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The topics discussed in this monthly newsletter for insurance are as follows: ComplianceOne Insurance Newsletter – Feb 2025 The topics discussed in this monthly newsletter are as follows: IA to Facilitate the Caps on Commission Rates Hong Kong to License Mainland Insurers for Greater Bay Area Retirement Plans Targeting Middle-Income Residents ICAC investigates puppet insurance agent case involving HK$52 million IA News Updates 1. IA to Facilitate the Caps on Commission Rates The Insurance Authority ( IA ) issued a Practice Note to address concerns that overly optimistic benefit illustrations for participating life insurance policies, influenced by aggressive investment assumptions, could mislead consumers. Under existing guidelines (GL16 and GL28), insurers must provide transparent, non-misleading projections of policy returns, balancing guaranteed and non-guaranteed benefits. The update, effective 1 July 2025 , mandates illustration rate caps of 6.0% for HKD-denominated policies and 6.5% for other currencies on projected surrender values (Customers’ IRR) to curb unrealistic expectations. These caps apply to Customers' IRR on projected surrender values across all payment modes, policy terms, and scenarios (base, optimistic, pessimistic). Illustration rate caps 6.0% for products denominated in Hong Kong Dollar (HKD). 6.5% for products denominated in other currencies. If the underlying IRR is below the cap, insurers must use the actual IRR (per best estimates under GL28). Caps do not limit underlying investment assumptions but guide illustration realism. Exemption: Caps do not apply to re-illustrations of in-force policies, but re-illustrations must not be used for aggressive sales tactics. SIGNIFICANCE: This Practice Note reflects a proactive regulatory stance to balance innovation, competition, and consumer trust in Hong Kong’s insurance sector. Insurers should begin preparing now to ensure compliance by July 2025. And the Consumers benefit from clearer, more reliable projections, fostering informed decisions and aligning with the principle of "treating customers fairly." 2. Hong Kong to License Mainland Insurers for Greater Bay Area Retirement Plans Targeting Middle-Income Residents The Insurance Authority ( IA ) plans to introduce new service providers, primarily large mainland Chinese insurers, to offer integrated retirement and elderly care insurance products targeting middle-class residents seeking to retire in the Greater Bay Area (GBA). This initiative, led by Mr Marty Lui Yu-kwok, the IA’s Executive Director for Long-term Business, aims to address growing demand from Hong Kong residents for northbound retirement options, driven by trends in cross-border consumption and aging populations. The proposed insurance products would provide one-stop solutions covering accommodation, healthcare, and other elderly care services in mainland China. These providers, which currently lack Hong Kong licenses, are expected to bring specialized expertise and value to the local market. The IA aims to issue licenses by the end of 2024, with product launches following shortly after. The target demographic includes middle-income earners with monthly salaries between HK$30,000-50,000, reflecting demand for affordable, high-quality retirement options in the GBA. This move aligns with broader regional integration efforts and responds to challenges posed by Hong Kong’s aging population and high local elderly care costs. The IA emphasizes collaboration with mainland regulators to ensure compliance and consumer protection. Market News 3. ICAC investigates puppet insurance agent case involving HK$52 million The Independent Commission Against Corruption (“ ICAC ”) investigated a corruption complaint involving "puppet insurance agents," leading to the conviction of a former insurance branch manager and 10 puppet agents for conspiracy to defraud and money laundering. Case Details: Between 2016 and 2020, the former branch manager of an insurance company recruited individuals to act as puppet insurance agents for two insurance companies. The insurance companies approved these 478 policy applications and paid commissions, bonuses, and allowances totaling over 52 million HKD to the defendants—exceeding 22 million HKD from one company and 29 million HKD from the other. Related insurance policies were high-commission products, and the majority lapsed due to non-payment of premiums. On 11 February 2025, the District Court sentenced the former branch manager to 46 months’ imprisonment. The 10 puppet agents received prison terms ranging from 11 to 22 months. SIGNIFICANCE: The convictions demonstrate the serious legal consequences for individuals involved in fraudulent activities within the insurance industry. The prison sentences imposed reflect the severity of the offenses and serve as a warning to others against engaging in similar misconduct. [End of ComplianceOne Insurance Newsletter –February 2025] 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

香港特別行政區政府在2025年6月建議採取一系列措施加強規管持牌放債人 (“放債人”) ，加大力度處理過度借貸的問題 。The Government of the Hong Kong Special Administrative Region (“HKSAR”) proposes a series of measures in June 2025 to strengthen regulation of licensed money lenders ("money lenders"), aiming to address the problem of excessive borrowing. 有關加強規管持牌放債人的公眾諮詢 [June 2025] 香港特別行政區政府在2025年6月建議採取一系列措施加強規管持牌放債人 (“ 放債人 ”) ，加大力度處理過度借貸的問題 。 I. 背景及現狀: 1) 規管框架 i. 放債人受《放債人條例》（第163章）規管，需持牌經營，並遵守利率上限、及廣告規範等要求。 ii. 監管分工：牌照法庭（發牌及附加條件）、公司註冊處（處理申請、監察合規）、警方（執法）。 2) 市場問題 i. 過度借貸：低收入群體（尤其外傭）問題突出。 月入≤1萬港元的借款人占無抵押貸款宗數29%，壞賬率9.4%（高於整體7%）。 外傭貸款宗數占比26%，壞賬率9.9%（全職業最高） ii. 滋擾問題：外傭借貸後失蹤，導致雇主被追債騷擾。 II. 擬議加強規管措施: 1) 無抵押個人貸款新限制 方案A：累計貸款額上限 針對低收入借款人的無抵押貸款總額設定嚴格限制： 月收入≤5,000港元者 ，累計未償還貸款總額不得超過其1個月收入。 月收入介於5,001至10,000港元者 ，累計未償還貸款總額上限為2個月收入。 注：若借款人無固定收入，放債人須按其過去12個月平均收入計算月收入基準。 方案B：還款占入息比率上限 通過控制月還款額占收入比例防範過度負債： 月收入≤5,000港元者 ，所有無抵押貸款月還款總額不得超過其月收入的35%。 月收入介於5,001至10,000港元者 ，月還款總額上限為月收入的40%。 注："還款"指借款人需向放債人償還的所有無抵押貸款月供總和；浮動收入者同樣適用12個月平均收入計算。 2) 諮詢人制度優化 i. 防騷擾措施：放債人須主動發信向諮詢人核實同意書真偽，或要求諮詢人親臨簽署。 ii. 或考慮禁止要求借款人提供貸款諮詢人。 3) 強制加入"信資通"信貸資料庫 i. 目標：提升借款人信用評估準確性。 ii. 要求： 所有放債人須定期向"信資通"提供借款人信貸資料（包括: 貸款詳情、還款紀錄等）。 業務量達標者（如年無抵押貸款總額≥1億港元，約50家）：批貸前須使用"信資通"報告評估還款能力。 4) 優化投訴處理 i. 公司註冊處將增加投訴處理透明度，強化與警方協作。 ii. 定期收集並分析放債人投訴資料，監察高投訴率放債人的整改措施。 5) 宣傳教育 i. 針對外傭、青年及低收入群體，推廣審慎借貸（如外傭不得擅用雇主資料）。 ii. 加強雇主投訴管道宣傳。 6) 制度改革 i. 發權機制集中化：建議由公司註冊處統一負責放債人發牌及監管（取代牌照法庭）。 ii. 增加透明度：政府網站公佈屢次違規放債人名單。 iii. 修法計畫：擬修訂《放債人條例》落實上述措施。 III. 徵詢與下一步: 公眾可以於2025年8月22日前通過電郵（money-lenders-consult@fstb.gov.hk）或郵寄提交意見。政府將分析回饋後敲定最終方案。 IV. 資料參考: 有關加強規管持牌放債人的公眾諮詢 (香港特別行政區政府 - 財經事務及庫務局 ) 中文版: https://www.fstb.gov.hk/fsb/tc/publication/consult/doc/ConsultationPaperMoneyLenders-c.pdf 英文版: https://www.fstb.gov.hk/fsb/en/publication/consult/doc/ConsultationPaperMoneyLenders-e.pdf Summary on Public Consultation on Enhancing Regulation of Licensed Money Lenders [June 2025] The Government of the Hong Kong Special Administrative Region (“ HKSAR ”) proposes a series of measures in June 2025 to strengthen regulation of licensed money lenders (" money lenders "), aiming to address the problem of excessive borrowing. I. Background and Current Situation 1) Regulatory Framework i. Money lenders are regulated under the Money Lenders Ordinance (Cap. 163), requiring a licence to operate. Key rules include: Interest rate caps, and advertising standards. ii. Regulatory roles: the Licensing Court issues licences and imposes conditions, the Companies Registry (“ CR” ): Processes applications/monitors compliance, and the Police enforces the law (e.g., unlicensed lending, excessive interest). 2) Market Issues i. Excessive borrowing among low-income groups (especially foreign domestic helpers (" FDHs ")) Borrowers with ≤HK$10,000 monthly income: 29% of unsecured loans; default rate: 9.4% (vs. 7.0% overall). FDHs: 26% of unsecured loans; highest default rate: 9.9%. ii. Harassment: Employers of FDHs chased by debt collectors after borrowers disappear. II. Proposed Enhanced Regulatory Measures 1) New Restrictions on Unsecured Personal Loans Scheme A: Cumulative Loan Cap: Strict limits on total outstanding unsecured loans for low-income borrowers: Monthly income ≤HK$5,000: Total loans ≤1 month’s income. Monthly income HK$5,001–10,000: Total loans ≤2 months’ income. Note: For non-fixed income borrowers, use 12-month average income. Scheme B: Debt Servicing Ratio Cap: Limit monthly repayments as a percentage of income: Monthly income ≤HK$5,000: Repayments ≤35% of income. Monthly income HK$5,001–10,000: Repayments ≤40% of income. Note: Applies to total repayments for all unsecured loans; non-fixed income calculated as above. 2) Optimisation of Referee System i. Anti-harassment measures: Money lenders must verify referees’ consent by post or require in-person signing. ii. Alternative: Prohibit requiring referees for loan applications. 3) Mandatory Participation in Credit Data Smart (“CDS”) i. Goal: Improve credit assessment accuracy. ii. Requirements: All money lenders must regularly submit borrower data (e.g., loan details, repayments) to CDS. iii. Large lenders (e.g., ≥HK$100M annual unsecured loans, ~50 firms) must use CDS reports for affordability assessments pre-approval. 4) Enhanced Complaint Handling i. CR will increase transparency in complaint procedures and strengthen collaboration with Police, ii. Monitor lenders with high complaint rates. 5) Publicity and Education i. Target FDHs, youth, and low-income groups on prudent borrowing (e.g., FDHs must not misuse employer data). ii. Promote employer complaint channels. 6) Regime Reforms i. Centralise licensing: Propose transferring licence issuance/supervision from Licensing Court to CR. ii. Increase transparency: Publish names of repeat offenders on government website. iii. Legislative amendments: Revise the Money Lenders Ordinance to implement measures. III. Consultation and Next Steps The Public can submit the comment on or before 22 August 2025 via email: ` money-lenders-consult@fstb.gov.hk , or post: Division 6, Financial Services Branch, FSTB, 15/F, Queensway Government Offices, 66 Queensway, Hong Kong. The final proposals to be determined after analyzing feedback from the Public. IV. Reference Materials Full Consultation Paper: English: https://www.fstb.gov.hk/fsb/en/publication/consult/doc/ConsultationPaperMoneyLenders-e.pdf Chinese: https://www.fstb.gov.hk/fsb/tc/publication/consult/doc/ConsultationPaperMoneyLenders-c.pdf ] 天匯合規顧問有限公司 ComplianceOne Consulting Limited 2025年6月24日

