 39550277 . Unit 1104, 11/F, 299QRC, 287-299 Queen's Road Central, Sheung Wan, Hong Kong Tel: (852) 39550277 www.complianceone.hk To unsubscribe, please simply reply with “ I don’t like to know more about Compliance ”.

天匯合規協助大公國際香港成功申請香港信貸評級服務牌照（10號牌） 天匯合規協助大公國際香港成功申請 香港信貸評級服務牌照（10號牌） 天匯合規顧問有限公司(「天匯合規」) 協助大公國際資信評估有限公司（「大公國際」）旗下的香港全資子公司：大公國際香港有限公司（「大公國際香港 」） (中央編號: BUK036) 成功向香港證券及期貨事務監察委員會（「香港證監會」）申請獲准經營第10類受規管活動：信貸評級服務牌照（即10號牌）。大公國際香港成為近四年多以來香港證監會唯一批准的10號牌的公司，也是全香港第九家獲香港證監會批准並持有10號牌的公司（同時為第四家來自中國內地的信用評級公司）。大公國際香港於2023年第四季首次遞交申請，於2024年4月成功取得香港證監會下發的原則性核准函（Approval-in-principle, “AIP”），並於5月27日正式獲批牌照。 大公國際香港的控股股東為大公國際，成立於1994年，是中國人民銀行和原國家經貿委共同批准成立的全國性信用評級機構。成立30年以來，大公國際先後對70多個行業的近萬家企業進行信用評級，是最早在中國內地開展信用評級業務的公司之一，為多家工商企業、金融機構、主權國家、國際公司、資產證券化類產品等提供評級服務，位居產業前列。為提升公司在國際評級競爭中的地位，並滿足其自身發展需求，於2023年6月成立了大公國際香港，該公司主要專注於提供企業和金融機構評級服務以及結構化產品評級服務。 天匯合規作為大公國際香港的合規顧問，為本項目提供了全方位的合規服務，包括提供申請方案設計、合規建議諮詢、內部監控流程的設計、以及協助回復香港證監會對大公國際香港的牌照申請提問的回饋等綜合服務。天匯合規合夥人Tao Wong及Tommy Chung領銜的合規顧問團隊專注於香港境內的金融牌照申請、反洗錢系統、以及各類型合規顧問服務。天匯合規成立7年多以來已成功為數十家公司申請成為持牌法團, 以及為數以百計的各類型金融機構提供不同類型的合規顧問服務, 在香港首屈一指。 大公國際香港這次獲批出信貸評級服務牌照, 特别感謝香港證監會 (SFC) 以及香港投資推廣署 (InvestHK) 對本次申請活動的關注和支持。 2024年5月27日 ComplianceOne helped Dagong Global Hong Kong successfully apply for Type 10 license (providing credit rating services) in Hong Kong ComplianceOne Consulting Limited ("ComplianceOne") assisted Dagong Global Credit Rating Co., Ltd. ("Dagong Global”) 's wholly-owned subsidiary in Hong Kong, Dagong Global Hong Kong Limited ("Dagong Global Hong Kong"), in successfully applying from the Securities and Futures Commission of Hong Kong ("SFC") for approval of Type 10 regulated activity: credit rating services license. Dagong Global Hong Kong became the only company approved by the SFC for Type 10 license in nearly four years, and the ninth company in Hong Kong to be approved and hold a Type 10 license (also the fourth credit rating agency from mainland China). Dagong Global Hong Kong submitted its application in the fourth quarter of 2023, obtained the SFC's approval-in-principle (AIP) from the SFC in April 2024, and obtained the license on 27th May 2024. Dagong Global, the controlling shareholder of Dagong Global Hong Kong, was established in 1994. It is a nationwide credit rating agency approved jointly by the People's Bank of China and the former State Economic and Trade Commission. Over the past 30 years, Dagong Global has conducted credit ratings for nearly ten thousand enterprises in over 70 industries, making it one of the earliest companies to engage in credit rating business in mainland China. It provides rating services for various industrial and commercial enterprises, financial institutions, sovereign states, international corporations, asset securitization products, and more, ranking among the industry leaders. To enhance its position in the international rating competition and meet its own development needs. Dagong Global established Dagong Global Hong Kong in June 2023, which primarily focuses on providing rating services for enterprises and financial institutions, as well as structured product rating services in Hong Kong. ComplianceOne serves as the compliance consultant for Dagong Global Hong Kong, providing comprehensive compliance services for this project. This includes offering assessment of the application, compliance advisory consultations, designing internal control processes, and assisting in responding to inquiries from SFC of Hong Kong regarding Dagong Global Hong Kong's license application. The compliance advisory team, led by partners Tao Wong and Tommy Chung, focuses on financial license applications in Hong Kong, anti-money laundering (AML) systems, and various types of compliance consulting services. Over the past seven years, ComplianceOne has successfully assisted dozens of companies in becoming licensed corporations and provided various types of compliance consulting services to hundreds of financial institutions, establishing itself as a leader in Hong Kong. Dagong Global Hong Kong and ComplianceOne express special gratitude to the SFC and InvestHK for their attention and support during the application process for the Type 10 license. 27th May 2024

通過了解海關指引和執法、內部審核，有效維護金錢服務經營者牌照及取得業務持續性的成效。 天匯合規獲邀參與國際會計師公會香港分會主辦之可持續發展講座 我們很榮幸受邀參與由國際會計師公會香港分會主辦的可持續發展講座。王陶浚先生及陸博賢博士藉著剖析海關指引、執法和內部審核，分享有效維護金錢服務經營者（MSO）牌照及取得業務持續性成效的策略。 我們衷心感謝所有參加者的積極參與和寶貴提問，使這次講座取得圓滿成功。 期待在不久的將來舉辦更多講座，和大家分享、交流最新的金融科技及合規見解！ We're honored to have been invited by The Association of International Accountants to co-host this seminar focused on the effective maintenance of Money Service Operator (MSO) licenses through understanding customs guidelines, enforcement and internal audits. We’d like to extend our heartfelt gratitude to all participants for their active engagement and thoughtful questions, altogether making this seminar a pounding success. Stay tuned for future events where we continue to explore and share insights on compliance and business sustainability.