香港海關根據《打擊洗錢及恐怖分子資金籌集條例》(第615章)，對四間持牌金錢服務經營者違規行為進行了紀律處分。其中三間經營者受到公開譴責，顯示違規行為的嚴重性。 海關對四間找換店違反反洗錢條例進行紀律處分 香港海關根據《打擊洗錢及恐怖分子資金籌集條例》(第615章)，對四間持牌金錢服務經營者違規行為進行了紀律處分。其中三間經營者受到公開譴責，顯示違規行為的嚴重性。 案例一 決定日期: 2024年8月12日; 紀律處分: 公開譴責及糾正行動。 違規事項: 未就匯款交易備存相關文件記錄（包括內地銀行帳戶匯款明細）。 未設立程序以識別客戶或實益擁有人是否為政治人物。 未在指定時間內向海關報告銀行帳戶變更詳情。 案例二 決定日期: 2024年8月12日; 紀律處分: 公開譴責及糾正行動。 違規事項: 未備存六宗匯款交易的文件記錄（包括客戶盡職審查篩查文件）。 進行匯款交易前，未識別及核實匯款人及實益擁有人身份。 進行匯款交易前，未識別代表客戶行事的人的身份及授權。 案例三 決定日期: 2024年8月12日; 紀律處分: 公開譴責及糾正行動。 違規事項: 未在與客戶建立業務關係前執行客戶盡職審查措施。 進行匯款交易前，未記錄收款人地址及指示時間。 未在指定時間內向海關報告營業處所的停業日期。 案例四 決定日期: 2024年8月12日; 紀律處分: 糾正行動。 違規事項: 未在指定時間內向海關報告提供金錢服務的銀行帳戶變更詳情。 海關執法行動焦點 這四間店鋪中，有三間的違規行為與 客戶盡職審查 和 文件備存 有關。這些行動強調了客戶盡職審查和文件備存在反洗錢合規中的重要性。 根據香港海關執行反洗錢和打擊恐怖融資的紀錄，從2014年到2024年，大部分的執法行動涉及 客戶盡職審查 和 文件備存 的規定。這些規定包括： 第5條: 就客戶作盡職審查及備存紀錄： 這是指金錢服務經營者在與客戶建立業務關係前，必須進行客戶盡職審查，並保存所有與交易有關的文件記錄。 附表2: 就客戶作盡職審查及備存紀錄： 這是對上述規定的具體應用，強調在進行交易前，必須確保客戶的身份和交易活動的合法性。 總計 2024年 2023年 2022年 2021年 2014-2020年 第5條: 就客戶作盡職審查及備存紀錄 23 0 2 1 6 14 第29條: 經營金錢服務的限制 21 0 0 0 2 19 第35條: 擬任持牌人董事需獲關長批准 1 0 1 0 0 0 第37條: 擬成為持牌人合夥人的人需獲關長批准 2 0 2 0 0 0 第38條: 加入新的營業處所 2 0 0 2 0 0 第40條: 持牌人有責任向關長具報詳情改變 19 3 7 8 0 1 第41條: 持牌人有責任向關長具報停業 3 0 1 2 0 0 附表2: 就客戶作盡職審查及備存紀錄 10 0 2 2 2 4 資訊來源 ComplianceOne - 香港海關對金錢服務經營者的執法和刑事調查案件資訊： https://eservices.customs.gov.hk/MSOS/common/enforcenew 客戶盡職審查 指在與客戶建立業務關係前，金錢服務經營者需要採取措施來識別和核實客戶及其實益擁有人的身份，並確保他們不涉及任何非法活動。這包括檢查客戶的身份證明文件、收集相關信息，並在必要時進一步核實。 文件備存 則要求金錢服務經營者保存所有與交易有關的文件記錄至少五年，以確保在監管機構要求時可以提供完整的交易記錄。這不僅有助於防止洗錢活動，還能提高業務透明度，保護金錢服務經營者免受潛在的法律風險。 這些行動展示了海關對維護金融系統完整性及嚴格執行反洗錢法規的承諾。公開譴責提醒所有金錢服務經營者，遵守反洗錢要求的重要性。金錢服務經營者應審查其反洗錢政策及程序，以確保符合要求，避免面臨類似處分。 立即試用「東查查反洗錢/ 客戶管理系統」

The topics discussed in this monthly newsletter for insurance are as follows: ComplianceOne Insurance Newsletter – November 2025 The topics discussed in this monthly newsletter are as follows: REGULATORY UPDATES IA Issues Circular on Reference Checking Schemes for Licensed Insurance Intermediaries ENFORCEMENT NEWS IA Imposes Restrictive License Conditions on Mighty Divine Insurance Brokers Limited Associated with Prince Group (太子集團) ICAC Secures Jail Sentences for Last Batch of Defendants in $52 Million Dummy Agents Commissions Fraud ICAC Issues Arrest Warrants for Two Individuals Implicated in $3 Million Insurance Commissions Fraud Regulatory News 1. IA Issues Circular on Reference Checking Schemes for Licensed Insurance Intermediaries On 20 November 2025, IA Issues further Circular on the Reference Checking Scheme (the “ Scheme ”) for Licensed Insurance Intermediaries. Addressing the “rolling bad apples” phenomenon “One bad apple spoils the whole barrel” so the old adage goes. In the context of the Scheme, the phenomenon of “rolling bad apples” refer to licensed individuals attempt to evade the consequences of past misconduct by moving principals without proper disclosure. To address the issue of “rolling bad apples”, the Scheme was launched by the Hong Kong Federation of Insurers (“ HKFI ”) by its circular dated 5 July 2025 to be used by its members which are authorized insurers carrying on long-term business from 1 September 2024 onwards. The IA then issued the Circular on 5 July 2024 to endorse and support the Scheme. The Scheme then expanded in Phase 2, jointly launched by the HKFI, the Hong Kong Confederation of Insurance Brokers (“ CIB ”) and Professional Insurance Brokers Association (“ PIBA ”), covers all licensed long-term individual intermediaries to protect policyholders, maintain market confidence, and prevent misconduct from spreading. Effective Date With effect from 1 January 2026 , the Scheme will be expanded to cover all appointment of all individuals licensed intermediaries carrying on long term insurance business. Non-compliance may lead to supervisory scrutiny or disciplinary action by the IA. Scope and Application Applies to appointments of prospective intermediaries (the “ Candidates ”), including: licensed individual insurance agents; technical representatives (agent); or technical representatives (broker) (collective as “ TRs ”); for regulated activities in long-term business . As a Recruiting Principal, conduct reference checks on candidates with past 7 years of relevant experience. Check only the THREE most recent appointments if multiple. Excludes agencies that are authorized institutions under Banking Ordinance (potential integration with banking scheme ongoing). Summary of the Scheme Making a Reference Checking Request (as Recruiting Principal) Before appointing for long term activities, conduct reference checks on THREE most recent appointments within Past 7 years. · Use Annex 1A template to request info from responding principals. · Obtain written consent from candidates via Annex 2A form , authorizing checks, disclosure, and exempting contractual limits. If candidates refuse to provide consent or withdrawn the provided consent, should NOT appoint. For group companies, one entity can conduct checks for reliance, but each remains accountable with access to results. Responding to a Reference Checking Request (as Responding Principal) Upon received the Reference Checking Request from Recruiting Principal: · Complete and return info within 15 days; · If delayed, send interim reply with reason and expected final (max 2 months , exceptional only, approved by * KPIM/RO or delegate). *KPIM - key person in control function for intermediary management; RO - Responsible Officer. After submitting the first round of reference checking requests, respond to any further clarification requests within 15 days, if applicable. Recruiting Principal may assume that no further clarification to be provided by Responding Principal. Assessment by the Recruiting Principal (as Recruiting Principal) Discretion in Decisions : Recruiting principal has full discretion to appoint based on all info, including references. Evaluate adverse info considering nature, timing, explanations, and recurrence risk. Responding principals may voluntarily add material facts. Opportunity to Be Heard : For fairness, provide candidates chance for representations if adverse info may block appointment; share reference copy. No need to reopen investigations or seek more from responders. Proceeding with Adverse Records : Document assessment and justification for appointing despite issues; endorsed by KPIM/RO. Ongoing Assessment : If Responding Principal declare further information to provide, the reference process may consider complete once the Recruiting Principal assesses available information and decides on appointment ( must document the justification with KPIM/RO endorsement ). Pre-Appointment & Post-Appointment (as Recruiting Principal) Pre-Appointment If the Recruiting Principal decides to appoint despite adverse records from reference checks, they must document the assessment and justification, which requires endorsement by KPIM/RO. Post-Appointment If additional information arrives after appointment, the Recruiting Principal has full discretion to use it for ongoing evaluation, including potential actions like terminate the appointed candidate. Records and Communications (All Principals engaging Long-term business) Record Keeping For Insurance Broker Company engaging Long-Term Business: · Maintain records of resigned TRs for at least 7 years (or per internal policy, not longer than necessary under PDPO). · For unsuccessful application, retain max 2 years unless reason or consent. IIC Centralized Contact Database IA will maintain centralized contact database contain all participating principals via IA’s e-portal - Insurance Intermediaries Connect (“ IIC ”). As a safeguard, responding principals are not required to reply to reference check requests unless sent from the valid designated email address recorded in the contact database. Reference Checking Schemes Materials The Circular attached with relevant materials including: I. Main Paper – Details of the Schemes and Procedures II. Annex 1A – Template III. Annex 2A – Consent Form IV. FAQ for Licensed Entities V. FAQ for Licensed Individuals Attachment: Reference Checking Schemes Materials 附件: 保險中介人背景查核計劃資料 SIGNIFICANCE: This Scheme reinforces the IA's commitment to maintaining high standards of conduct and integrity in Hong Kong's insurance sector by preventing the recirculation of unfit intermediaries. By mandating structured reference checks, it enhances policyholder protection, reduces risks of misconduct, and promotes a more transparent and accountable industry. Insurers and intermediaries should review their hiring processes promptly to ensure compliance, as this could mitigate potential regulatory risks and foster greater trust in the market. Enforcement News 2. IA Imposes Restrictive License Conditions on Mighty Divine Insurance Brokers Limited Associated with Prince Group (太子集團) The Prince Group (太子集團) founded by Chen Zhi (陳志), has been implicated in operating telecom fraud parks in Cambodia, with Chen Zhi facing US prosecution and sanctions, including the freezing of approximately HK$120 billion in Bitcoin assets. On 28 October 2025, IA Imposes Restrictive License Conditions on Mighty Divine Insurance Brokers Limited (“ Mighty Divine ”) - Associate Company with Prince Group. The conditions prohibit the company from conducting, or representing itself as conducting, any regulated activities as defined under the Insurance Ordinance (Cap. 41) . Details of the Licensed Corporate: Name (EN) Mighty Divine Insurance Brokers Limited Name (CN) 美迪保險經紀有限公司 Licence No. FB1329 License Type Insurance Broker Company Line(s) of Business General & Long Term Business (excluding Linked Long Term Business) Business Address FLAT/RM 803, 8/F, 68 KIMBERLEY ROAD, TSIM SHA TSUI, KL Responsible Officer(s) Nill (as of 28 Oct 2025) For more details, please refer to Register of Licensed Insurance Intermediaries Conditions of the License 1) The licensee is restricted from carrying on, or holding out to carry on, any regulated activities under the Insurance Ordinance (Cap. 41) (“IO”); 2) Without prejudice to the generality of condition (1) above, and subject to condition (3) below, the licensee shall not receive, hold, or deal with any monies as specified in section 71(2) of the IO (i.e. (a) monies received by the company from or on behalf of a policy holder or potential policy holder for or on account of an insurer in connection with a contract of insurance; and (b) monies received by the company from or on behalf of an insurer for or on account of a policy holder or potential policy holder.) (“Client Monies”); and 3) The licensee may be involved in arranging the transfer, remittance or payment of, or otherwise deal with, Client Monies in accordance with the requirements under the IO and the Insurance (Financial and Other Requirements for Licensed Insurance Broker Companies) Rules (Cap. 41L), provided that (i) it acts in compliance with all applicable laws and regulatory requirements; and (ii) it has obtained the prior written consent of the Insurance Authority. 3. ICAC Secures Jail Sentences for Last Batch of Defendants in $52 Million Dummy Agents Commissions Fraud On 21 November 2025, the Hong Kong District Court sentenced the final six defendants in a major corruption case investigated by the Independent Commission Against Corruption (“ ICAC ”), involving a $52 million fraud scheme (the ” Scheme ”) orchestrated through dummy insurance agents at: FWD Life Insurance Company (Bermuda) Limited (富衛人壽保險(百慕達)有限公司) (“ FWD ”); and Sun Life Hong Kong Limited (香港永明金融有限公司) (“ Sun Life ”). Case Summary The scheme, masterminded by LO Yin-wa (“ LO ”), a former FWD branch manager who was earlier sentenced to 46 months' imprisonment, involved recruiting dummy agents who falsely represented themselves as handlers of 478 high-commission insurance policies between February 2016 and November 2020. This deception led to the release of over $52 million in commissions, incentives, bonuses, and allowances, most of which were funneled back to LO through laundered bank accounts. The majority of the policies lapsed due to non-payment of subsequent premiums. FWD and Sun Life provided full cooperation during the ICAC investigation, which stemmed from a corruption complaint. Enforcement Act and Court Order The last six defendants, aged 25 to 39 and acting as purported insurance agents were convicted or pleaded guilty to charges of conspiracy to defraud and conspiracy to deal with property known or believed to represent proceeds of an indictable offense, with sentences ranged from 12 to 21 months' imprisonment. i. LEUNG Tsz-wing (梁紫穎) ii. MO Wing-han (毛詠嫻) iii. WOO Kin-leung (胡健良) Entered Guilty Pleas iv. LO Nga-wing (羅雅穎) v. NGAN Tsz-ting (顏梓定) vi. KONG Tsz-ying (江梓瑩) Convicted After Trial A total of 17 defendants faced 20 charges in the case, with 10 other dummy agents previously sentenced to terms ranging from 11 to 22 months. SIGNIFICANCE: The ICAC continues to prioritize integrity in the insurance sector, offering training and resources like the Corruption Prevention Guide for Insurance Companies to mitigate such risks. The judge also reprimanded the defendants for breaching professional conduct standards, noting they were lured into the offenses by the main culprit. This case highlights the severe consequences of integrity breaches in the insurance industry, emphasizing the need for robust internal controls, agent verification processes, and anti-fraud measures to prevent dummy agent schemes that erode public trust and cause financial harm. 4. ICAC Issues Arrest Warrants for Two Individuals Implicated in $3 Million Insurance Commissions Fraud The ICAC has issued arrest warrants for NG Ho-lun (吳浩麟) (“ NG ”) and Kuzca CHIK Sin-deon, formerly known as Pan CHIK Ka-tung (戚善惇, 前稱戚加彤) (“ CHIK ”), two key figures in an alleged insurance fraud scheme that defrauded: Sun Life Hong Kong Limited (香港永明金融有限公司) (“ Sun Life ”); and China Taiping Life Insurance (Hong Kong) Company Limited (中國太平人壽保險(香港)有限公司) (“ Taiping Life ”); of approximately $3 million in commissions, bonuses, and allowances through bogus policies and false representations. Case Summary The case, which involves recruiting family members, friends, and police officers as dummy agents and policyholders, stems from corruption allegations and has led to charges against eight individuals total, with six already charged and appearing in court. On 6 November 2025, the case against the six charged defendants were transferred from the Eastern Magistrates’ Courts to the District Court for plea on 27 November 2025. The defendants face 21 charges. See below table for the Six Charged Defendants Details: Role/Relationship Name Police Sergeant LAM Hin-ho (林顯豪) LAM Hin-ho’s brother LAM Chun-pong (林振邦) LAM Hin-ho’s sister-in-law YU Xiaodan (余曉丹) LAM Hin-ho’s friend LAU Chun-yee, formerly known as LAU Man-yee (劉臻頤, 前稱劉敏儀) Solicitor Osbert HUI Yee (許懿) Police Constable SZE Hong-chak (施匡澤) For more details of the case, please refer to Topic 4 of ComplianceOne Insurance Newsletter – October 2025 Details of Two Wanted Individuals Name Former Positions Role in Fraud Fraud Conducted NG Ho-lun Regional Director of Sun Life; Senior Branch Manager of Taiping Life Central role in orchestrating the fraud Recruited individuals (including LAM Hin-ho’s family, friends, and police colleagues) as dummy downline agents and policyholders; Took out 20 insurance policies, paying premiums while falsely claiming they were settled by genuine policyholders; Ensured false claims of agent interviews; Conspired with LAM Hin-ho and LAU Chun-yee to create false academic qualifications for LAU's recruitment. Kuzca CHIK Sin-deon (formerly Pan CHIK Ka-tung) Insurance Agent of Sun Life Participated in recruitment and posed as a dummy agent Contributed to false representations to insurers; Deceived insurers into believing applications were legitimate and interviews occurred, leading to fraudulent commissions. SIGNIFICANCE: This case underscores the vulnerabilities in the insurance sector to internal fraud schemes involving unlicensed or dummy intermediaries, particularly when intertwined with public servants like police officers, potentially eroding public trust in both law enforcement and financial institutions. The ICAC's proactive investigation and pursuit of fugitives highlight the importance of robust verification processes for policy applications, agent qualifications, and commission payouts to prevent such exploitation. Insurers are urged to enhance anti-fraud measures, including cross-verification of applicant interviews and premium sources, while collaborating with regulators to maintain industry integrity and protect policyholders from systemic risks. [End of ComplianceOne Insurance Newsletter – November2025] For more details, please click on the title of the topic above. ================================= ~ Make It Right Today, Better Tomorrow ~ ================================= The Newsletter is for general information purpose only and is not intended to constitute legal or other professional advice. For enquiries, please email to support@complianceone.hk or WhatsApp us at (852) 95164607 . Unit 1605, 16/F, West Tower, Shun Tak Centre,168-200 Connaught Road Central, Sheung Wan, Hong Kong Tel: (852) 39550277 www.complianceone.hk

香港海關於2024年1月2日成功偵破一宗涉及未註冊鑽石交易的案件，並拘捕了涉案公司的一名董事。On 2 January 2024, Hong Kong Customs and Excise Department (the “Customs”) successfully uncovered a case involving unregistered diamond trading and arrested the involved director. 香港海關偵破未註冊鑽石交易案件 一名公司董事被捕 香港海關於2024年1月2日成功偵破一宗涉及未註冊鑽石交易的案件，並拘捕了涉案公司的一名董事。該公司未經註冊進行多宗金額逾12萬港元的鑽石交易，這不僅違反了香港的法律規定，也暴露出一些貴金屬及寶石業務經營者對監管規範的忽視。 根據香港海關的報告，該公司在沒有依照《打擊洗錢及恐怖分子資金籌集條例》所要求的註冊情況下，進行了數宗總額超過12萬港元的鑽石交易。所有在香港從事貴金屬及寶石交易的商業活動，如果涉及12萬港元或以上的交易金額（無論是現金還是非現金支付），均需向海關註冊。 涉及的董事被捕後，已獲准保釋，但案件仍在進一步調查中。海關強調，任何未註冊的貴金屬及寶石交易商，無論其業務規模大小，都不應忽視這一法律要求。根據法律規定，未註冊進行大額交易者將面臨最高10萬元港幣罰款及最多6個月監禁的處罰。 海關提醒所有貴金屬及寶石交易商，註冊過渡期已經結束，所有業務必須在獲得註冊後才能進行金額為12萬港元或以上的交易。如果您不確定是否需要註冊或如何進行註冊，建議儘早聯繫專業的合規顧問，避免因違法交易而承擔高額罰款和刑事責任。 《貴金屬及寶石交易商監管制度》簡介 所有涉及貴金屬和寶石業務的公司和個人，必須遵守香港特區政府於2023年4月1日實施的新規範，即《貴金屬及寶石交易商監管制度》。該制度要求所有在香港經營貴金屬及寶石交易，並進行12萬港元以上交易的商家必須註冊，並接受海關的監管。 註冊類別 交易方式 A類註冊人 非現金交易 B類註冊人 現金交易及非現金交易 ** 更多關於貴金屬及寶石交易商註冊的資訊，請參考 天匯合規網站 上的詳細指引 ** 根據《打擊洗錢及恐怖分子資金籌集條例》（第615章）的要求，未經註冊的交易不僅涉及法律風險，還可能引發洗錢和恐怖分子資金籌集等金融犯罪問題。所有貴金屬及寶石交易商在進行大額交易前，必須先向香港海關註冊，以確保合規經營。 為什麼需要監管？ 貴金屬和寶石，尤其是鑽石、金、銀等高價值商品，往往成為洗錢、資金籌集和其他非法活動的工具。由於這些交易通常金額巨大且難以追蹤，若缺乏有效的監管，將容易成為金融犯罪的溫床。這一註冊制度旨在提高對貴金屬和寶石交易的監管透明度，確保該行業避免用作洗錢、資金籌集等非法活動的渠道。 如您有任何疑問，或需要協助完成註冊過程，請隨時 聯繫我們 。我們提供專業的合規顧問服務，幫助您輕鬆應對監管要求。 此外，參加 天匯合規網上持續培訓平台 – Thinkific 提供的貴金屬及寶石交易商（”DPMS”）線上培訓課程，了解更多貴金屬及寶石業務經營的合規知識。 The Customs Reveal another Unregistered Diamond Trading Case On 2 January 2024, Hong Kong Customs and Excise Department (the “Customs”) successfully uncovered a case involving unregistered diamond trading and arrested the involved director. The company had conducted multiple transactions exceeding HK$120,000 in diamond sales without the required registration, violating Hong Kong’s legal regulations and highlighting the negligence of some precious metals and gemstone traders regarding the regulatory framework. According to the Customs, the company carried out several transactions exceeding HK$120,000 in total, without registering as required by the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (“AMLO”) (Cap. 615). All businesses engaging in precious metals and gemstone transactions in Hong Kong involving amounts of HK$120,000 or more (whether in cash or non-cash payments) are required to register with the Customs. The arrested director has been released on bail; investigation still ongoing. The Customs emphasized that all precious metals and gemstone traders, regardless of the size of their business, must comply with Dealers in Precious Metals and Stones (“DPMS”) Regulatory Regime. Violate the registration rule can result in fines of up to HK$100,000 and a maximum of 6 months' imprisonment. The Customs urges all precious metals and gemstone traders that the grace period for registration has ended, and must register before engaging in transactions of HK$120,000 or more. If you are unsure whether you need to register or how to register, it is advisable to contact a professional compliance advisor to avoid any legal breaches. Dealers in Precious Metals and Stones (“DPMS”) Regulatory Regime All entities and individuals involved in the precious metals and gemstones business must comply with the new regulations under the DPMS implemented by the Hong Kong SAR government on 1 April 2023. The system requires businesses engaging in precious metals and gemstones transactions of HK$120,000 or more to register and be monitored by the Customs. Registration Categories Registration Categories Category A Non-cash transactions Category B Cash and non-cash transactions For more information about registering as a precious metals and gemstones trader, please refer to the detailed guidelines on the ComplianceOne website. In accordance with the AMLO, unregistered transactions not only carry legal risks but may also trigger money laundering and terrorist financing concerns. All traders must register with the Customs before engaging in large transactions to ensure compliance. Why Is Regulation Needed for DPMS? Precious metals and gemstones, especially diamonds, gold, and silver, are often used for money laundering, fundraising for terrorism, and other illicit activities. These transactions typically involve large sums of money and untraceable. Without regulation, they can become a breeding ground for financial crimes. The DPMS regulatory regime aims to increase transparency in the precious metals and gemstones market and ensure that the industry is not used for money laundering, terrorist financing, or any other illegal activities. If you have any questions or need assistance with the registration process, please feel free to Contact Us . We provide professional compliance advisory services to help you meet legal requirements smoothly. For more compliance knowledge, join the DPMS online training course on ComplianceOne Onling Training Platform - Thinkific .

ComplianceOne Newsletter – April 2022The topics discussed in this monthly newsletter are as follows:1 JPMorgan ComplianceOne Newsletter – April 2022 ComplianceOne Newsletter – April 2022 The topics discussed in this monthly newsletter are as follows: 1. JPMorgan Chase Loses Lead Role in IPO because of its negative view of the technology sector. 2. MaiCapital becomes the first licensed asset managers to obtain SFC approval to manage its portfolio of up to 100% in virtual assets 3. Commencement of End-To-End (E2E) Test for HKIDR 4. SFC proposes changes to the Position Limit Regime 5. SFC bans Poon Choi Yung for 20 months for Unauthorized Trading MARKET NEWS 1. JPMorgan Chase Loses Lead Role on Kingsoft Cloud IPO J P Morgan Chase was removed as the most senior underwriter for Kingsoft Cloud Holdings' HK stock IPO after its analysts downgraded the ratings on 28 tech companies including Kingsoft Cloud in April., calling the China internet sector as "uninvestable " in the near term on worries about strict Covid Zero policies and a government crackdown on tech companies. In a statement, Kingsoft Cloud said it could not comment on anything related to the proposed listing, and expressed that the company highly respected “research independence". Significance: Despite the demotion could cut fees for JP Morgan, it underscores the tricky path banks must sometimes navigate when their research departments issue downbeat calls on investment-banking clients. It demonstrated to the public how research analysts at global banks are supposed to operate independently of the firms' investment bankers in order to provide to the public a different perspective for consideration. 2. MaiCapital obtains SFC approval to manage its portfolio of up to 100% in virtual assets Blockchain and virtual assets manager MaiCapital has gained approval from the Hong Kong SFC to manage portfolios that may comprise up to 100% of virtual assets ; provided that MaiCapital is subject to the SFC’s “Proforma Terms and Conditions for Licensed Corporations which Manage Portfolios that Invest in Virtual Assets” . Concurrently, Wealthking Investment ( 01140.HK ), a traditional investor, has become a new shareholder of the MaiCapital group. MaiCapital intends to further expand its offering of virtual asset fund products and regulated crypto services to investors worldwide and to grow its institutional business to a combined AUM of over USD$200m. MaiCapital currently partners with regulated exchanges and service providers like Coinbase and OSL. Significance: It conveys the message to the market practitioners how the SFC takes a pragmatic view in regulating the virtual assets regime on conditions that the Licensed Corporations can demonstrate to the regulators that they are capable of delivering complex products to the investors in accordance with rules and standards in line with expectation of the regulators. 3. Commencement of End-To-End (E2E) Test for the Hong Kong Investor Identification Regime (“HKIDR”) in May 2022 The E2E Test for systems relating to the HKIDR will commence from 16 May 2022 until 15 July 2022 . It is mandatory for all Relevant Regulated Intermediaries1 (“ RRIs ”) to participate in the E2E Test. A RRI refers to a licensed corporation which (i) carries our proprietary trading; or (ii) provides securities brokerage services for another person in respect of orders placed through an account maintained for that person. A RRI can be an EP or non-EP. There will be three rounds of test account registration/update, an RRI must complete its registration/update in any one of the three rounds depending on their readiness in order to participate in the mandatory E2E Test. To facilitate the E2E Test, SEHK has also published the templates of the five Reporting Forms for RRI’s reference and they are available on HKEX’s HKIDR web corner . RRI should also ensure that their ECP logins for E2E Test are ready for submission purpose in the rehearsal. 4. SFC proposes changes to the Position Limit Regime The SFC launched a consultation in April 2022 on proposed changes to the position limit regime for listed futures and options contracts, and the public is invited to submit their comments by 27 June 2022 . A key proposal is to set out how the statutory prescribed limits and reporting requirements should be applied to unit trusts and sub-funds under an umbrella fund . Other proposed changes involve reportable positions in contracts traded on holiday trading days and the inclusion of a broader range of contracts which may be authorized by the SFC for excess positions. “ The position limit regime is essential to prevent the build-up of positions which may threaten the stability of the Hong Kong financial market, ” said Mr. Ashley Alder, the SFC’s Chief Executive Officer. “ The proposed changes will address the needs of the market and better align the regime with the SFC’s regulatory policies and objectives. ” Significance: It seems coincident with the introduction of BCAN which further enhances the transparency of open positions held by the dominant market participants, and it extends to the unit trust regimes as well. Furthermore, position limit is merely one of factor affecting stability of the markets, bear in mind other parameters like the number of participants, market price spreads, market depths which materially affect the liquidity and thus stability of the markets. ENFORCEMENT NEWS 5. SFC bans Poon Choi Yung for 20 months for Unauthorized Trading The SFC has banned Mr. Poon Choi Yung, a former licensed representative of China Tonghai Securities Limited, from re-entering the industry for 20 months from 12 April 2022 to 11 December 2023 for breaches of the SFC’s Code of Conduct. An SFC investigation which found that between June 2019 and March 2020, Poon effected 1,002 transactions in six clients’ accounts without the clients’ specific authorisations for the trades and/or their written authorisations for him to effect the trades on a discretionary basis. The SFC considers that Poon has also failed to act with due skill, care and diligence, and in the best interests of the clients when carrying on business activities. 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 for Licensed Corporations are as follows: ComplianceOne Newsletter – November 2025 The topics discussed in this monthly newsletter are as follows: Regulatory Updates SFC urges licensed firms to detect and prevent potential layering activities in money laundering SFC issues new guidance for licensed virtual asset trading platform to tap global liquidity and diversify offerings SFC consults on the Chinese version of financial resources rule enhancements Market News SFC unveils enhancement to facilitate client interaction under Cross-boundary Wealth Management Connect SFC further streamlines measures for authorized EU-regulated retail funds to implement changes efficiently Enforcement News - Intermediary SFC Reprimands and Fines Tung Tai $900,000 for Failures to Safeguard Client Assets SFC Secures First Custodial Sentence Against Finfluencer for Provision of Paid Investment Advice on Social Media Chat Group Without Licence SFC Bans Cheung Ngai Yi for Life Following Criminal Conviction for Theft of Client Assets SFC Commences Prosecution in Securities Fraud Case Involving Illegal Short Selling SFC suspended Two Licensed Companies Linked to Prince Group (太子集團) Enforcement News - LISTCO Director of Hong Kong-based LISCO FSM Holdings (01721.HK) resigns amid Cambodian crime allegations Linked to the Prince Group (太子集團) SFC Seeks Court Orders to Disqualify Former Directors of China Longevity (1864.HK) for Financial Misstatements and Disclosure Failures Regulatory Updates 1. SFC urges licensed firms to detect and prevent potential layering activities in money laundering The SFC issued a circular [1] in NOV 2025 to urge the licensed corporations and virtual asset trading platforms (the “Licensed Firms”) to stay vigilant against suspicious fund flows showing signs of layering activities in money laundering. It is found that bad actors were exploiting Licensed Firms for layering activities by obscuring the sources and destination of their illicit proceeds. The SFC pointed out that: (i) a common red flag of layering is always with frequent and swift fund deposits in the client accounts, then followed by immediate withdrawals; (ii) Licensed Firms should have robust standards to detect and prevent layering activities. What have been/to be done so far? The SFC collaborated with the HK Police Force and the Joint Financial Intelligence Unit to address the risk of increasing exploitation of Licensed Firms; The SFC hosted webinar to provide Licensed Firms with updates on supervisory observations and regulatory responses in securities and virtual assets markets; Licensed Firms agreed to facilitate the Anti-Deception Coordination Centre ‘s (“ADCC”) 24/7 stop payment mechanism to expedite the interception of crime proceeds and recovery of the funds; Senior management of Licensed Firms should be acquainted with the importance to safeguard the integrity of their operations and the financial system in HK. [1] For implementation details of detection and prevention of layering activities, please refer to the Circular. SIGNIFICANCE: As Dr Eric Yip, the SFC’ s Executive Director of Intermediaries, said, “ Watchfulness is key to detecting layering activities, which could have been prevented through effective and robust AML/CFT controls. ” The SFC further reiterated that Licensed Firms should stay alert to red flags of suspicious transactions and keep aware of the robustness and effectiveness of their internal controls to fulfil the obligation in upholding AML/CFT standards ! 2. SFC issues new guidance for licensed virtual asset trading platform to tap global liquidity and diversify offerings The SFC set out its expected standards in two new circulars [1] for SFC-licensed VATP operators (“ Platform Operators ”) to take a significant step in tapping global liquidity and broadening the range of their product and service offerings. In one circular [2] , Platform Operators are allowed to combine their orders with those affiliated overseas VATPs (“OVATP”) in a shared book to attract global platforms, order flows and liquidity providers. Under the arrangement, orders from different platforms will be permitted to be combined into an aggregate shared liquidity pool, enabling order matching and execution across platforms (“ Shared Order Book ”). And the next step by the SFC is to assess the feasibility of allowing the licensed brokers to direct client orders to regulated overseas liquidity pools within the same group. A Snapshot of the Regulatory Requirements for Shared Liquidity Book (1) Eligible OVATPs and the clients A Shared Order Book should be managed jointly by the Platform Operator and an OVATP licensed in the relevant jurisdiction for conducting its activities. A relevant jurisdiction refers to one which is a member of the FATF or has effective regulatory regime aligned with the FATF recommendations as well as the IOSCO2 Policy recommendations for Crypto and Digital Asset Markets3 with respect to market abuse and client asset protection. (2) Trading and Settlement Risk Trading Operations The Shared Order Books should be operated according to a comprehensive set of rules which cover pre-funding, order placement, trade execution, settlement and default management; Automated pre-trade verification should be implemented to confirm the pre-funding, ensuring sufficient assets available for settlement. Settlement Controls A Platform Operator should: design its operational workflow to effectively mitigate unsettled trade exposure and related operational risks; settle all trades with the OVATP at least once a day, and all client virtual assets should be held in custody by the Platform Operator’s associated entity. Compensation Arrangement A Platform Operator should: maintain a reserve fund in Hong Kong held on trust and designated for client compensation; have a compensation arrangement to cover potential loss of client virtual assets under its custody. (3) Market Misconduct Risk A Platform Operator should: implement internal policies and controls for the proper surveillance of trading activities on the trading platform; designate at least one Responsible Officer or Manager-in Charge to oversee the joint market surveillance programme, ensure compliance with the SFC’s requirements; provide Shared Order Book data to the SFC promptly on request , including all order and trade data, order originator information. (4) Approval from SFC A Platform Operator should obtain prior written approval from the SFC, and to comply with the “Terms and Conditions for operating a Shared Order Book” after being licensed. In another circular [3] , the SFC put forward some facilitating measures to the VATPs: (1) Token admission requirements the SFC allows Platform Operators to offer trading in virtual assets without a 12-month track record for professional investors and for Hong Kong Monetary Authority-licensed stablecoins. (2) Distribution of digital asset-related products and tokenized securities by VATPs In order to provide a broader range of services and products, the SFC proposes to amend the standard set of licensing conditions [4] to permit the VATPs to: (i) distribute digital asset-related products and tokenized securities in accordance with existing laws, codes, guidelines and regulations; (ii) open a trust account or client account by the VATP with the custodian of the digital asset-related product or tokenized security in the VATP’s name for holding assets on behalf of the clients. (3) Custody of tokens not traded on VATPs VATPs with intention to provide such services can apply for modification of the relevant licensing conditions. [1] The two circulars are: (1) Circular on shared liquidity by virtual asset trading platforms; (2) Circular on expansion of products and services of virtual asset trading platforms [2] Circular on shared liquidity by virtual asset trading platforms (2025.11.03) [3] Circular on expansion of products and services of virtual asset trading platforms (2025.11.03) [4] The revised licensing conditions are stated in the Appendices II and III of the Circular SIGNIFICANCE: It is a gradual realization of the ASPIRe roadmap, making a first step under Pillar A (Access) to reach out with global platforms. As Ms Julia Leung, the SFC’ s Chief Executive Officer, has said: “ Today, we take a significant step to connect with global liquidity , underscoring our commitment to striking a right balance in fostering market innovation and vitality while upholding high standards for investor protection and market integrity .” 3. SFC consults on the Chinese version of financial resources rule enhancements The SFC launched a public consultation on the Chinese version of the draft amendments to the Securities and Futures (Financial Resources) Rules (FRR). On 14 July 2025, the SFC published the English version of the draft FRR amendments for public consultation and the Chinese draft FRR amendments for public consultation was posted on 7 Nov 2025. SIGNIFICANCE: This is absolutely an unprecedented step by the SFC since the rules and guidelines in the FRR are not comprehensible to general readers particularly with the complex nature of calculation and classifications; a provision of Chinese version facilitates the relevant personnel with enhanced readability and comprehensibility of the FRR references. Market News 4. SFC unveils enhancement to facilitate client interaction under Cross-boundary Wealth Management Connect The SFC announced new enhancements to Cross-boundary Wealth Management Connect Pilot Scheme (“ Cross-boundary WMC ”) to develop closer communication between participating licensed corporations (“ Participating LCs ”) and their clients under the scheme which was published on 24 Jan 2024. For purpose of the new enhancements, the SFC set out anther circular on 13 Nov 2025 with the implementation details for client interaction, the key arrangements are : A Participating LC can now obtain one-off written consen t (valid for a year) from Southbound Scheme clients (“ SSC ”) who are not physically present in Hong Kong, thus the LC can explain the product information aligned with each client’ s needs and selected product categories; (noted: SSCs refers to Mainland investors who have open dedicated investment accounts with that LC and also have opened personal fund accounts with eligible Mainland brokers as remittance accounts under the scheme); Upon the request of the SSCs, a Mainland partner broker (i.e. a Mainland broker that has been confirmed by the relevant Mainland regulatory authorities as eligible to provide Cross-boundary WMC services) within the same corporate groups as the Participating LCs (“ Partner Brokers ”) can arrange online three-party dialogues with the Participating LCs at their respective places of business, where the Participating LCs can explain product information to their clients; With a one-off written consent as mentioned above from SSCs, Participating LCs can provide their clients with research reports on individual investment products prepared by their Partner Brokers; The enhanced arrangements above are also applicable to the Northbound Scheme. SIGNIFICANCE: As Ms Julia Leung, the SFC’s Chief Executive Officer, said, “ With enhanced communication and improved access to information, investors can be better informed when making investment decisions which would support the continuous and sustainable development of the Cross-boundary WMC. ” 5. SFC further streamlines measures for authorized EU-regulated retail funds to implement changes efficiently The SFC announced a series of streamlined post-authorisation measures for UCITS funds. UCITS funds means (i) Undertakings for Collective Investment in Transferable Securities (UCITS) domiciled in France, Luxembourg, Ireland and the Netherlands, and (ii) collective investment schemes domiciled in the United Kingdom authorised as UK UCITS. In a circular to facilitate their implementation of change s that are in compliance with their home jurisdiction regulation. Recognising that UCITS funds offer robust investor protection commensurate with the standards of Hong Kong, the SFC considers further streamlining procedures can be adopted for facilitating UCITS funds in implementing changes that are subject to their home regulator’s supervision with immediate effect from 28 Nov 2025. KEY streamlined measures for UCITS funds covering the following post-authorization matters: (a) Change of key operators Prior approval from SFC is removed for changes of depository and investment delegates supervised under the fund’s home regulators; (b) Material changes in investment objectives, policies and restrictions Prior approval from SFC is removed for material changes in investment objectives, policies and restrictions which comply with the fund’s home jurisdiction requirements; (c) Post-authorization notifications To align the SFC’s notification requirements with the fund’s home jurisdiction requirements. For understanding of the latest measures in more details, the FAQs on SFC Authorization of UCITS Funds is available on SFC’s website. SIGNIFICANCE: As Ms Alexandra Yeong, the SFC’ s Interim Head of Investment Products, said, “ These enhancements are integral to the SFC’ s ongoing efforts to strengthen Hong Kong’ s competitiveness as a leading global asset management centre, enabling UCITS funds to operate efficiently in our dynamic market. ” Enforcement News - Intermediary 6. SFC Reprimands and Fines Tung Tai $900,000 for Failures to Safeguard Client Assets On 13 November 2025, the SFC reprimanded and fined Tung Tai Securities Company Limited (東泰證券有限公司) (“ Tung Tai ”) for regulatory breaches related to unauthorized sales of client securities and transfers of client funds. Case Details The SFC's investigation revealed that Tung Tai failed to adequately safeguard client assets after acting on instructions from a bogus email address impersonating an overseas limited partnership company client (the “ Client ”). Period Case Detail 13 February 2019 Authorised Person of the Client email directly to the accounting department of Tung Tai with instructions. Tung Tai executed the instruction without noticing the ROs. 6 September 2019 Two banks in Mexico and Canada rejected several telegraphic transfers processed by Tung Tai based on instructions from the bogus email address, serving as early red flags of potential irregularities. However, the ROs of Tung Tai executed the trades and approved telegraphic transfers to the * False Bank Account. *false bank account held by authorised person of the client, but not designated in the clients’ account opening form 6 September 2019 Tung Tai sold shares in the client's account and transferred the sale proceeds (US$3,301,740) via four telegraphic transfers to three false bank accounts in the United States, despite discrepancies in beneficiary addresses compared to account opening documents. Tung Tai did not respond to red flags, such as telegraphic transfer rejections by banks and discrepancies in beneficiary addresses, leading to the unauthorized transfer of sale proceeds to three overseas bank accounts not designated by the client. Additionally, Tung Tai lacked effective internal control procedures to prevent theft, fraud, or misappropriation of client assets. Enforcement Act The SFC reprimanded and fined Tung Tai HK$900,000 for regulatory breaches related to unauthorized sales of client securities and transfers of client funds. In determining the sanctions, the SFC considered the seriousness of the failures, Tung Tai's remedial actions, compensation to the client, cooperation with the investigation, and its clean prior disciplinary record. Tung Tai compensated the affected client, engaged independent reviewers to assess internal controls, and implemented remedial measures to enhance order placing and trading execution procedures. For more details of the case, please refer to STATEMENT OF DISCIPLINARY ACTION SIGNIFICANCE: This disciplinary action emphasizes the critical importance of robust internal controls and vigilance against fraud in safeguarding client assets within Hong Kong's securities industry. It serves as a reminder for all licensed corporations, including those with overlapping financial services, to implement effective procedures to detect and prevent unauthorized activities, thereby protecting investors and maintaining market integrity. 7. SFC Secures First Custodial Sentence Against Finfluencer for Provision of Paid Investment Advice on Social Media Chat Group Without Licence On 7 November 2025, the SFC secured a conviction against Mr CHAU Pak Yin (周柏賢) (“ CHAU ”), a finfluencer previously known as CHAU Kin Hei (前名周建希), in a criminal prosecution at the Eastern Magistrates’ Court. Case Details CHAU was found guilty of providing unlicensed investment advice through a subscription-based Telegram chat group he hosted, named “ Futu真。財自Private Group ” under his username “ Futu大股東 ”. During the relevant period, CHAU circulated commentaries, recommendations, and target prices on various securities, including responses to subscriber questions about Nasdaq-listed securities' performance. He charged a monthly subscription fee of US$200 or HK$1,560, earning a total of HK$43,680 from the group, which was open to public paid subscribers. Court Order This activity constituted "Type 4: advising on securities", a regulated activity under Schedule 5 of the SFO, and CHAU was charged under sections 114(1)(a) and 114(8) of the SFO for operating without an SFC licence. CHAU was sentenced to six weeks imprisonment and ordered to pay the SFC investigation costs. He was remanded in custody after his bail application was rejected, pending an appeal against the conviction and sentence. SFC Effort to Curb Activities of Unauthorised Finfluencers On 6 June 2025, the SFC issued a Press Release announcing its accession International Organization of Securities Commissions (“ IOSCO ”) efforts to combat unauthorized activities by financial influencers through a multi-pronged approach including supervisory actions, enforcement, and investor education. SIGNIFICANCE: Mr Michael Duignan, SFC’s Executive Director of Enforcement, emphasized the SFC’s commitment to tackling unlawful finfluencer activities and holding them accountable for unlicensed regulated activities. He warned that unlicensed finfluencers may not meet SFC standards, exposing investors to risks, and advised the public to verify licences via the SFC’s Public Register of Licensed Persons and Registered Institutions. This landmark case marks the SFC’s first custodial sentence against a finfluencer for unlicensed investment advice, highlighting the regulator’s intensified focus on social media and online platforms where such activities can proliferate. It serves as a strong deterrent to unlicensed individuals providing paid financial advice, reinforcing the need for proper licensing to ensure investor protection, accountability, and compliance with SFO standards. 8.SFC Bans Cheung Ngai Yi for Life Following Criminal Conviction for Theft of Client Assets On 5 November 2025, the SFC issued a lifetime ban on Mr. CHEUNG Ngai Yi (張藝議) (“ CHEUNG ”), a former relevant individual of Hang Seng Bank Limited (恒生銀行有限公司) (“ HSB ”), prohibiting him from re-entering the securities industry. Case Details The action follows CHEUNG's criminal conviction for theft, where he was found guilty of misappropriating client funds. The court established that CHEUNG misappropriated a total of HK$1,530,500 from a client's bank account through 88 unauthorized ATM withdrawals. This misconduct occurred over a period of approximately nine months, highlighting a pattern of repeated breaches of trust in handling client assets. Enforcement Act and Court Order In result, CHEUNG had been sentenced by the District Court to 30 months' imprisonment on 31 March 2025. Case No.: DCCC 425/2022 The SFC's investigation and subsequent ban were based on the determination that CHEUNG is not a fit and proper person to be registered or licensed due to his conviction, which involved dishonest conduct directly related to his regulated activities. SIGNIFICANCE: In imposing the ban, the SFC emphasized that CHEUNG's actions demonstrated a severe lack of integrity, which is fundamental to maintaining public confidence in the financial markets. This enforcement action reinforces the SFC's zero-tolerance policy toward misconduct involving client asset misappropriation, serving as a stark reminder to all licensed individuals and firms of the severe consequences for breaching ethical and regulatory standards. It underscores the importance of robust internal controls and ongoing vigilance in financial institutions to prevent theft and protect client interests, while deterring similar dishonest behaviour that could undermine the integrity of Hong Kong's securities industry. 9. SFC Commences Prosecution in Securities Fraud Case Involving Illegal Short Selling On 6 November 2025, the SFC commenced a prosecution in a securities fraud case involving illegal short selling. The SFC has initiated criminal proceedings against: Mr. CHAN Hoi Shing (陳海城) (“ CHAN ”); and Mr. LI Po Ching (李寶程) (“ LI ”) engaged in unauthorized short selling activities in the shares of certain companies, resulting in potential market distortions and illicit gains. Case Details CHEN and LI falsely claimed that CHEN held a sufficient number of shares in the 28 companies to support sell orders placed through CHEN's securities account at Black Marble Securities Limited (貝格隆証券有限公司), but this was not the fact. Consequently, the two were able to conduct illegal short selling transactions on the shares of the relevant companies and profit approximately HK$11 million. Adjourned Process The defendants did not enter a plea hearing on 6 November 2025, and the case was adjourned to 6 February 2026, for a further hearing. At that time, the prosecution will apply to transfer the case to the District Court. CHEN and LI were granted bail pending the next hearing. SIGNIFICANCE: This action demonstrates the SFC's ongoing vigilance in combating securities fraud and enforcing short selling rules to protect market integrity and investor interests in Hong Kong. It serves as a reminder for market participants to adhere strictly to regulatory requirements on short selling, as violations can lead to criminal charges, fines, and reputational damage. 10. SFC suspended Two Licensed Companies Linked to Prince Group (太子集團) The Prince Group (太子集團) founded by Chen Zhi (陳志), has been implicated in operating telecom fraud parks in Cambodia, with Chen Zhi facing US prosecution and sanctions, including the freezing of approximately HK$120 billion in Bitcoin assets. Suspended Licensed Companies According to the SFC website, two license companies Mighty Divine Investment Management Limited and Mighty Divine Securities Limited - entities linked to Prince Group, have had their licenses temporarily revoked. See below table for details: Last updated: 03 Nov 2025 These companies are noted as having " Licence suspended " and “Ceased business of regulated activities”, reflecting heightened regulatory measures in response to the ongoing investigations. Enforcement News - LISTCO 11. Director of Hong Kong-based LISCO FSM Holdings (01721.HK) resigns amid Cambodian crime allegations Linked to the Prince Group (太子集團) The Prince Group (太子集團) founded by Chen Zhi (陳志), has been implicated in operating telecom fraud parks in Cambodia, with Chen Zhi facing US prosecution and sanctions, including the freezing of approximately HK$120 billion in Bitcoin assets. Update news of Hong Kong-Listed Companies related to Chen Zhi Movements in two Hong Kong-listed companies controlled by Chen Zhi: · Geotech Holdings Ltd. (致浩達控股) ( 01707.HK ); and · Khoon Group Ltd. (坤集團) ( 00924.HK ); have attracted significant market attention following the exposure of the fraud allegations. LI Thet (李添), chairman of FSM Holdings ( 01721.HK ), has resigned after being connected to Chen Zhi. Li Thet, Prince Group's CFO, was also sanctioned, accused of overseeing Prince Group's money laundering, and large-scale cash smuggling. U.S. relevant documents did not list out any connection between LI Thet and Hong Kong List-CO, until FSM Holdings issued a statement announcing LI Thet's resignation as chairman and executive director, revealing a third listed company. ( See Sanction and Registration of Executive Directors: 2025-10-21 ) 12. SFC Seeks Court Orders to Disqualify Former Directors of China Longevity (1864.HK) for Financial Misstatements and Disclosure Failures On 31 October 2025, the SFC initiated proceedings to seek disqualification orders against three former executive directors of China Longevity Group Company Limited, formerly known as Sijia Group Company Limited (中國龍天集團有限公司, 前稱思嘉集團有限公司) (* 1864.HK ) (“ China Longevity ”). *trading in shares of China Longevity has been suspended since 4 December 2014 The three former directors of China Longevity named in the proceedings are: Mr Lin Shengxiong (林生雄) former Chairman and Executive Director Mr Zhang Hongwang (張宏旺) Executive Directors. Mr Huang Wanneng (黃萬能) Executive Directors. Case Details The action stems from the SFC's investigation, which uncovered material overstatements in the China Longevity's cash and cash equivalents, leading to misrepresentations in key financial reports. Specifically: As of 31 December 2011, China Longevity materially overstated cash and cash equivalents by RMB198.9 million, representing 13.6% of net assets. As of 30 June 2012, China Longevity materially overstated cash and cash equivalents by RMB302.4 million, representing 19.9% of net assets. These inaccuracies resulted in material misrepresentations in the China Longevity's 2011 annual report, 2012 annual report, and 2012 interim report. Additionally, the directors failed to ensure timely disclosure of the overstatements and related audit irregularities identified by the China Longevity's auditors, exacerbating the misconduct. Petition Filing and Service Proceedings The SFC filed the Petition on 25 November 2022 against the three former directors (all located in PRC) and obtained leave from the Court of First Instance to serve the Petition on them out of the jurisdiction on 28 April 2023. Judicial assistance was sought in the Mainland to effect service of the Petition on the former directors. The first direction hearing was held on 30 October 2025 and the next case management conference is scheduled for 25 February 2026. SIGNIFICANCE: This enforcement action underscores the SFC's commitment to holding corporate directors accountable for financial reporting integrity and timely disclosures, which are essential for maintaining investor confidence in Hong Kong's capital markets. It highlights the risks of disqualification for executives involved in such breaches, serving as a deterrent against similar misconduct in listed companies and reinforcing regulatory oversight in the financial sector. 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Use of generative AI language models Compliance Impact Alert: Use of generative AI language models Dec 2024 Disclaimer: Contents contained in this document including should not be regarded as a substitute legal and / or compliance advice in any circumstances and shall not be reproduced (in whole or in part), distributed or otherwise passed on to any other person without our prior written consent. Language: English version only Executive Summary On 12 November 2024, the Securities and Futures Commission (“SFC”) issued a circular addressing the risks associated with generative AI language models (“AI LMs”) for licensed corporations (“LCs”). The SFC mandates enhanced cybersecurity protocols and responsible use of AI LMs to mitigate risks such as output quality issues, data management vulnerabilities, and reliance on external providers. LCs must implement robust policies, conduct thorough testing, and ensure compliance with regulatory standards. Actions and Recommendations Review Existing AI Implementations Assess current AI systems for compliance gaps and plan corrective actions. Develop AI Risk Assessment Frameworks Create frameworks to identify high-risk applications and mitigation strategies. Implement Enhanced Monitoring and Validation Regularly evaluate AI model performance and check for biases or inaccuracies. Staff Training Educate employees on new AI governance requirements and ethical AI use. Update Third-Party AI Provider Agreements Ensure agreements meet regulatory expectations, focusing on data handling and compliance. How We Can Help Our team comprises experienced professionals with deep expertise in compliance, risk management, and policy review and development in identifying gaps between the regulatory expectations in the circular and your current policies and procedures. 1. Continuous Support: Stay ahead of regulatory changes with our continuous monitoring and updates, ensuring that you are always in compliance. 2. Gap Analysis: Identify gaps between regulatory expectations and your current policies. 3. Develop Tailored Solutions: Create solutions to meet specific needs and close material gaps. 4. Ensure Adherence: Maintain compliance with regulatory standards and enhance overall compliance practices. For any inquiries, please refer to our Ongoing Compliance Support Service or feel free to Contact us .

The topics discussed in this monthly newsletter are as follows: ComplianceOne Newsletter – June 2025 The topics discussed in this monthly newsletter are as follows: REGULATORY UPDATES A tour of recent developments of the VA Regulatory Regime in Hong Kong SFC joins global regulatory effort to curb activities of unauthorised finfluencers Rumour of mainland’s crackdown on illegal cross-border accounts opening: more Hong Kong brokers tighten onboarding rules The Government welcomed the passage of the Banking (Amendment) Bill 2025 to share information of suspicious accounts SFC proposes to further restrict use of misleading names to enhance investor protection MARKET NEWS SFC released the 2024-25 Annual Report ENFORCEMENT NEWS SFC issues restriction notice to GA (Int'l) Capital Management Limited and conducts search operation SFC suspends Pun Hong Hai for supervisory failures SFC bans WONG Lai Suen for failure in managing credit risks and detecting suspicious trading activities SFC suspends Hadiee CHUI Lai Chun for undisclosed personal trading account SFC reaches first settlement of its kind to compensate public shareholders of Combest Holdings Limited SFC bans LAW Man Wai for market manipulation Regulatory Updates 1. A tour of recent developments of the VA Regulatory Regime in Hong Kong Recent Developments (1) Hong Kong Expands Crypto Market with Derivative Trading for Professional Investors The SFC is ready to introduce virtual asset derivatives trading for professional investors as part of its efforts to increase product diversity and reinforce robust risk controls. The move is part of Hong Kong's drive to enhance its competitiveness in the global digital asset market. With this in mind, the SFC will focus on robust risk management measures to ensure orderly, transparent, and secure trading. The proposed product is designed to facilitate efficient risk transfers, increase liquidity in spot markets where cryptocurrencies area traded instantly, and assist experienced investors in implementing their hedging and leveraging strategies. The Financial Services and the Treasury Bureau is preparing a second policy statement on virtual assets, exploring how to harness traditional financial services and emerging technologies to drive growth in the VA market. More encouraging, virtual assets will be classified as qualifying transactions under Hong Kong's preferential tax regimes to attract international fintech players. (2) Second policy statement on development of digital assets issued to scale Hong Kong to new heights of global digital asset leadership On 26 June 2025, the HKSAR Government issued its long-awaited Policy Statement 2.0 on the Development of Digital Assets in Hong Kong, reinforcing its commitment to establishing Hong Kong as a global hub for innovation in the digital asset (DA) field; built upon the foundational measures outlined in its initial policy statement in October 2022. The Policy Statement 2.0 sets out a vision for a trusted and innovative DA ecosystem that prioritizes risk management and investor protection; the latest statement introduces the main theme of “ LEAP ” framework with focuses on: Legal and regulatory streamlining : The government is establishing a comprehensive regulatory framework for DA service providers, including DA exchanges, stablecoins issuers, DA dealing service providers, and DA custodian service providers. Expanding the suite of tokenised products : The government will regularize the issuance of tokenised Government bonds and incentivize the tokenisation of RWAs to enhance liquidity and accessibility. Advancing use cases and cross-sectoral collaboration : The government is fostering collaboration among regulators, law enforcement agencies, and technology providers for the development of DA infrastructures. People and partnership development : The government is strengthening talent development through partnerships with industry and academia, positioning Hong Kong as a centre of excellence for DA knowledge-sharing and international cooperation. (3) Next move is to seek opinion from market practitioners. Starting with the first “ Public Consultation on Legislative Proposal to Regulate Dealing in Virtual Assets ” (a non-exhaustive extract) (1) Scope and coverage : any person who conducted a business in providing services of spot trade of any VAs in Hong Kong will need to be licensed (2) Business types and Business models: a) simple dealing; b) more complex dealing services; c) all other VA dealing services. (3) Exemptions: a) stablecoin issuers who (i) are licensed by the HKMA and (ii) conduct offering or redemption of the stablecoins they issue in the primary market; b) peer-to-peer trading of VAs between individuals where no intermediary is involved. (4) Regulatory Requirements: a) VA dealing service providers that fall within the scope will need to be licensed or registered; b) The SFC will set out standards of the requirements. (5) Regulatory Principle: a) taking the “same activity, same risks, same regulation” principle, taking reference from the VATP licensing regime. (6) Eligibility: a) A HK company with two ROs with sufficient financial resources such as HKD5M as minimum paid-up capital or HKD3M as minimum required liquid capital; b) A licensee or registrant will have to set up a token admission and review committee establishing, implementing and enforcing the criteria for any VA to be made available for/withdrawn from trading; c) deposits/withdrawals of clients’ VAs to/from the licensees’ wallet addresses; d) Investor Protection: assessing clients’ VA knowledge, risk profiling, position limits etc. (7) Licensing Matters: no deeming arrangement to the pre-existing VA dealing service providers. (8) Powers of the Regulatory Authorities: the SFC still being the licensing and registration authority, and be empowered to impose licensing and registration conditions. (9) Sanctions: to achieve the necessary deterrent effect and to ensure regulatory parity among different regimes relating to VA activities (10) Public Consultation. (4) Then come with the next round for “ Public Consultation on Legislative Proposal to Regulate Virtual Asset Custodian Services ” (a non-exhaustive extract) (1) Definition: the provision of VA custodian service as a business is proposed to be defined as: by way of business, the safekeeping of (i) VAs on behalf of clients; or (ii) instruments enabling transfer of VAs of clients (including but not limited to private keys) on behalf of clients. (2) Incidental Exemption for SFC or HKMA regulated entities where the safekeeping of client VAs is wholly incidental to the principal business of providing the VA service. (3) Examples of VA Custodian like associated entities of SFC-licensed VATPs or banks, licensed or registered fund managers etc. (4) Eligibility: a regime similar to Type 13 regulated activity. (5) Licensing Issues: no deeming arrangement to the pre-existing VA Custodian. (6) Powers of the Regulatory Authorities: the SFC still being the licensing and registration authority, and be empowered to impose licensing and registration conditions. (7) Sanctions: to achieve the necessary deterrent effect and to ensure regulatory parity among different regimes relating to VA activities. (8) Public Consultation. Active participations from market participants (5) GF Securities (Hong Kong) issued its first tokenised securities - HashKey Chain announced that GF Securities (Hong Kong) Brokerage Limited (“ GFS ”) as the first brokerage firm to issue tokenized securities in Hong Kong, has now fully integrated with HashKey Chain as the core on-chain issuance network, and has launched the first daily redeemable tokenized security ,"GF Token". High-net-worth individual professional investors and institutional professional investors can participate in subscription and trading. "GF Token" is a tokenized security issued by GFS based on its credit rating support where the issuance to investors includes three currencies: USD, HKD, and CNH. Among them, the yield of the US dollar tokenized securities is anchored to the Secured Overnight Financing Rate (“SOFR”), providing users with a fair, transparent, and low-volatility cash management tool denominated in USD. HashKey Group Chairman Xiao Feng stated that the on-chain integration of Real-World Assets (RWA) requires genuine two-way integration between financial institutions and blockchain technology platforms, and the release of the "GF Token" materialized this concept. 2. SFC joins global regulatory effort to curb activities of unauthorised finfluencers The SFC is joining regulators across the globe to curb activities of unlawful financial influencers (“ finfluencers ”) who are putting millions of social media users at risk by touting financial products or services illegally. To achieve this aim, the SFC and the other members of the International Organization of Securities Commissions (“ IOSCO ”) are participating in the “Global Week of Action Against Unlawful Finfluencers” during the week of 2 June 2025. This initiative involves regulators using a combination of supervisory and enforcement powers to disrupt illegal activities of finfluencers, coupled with educational schemes and consumer awareness programmes. Some key takeaways are: A) SFC’s supervisory actions assess securities brokers’ compliance with applicable regulatory requirements when engaging finfluencers and digital platforms; review selected securities brokers’ due diligence of the finfluencers and digital platforms to ensure that these media are not involved in any unlicensed activities or improper practices; issue guidance to licensed corporations outlining expected standards when engaging finfluencers and digital platforms. B) SFC’s enforcement actions suspend the licence of a finfluencer who was criminally convicted for providing investment advice via a chat group beyond the scope of his licence; commence criminal prosecution against a finfluencer for unlicensed regulated activities; take a pro-active role to press the overseas VATP to terminate affiliate arrangements with finfluencers thus preventing them from marketing to local public; engage with social media platforms to remove social media posts and profiles impersonating public figures and promoting unauthorised investment products. C) Investor education warn the public about scammers impersonating or posing as finfluencers on social media through its Alert List system; encourage the public to utilise IOSCO’s newly revamped global warning system, the International Securities & Commodities Alerts Network (“ I-SCAN ’); make use of its ongoing “Don't be Sucker” anti-scam publicity campaign to arouse awareness of the public against finfluencers-related pitfalls and other common investment scam tactics. SIGNIFICANCE: As Julia Leung, the SFC’s Chief Executive Officer, said: “ As part of our education efforts, we must emphasise the importance of personal responsibility . Investors should serve as their own first line of defence by verifying the regulatory status and trustworthiness of the finfluencers, critically evaluating any investment ideas from them, and conducting thorough due diligence on any prospective investments before committing ”. 3. Rumour of mainland’s crackdown on illegal cross-border accounts opening: more Hong Kong brokers tighten onboarding rules Media reports in China indicate that regulatory efforts to curb mainland residents’ unauthorized use of Hong Kong accounts for cross-border investments are intensifying. Following the responses by Futu Securities International (Hong Kong) Limited and Tiger Brokers (HK) Global Limited , many Hong Kong-based securities firms—including Long Bridge HK Limited and Valuable Capital Limited —are tightening the account-opening requirements for clients originated from mainland since June. Media indicated that some brokers have already done away with the previously accepted method of using " proofs of existing accounts " (存量證明, “ PEA ”) for onboarding. Instead, mainland clients must now provide proof of cross-border residence or employment, such as utility bills or rental agreements. This explicitly strangles the flexibility that allowed mainland investors to indirectly open securities accounts in Hong Kong through loopholes. The PEA methodology had permitted mainland investors to open Hong Kong or U.S. securities accounts by verifying ownership of another already existing overseas securities account. With its removal replaced with the new “proof of life & work”, the requirement substantially raises barriers for mainland residents seeking to open new trading accounts in Hong Kong, explicitly cutting off any channels for those investors permanently residing in mainland China. The report quoted a number of Hong Kong brokerages as saying that the closure of mainland residents' account opening was carried out under the guidance of mainland regulators, and the relevant requirements were effected about three days ago, when several brokerages received a unified regulatory order restricting mainland residents from opening accounts in Hong Kong. 4. The Government welcomed the passage of the Banking (Amendment) Bill 2025 to share information of suspicious accounts Passage of the Banking (“ Amendment ”) Bill 2025 by the Legislative Council on 4 June helps facilitate the sharing of account information among banks under specified conditions to enhance the efficiency in detecting and preventing crime in Hong Kong. With the Amendment Ordinance:- a voluntary mechanism is in place for banks and relevant law enforcement agencies to share with each other, via electronic means, information of corporate and individual accounts through secure platforms designated by the Hong Kong Monetary Authority (“ HKMA ”), when banks become aware of suspected prohibited conduct (i.e. money laundering, terrorist financing or financing of proliferation of weapons of mass destruction); legal protection provided for banks that disclose the relevant information; banks and relevant law enforcement agencies are enabled to act swiftly to intercept illicit funds and expedite intelligence gathering, thus providing better protection to the public. SIGNIFICANCE: As the Secretary for Financial Services and the Treasury, Mr Christopher Hui, said, " The new mechanism not only enhances Hong Kong's ability to combat fraud and associated money laundering activities , providing better protection for citizens, but also helps maintain the stability of Hong Kong's banking system and showcases the efforts made by Hong Kong, as an international financial centre, in international collaborations to combat relevant illegal activities. " And the Chief Executive of the HKMA, Mr Eddie Yue, said, " The new information sharing mechanism will further enhance the ability of the banks to detect and prevent fraud and other financial crime . The HKMA will continue to work closely with the Hong Kong Police Force and the banking sector to take forward the preparation work, including the upgrade of systems and formulation of practical guidelines, with a view to implementing the new mechanism as soon as practicable. " 5. SFC proposes to further restrict use of misleading names to enhance investor protection On 12 June 2025, the SFC launched a consultation aimed at restricting unregulated entities from improperly adopting names that may give the public a false impression that they are regulated entities. Some key points of the proposal: to cater for recent developments, including the emergence of virtual asset trading platforms (VATPs), the SFC proposes expanding the current list of restricted titles under the Securities and Futures Ordinance (SFO) which currently sets out a list of names that cannot be adopted except with the SFC's approval (e.g. "stock exchange" and "commodity exchange"); the aim of it is to ensure that businesses and operations do not adopt names that may mislead the public into believing they are regulated by the SFC when in fact they are not; to include similar restrictions under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (AMLO). The rationale is that VATPs that carry on business in Hong Kong , or actively market their services to Hong Kong investors, are required to be licensed and regulated by the SFC . The SFO regulates VATPs providing services for virtual assets that also constitute securities or futures contract s, while the AMLO regulates VATPs offering services for virtual assets that do NOT constitute securities or futures contracts; extend the restrictions to commonly used terms that are similar in meaning to “exchange” (e.g. “trading platform”) and those that refer to some of the financial products and platforms regulated under the SFO; some titles that may imply an association with established exchanges, VATPs and other similar entities are also covered under the restriction. SIGNIFICANCE: The proposed restriction is conducive in stifling the use of misleading name in the disguise of any publicly known entity for deceiving the public and conveying any fraudulent message of its legitimacy. Market News 6. SFC released the 2024-25 Annual Report Hong Kong's capital markets are experiencing a renaissance, driven by cutting-edge innovation and strengthened global ties. The SFC Annual Report 2024-25, released on 25 June 2025, paints a picture of a vibrant financial hub that's embracing the future while solidifying its position as a global leader. Innovation at the Forefront Hong Kong is rapidly evolving into a future-ready financial hub, leading the charge in virtual assets and securities tokenization. Virtual assets, such as cryptocurrencies, and tokenized securities are making markets more efficient and accessible. Last quarter (Q1 2025), it authorized the Asia-Pacific’s first batch of three tokenized money market funds for retail access[1], with total assets under management reaching HKD$736 million by March 2025. Under the SFC’s "ASPIRe" roadmap : Two virtual asset ETFs were permitted to engage in staking (earning rewards by holding certain cryptocurrencies), making them the first-of- their-kind in the Asia-Pacific region. The six Hong Kong-listed virtual asset spot ETFs have also seen their total market capitalization surge 95% since April 2024, with daily turnover rising 16%. Additionally, the SFC has licensed 11 virtual asset trading platforms, cementing Hong Kong’s role as a digital finance hub. Strengthening Global Connectivity Hong Kong’s global ties have deepened, particularly with Mainland China and the Middle East. The Stock Connect scheme has been a standout success, with cumulative southbound inflows exceeding $4.35 trillion by May 2025, and southbound trading now accounting for 22.5% of Hong Kong’s market turnover. New partnerships with the Middle East are thriving. Two Hong Kong ETFs cross-listed on the Saudi Exchange have become the largest there, boasting a market capitalization of $14.5 billion (US$1.86 billion) as of May 2025. Asia’s first Saudi ETF, listed in Hong Kong since late 2023, has seen its feeder ETFs on Mainland exchanges contribute 17% to its market cap since mid-2024. These milestones highlight Hong Kong’s growing role as Asia’s premier capital intermediary. Other Noteworthy Highlights Enforcement & Protection: The SFC secured landmark rulings, including the longest prison sentences for market manipulation and a historic settlement for Combest Holdings Limited shareholders, reinforcing market integrity. Anti-Scam Efforts : The “Don’t Be Sucker” campaign expanded via MTR commercials and TV, garnering over 1.6 million views to protect investors. Sustainability: The SFC halved its carbon emissions from the baseline, hitting its interim target five years early, showcasing its green commitment.[2] SIGNIFICANCE: The SFC’s leadership has been instrumental. Chairman Dr. Kelvin Wong emphasized, “ Our role as an effective regulator is to ensure Hong Kong remains a cornerstone of global finance, where capital flows efficiently, innovation thrives, and fairness builds trust .” CEO Ms. Julia Leung added, “ Hong Kong’s long-term success hinges on strengthening our core competence as a premier fund-raising and asset management hub and capitalizing on transformative global forces .” The numbers speak for themselves. Since April 2024, 64 Mainland enterprises have listed in Hong Kong, raising over $100 billion through IPOs. The total market capitalization of ETFs and leveraged and inverse products hit a record $520 billion, up 35% year-on-year, comprising 15% of market turnover. The SFC, collaborating with HKEX, has also slashed the average response time for new listing applications to 20 business days, boosting efficiency. [1] These include the introduction of tokenised classes to existing SFC-authorised money market funds. The AUM represents that of their tokenised classes. [2] SFC announces carbon neutrality commitment : SFC has set the interim goal of halving its carbon emissions by 2030 and ultimate goal of achieving carbon neutrality by 2050. Enforcement News 7. SFC issues restriction notice to GA (Int'l) Capital Management Limited and conducts search operation On 6 June 2025, the SFC took decisive action against GA (Int'l) Capital Management Limited (“ GCML ”) due to concerns about its reliability, integrity, and ability to carry out its regulated activities (i.e. RA 4 & 9[1]) competently, honestly, and fairly. This has led the SFC to question GCML's fitness and properness to remain a licensed entity. The SFC issued a restriction notice to GCML, imposing the following prohibitions: GCML cannot carry on any of its licensed regulated activities without prior written consent from the SFC. GCML is barred from disposing of or dealing with any relevant property, except for paying operational expenses in the ordinary course of business. Such actions require prior written notification to the SFC and their consent. SIGNIFICANCE: In addition to the restriction notice, the SFC conducted a search operation on June 6, 2025, which included searching the premises occupied by GCML’s responsible officer. This step underscores the seriousness of the ongoing investigation. These measures are designed to protect the investing public and maintain market integrity, reflecting the SFC's assessment of the situation's severity. The SFC has emphasized that the investigation remains active, and no further comments will be provided at this stage. [1] RA4 : Type 4 Advising on securities; RA9 : Type 9 Asset management 8. SFC suspends Pun Hong Hai for supervisory failures The SFC has suspended Mr. PUN Hong Hai (“ PUN ”), a former responsible officer and chief executive officer of Freeman Commodities Limited, for 10 months, from 11 June 2025, to 10 April 2026. This disciplinary action stems from supervisory failures identified during an investigation into his oversight of the company’s operations between June 2017 and December 2018. Key Findings PUN failed to ensure Freeman Commodities Limited upheld appropriate standards of conduct and adhered to proper procedures during his tenure: PUN inadequately managed risks tied to the company’s use of customer supplied systems (CSSs) for client order placements. PUN did not sufficiently oversee suspicious money movements and trading patterns in client accounts over the specified period. SIGNIFICANCE: The SFC’s suspension of PUN reinforces its firm stance on accountability among senior management in licensed corporations. By imposing this 10-month penalty, the regulator sends a clear message about the necessity of diligent supervision and robust risk management practices. 9. SFC bans WONG Lai Suen for failure in managing credit risks and detecting suspicious trading activities The SFC has imposed a six-month industry ban on Ms. WONG Lai Suen (“ WONG ”), former responsible officer (“ RO ”) and executive director of MTF Securities Limited (“ MTF ”), effective from 4 June to 3 December 2025. This disciplinary action stems from significant lapses in managing credit risks and detecting suspicious trading activities at MTF. Case Overview & Key Findings MTF’s clients executed transactions vastly disproportionate to their financial profiles, displaying red flags suggestive of market misconduct and money laundering, with one client’s limit even reaching ten times his declared annual income. MTF failed to flag these activities as suspicious, investigate further, or report them promptly to the Joint Financial Intelligence Unit and the SFC. The SFC concluded that MTF lacked robust policies for credit risk management and monitoring suspicious trading, breaching the Code of Conduct and other regulatory standards. These shortcomings were pinned on WONG, who, as a RO and senior manager, failed to uphold her duties. SIGNIFICANCE: Christopher Wilson, SFC’s Executive Director of Enforcement, underscored the importance of accountability: " Senior management of a licensed corporation must not blindly follow marching orders from the firm’s shareholders or controllers. When faced with an unusual or suspicious request, the ROs should exercise independent judgment and, where appropriate, conduct proper due diligence before acting on the request. " He also added: " It is the duty of ROs and senior management to ensure that effective policies and controls are in place to prevent the firm from being used to facilitate wrongdoing, including market misconduct and money laundering. " 10. SFC suspends Hadiee CHUI Lai Chun for undisclosed personal trading account The SFC has suspended Ms. Hadiee CHUI Lai Chun (“ CHUI ”), a licensed representative of Rifa Securities Limited (“ Rifa ”), for seven months from 13 June 2025, to 12 January 2026. This disciplinary action follows an SFC investigation into her conduct between September 2018 and September 2021. Case Overview & Key Findings During this period, CHUI maintained a personal securities trading account at another brokerage firm without disclosing it to Rifa, her employer. CHUI conducted 20 personal trades through this undisclosed account without obtaining prior approval from any responsible officer of Rifa. Furthermore, CHUI failed to report these trades or provide the relevant trade confirmations and statements of account to Rifa. The SFC considers CHUI’s actions wilful and dishonest, raising serious concerns about her fitness and properness to remain a licensed person. By failing to disclose her trading account and conducting unauthorized trades, she undermined Rifa’s ability to oversee her activities, potentially jeopardizing the firm and its clients. SIGNIFICANCE: In imposing the seven-month suspension, the SFC took into account: The duration of her breaches, spanning approximately three years. Her cooperation in resolving the SFC’s concerns. Her otherwise clean disciplinary record. This sanction balances the severity of her misconduct with these mitigating factors. This case highlights the critical need for transparency and compliance with regulatory and company policies among licensed persons. Failing to disclose personal trading activities can lead to significant consequences, including suspension or loss of licensure. Licensed individuals must uphold their obligations to safeguard the integrity of the financial markets and maintain public trust. 11. SFC reaches first settlement of its kind to compensate public shareholders of Combest Holdings Limited On 2 June 2025, the SFC has obtained a groundbreaking court decision in the Court of First Instance, ordering former senior executives of Combest Holdings Limited (“ Combest ”) (HKEX: 08190) to pay $192 million in compensation to shareholders. This ruling also includes disqualification orders against a shadow director[1] and two former executive directors for their misconduct, please refer to: SFC’s press release dated 21 May 2020 . SFC’s press release dated 16 September 2024 . Case Overview The SFC’s investigation revealed that between 2016 and 2019, the shadow director - Mr. NG Kwok Fai (“ NG ”) and two former executive directors - Mr. LIU Tin Lap and Mr. LEE Man To in serious financial misconduct, including: Overvaluing two subsidiary group acquisitions by $229 million. Paying $64 million in fictitious loan interests and fees to entities linked to NG. Artificially inflating Combest’s revenue through transactions with NG-related entities. These actions misled shareholders and misrepresented the company’s financial position, ultimately harming independent public shareholders of the now-delisted company. [1] Shadow Director: someone who isn't officially appointed as a director of a company but exerts significant influence over its decisions, effectively acting as a director without the formal title. Court Orders The Court of First Instance delivered the following rulings: Name Roles Disqualifications Court Orders Mr. NG Kwok Fai Shadow Director Disqualified for 12 years, reflecting the severity of his misconduct. Compensation The trio must pay $192 million, to be redistributed as special dividends to independent public shareholders. Legal Cost The former executives were ordered to cover the SFC’s legal costs. Mr. LIU Tin Lap Executive Director Each disqualified for 8 years for knowingly assisting Ng. Compensation The trio must pay $192 million, to be redistributed as special dividends to independent public shareholders. Legal Cost The former executives were ordered to cover the SFC’s legal costs. Mr. LEE Man To Executive Director Each disqualified for 8 years for knowingly assisting Ng. Compensation The trio must pay $192 million, to be redistributed as special dividends to independent public shareholders. Legal Cost The former executives were ordered to cover the SFC’s legal costs. The disqualification periods bar them from serving as directors, liquidators, receivers, or managers, or being involved in the management of any corporation. Compensation Scheme Details (First-of-its-kind settlement in Hong Kong) In an innovative settlement, the $192 million compensation will be administered by Bruno Arboit of Kroll (HK) Limited, jointly appointed by the SFC and Combest. Enhanced Payouts: Two major shareholders (holding 24.4% of Combest) forfeited their entitlements, boosting independent shareholders’ dividends by 32.3%. Per-Share Amount: Eligible shareholders will receive $0.066 per share—2.75 times higher than Combest’s last closing price before its suspension on 29 May 2019. Distribution Process: Payments will be based on shareholdings as of the date the funds are deposited into the administrator’s account. The administrator will contact eligible shareholders directly. For inquiries, reach out to: Email: DL.combestholdingslimited@kroll.com Hotline: (852) 2281 0108 SIGNIFICANCE: SFC Chief Executive Officer Ms. Julia Leung highlighted the ruling’s significance: “ This court decision underscores the SFC’s power to hold de facto controllers of listed companies accountable for their misconducts, ensuring they face repercussions for their wrongdoings. The provision of direct compensation to affected shareholders marks a pioneering step, demonstrating the SFC’s unwavering devotion to exploring all avenues to achieve the most fair and efficient resolutions to protect the investing public .” This case sets a powerful precedent, reinforcing accountability for corporate misconduct and introducing a direct compensation model that prioritizes affected investors. Case Reference: HCCW 118/2020 12. SFC bans LAW Man Wai for market manipulation The SFC has banned Mr. LAW Man Wai (“ LAW ”), a former licensed representative of Cinda International Securities Limited (“ CISL ”), from re-entering the industry for three years, from 19 June 2025, to 18 June 2028. This action stems from an SFC investigation into his activities between March and September 2023. Background LAW, who was licensed to conduct RA 1 (dealing in securities) from 26 March 2020, to 8 June 2024, used accounts belonging to his sister and a friend for personal trading. These accounts were held at CISL and another brokerage. During the specified period, he executed 109 matched trades[1] or wash trades[2] across nine stocks, involving his own CISL account and those of his sister and friend. His goal was to avoid forced liquidation due to potential margin calls, disregarding the trades' impact on stock prices or trading volumes. Key Findings LAW deliberately hid his beneficial interests and personal trades in these accounts, breaching CISL’s staff dealing policy. LAW used CISL’s recorded telephone line to confirm trades with his sister and friend, submitting signed order records that falsely suggested the orders came from them. Additionally, LAW impersonated his friend to place orders for the friend’s account at another brokerage, keeping his involvement hidden from that firm. The SFC determined that LAW’s actions were dishonest, casting significant doubt on his fitness and properness to remain a licensed individual. However, the SFC noted a lack of evidence showing manipulative intent behind the trades and considered his previously clean disciplinary record when determining the three-year ban. SIGNIFICANCE: This case highlights the critical need for licensed representatives to follow regulatory and internal policies on personal trading and account usage. Unauthorized trading and concealment of interests can result in severe penalties, such as extended industry bans. Transparency and integrity are essential for maintaining trust in the financial markets. [1] Matched Trade: A trade where a person sells securities at a price nearly identical to their (or an associate’s) buy offer, creating an artificial market appearance. [2] Wash Trade: A trade with no change in beneficial ownership, effectively a self-transaction. [End of ComplianceOne Newsletter – June 2025] 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 - July 2024 The topics discussed in this monthly newsletter are as follows:  Consultation conclusions for legislative proposal to implement regulatory regime for stablecoin issuers in Hong Kong Enduring strength of Hong Kong as leading international asset and wealth management hub, a SFC survey 2023 SFC is to launch new online application and submission system for investment products Financial resources management and compliance with the Securities and Futures (Financial Resources) Rules SFC sets clear timeline for implementing an uncertificated securities market in Hong Kong HKMA takes disciplinary action against DBS Bank (Hong Kong) Limited for contraventions of the AML-CTF Ordinance Hedge Fund manager ordered to disgorge HKD5.6 million illicit profits from false trading and disqualified for four years MARKET NEWS 1. Consultation conclusions for legislative proposal to implement regulatory regime for stablecoin issuers in Hong Kong The Financial Services and the Treasury Bureau ( FSTB ) and the Hong Kong Monetary Authority ( HKMA ) jointly issued the consultation conclusions on 17 July 2024 on the legislative proposal to implement a regulatory regime for fiat-referenced stablecoin ( FRS ) issuers in Hong Kong. The consultation ended in February with 108 response submissions received; most of the respondents agreed with: the existing increased prevalence and evolving development of virtual assets (VAs); the view that a regulatory regime should be introduced for FRS issuers in order to facilitate proper management of potential monetary and financial stability risks, as well as providing transparent and suitable guardrails; the proposed regulatory requirements and implementation arrangements. The Secretary for Financial Services and the Treasury, Mr. Christopher HUI, also demonstrated his consent to the view that a licensing regime for FRS issuers will further strengthen the VA regulatory framework in Hong Kong in line with international standards. The Chief Executive of the HKMA, Mr Eddie Yue also added “ we believe that a well-regulated environment is conducive to the sustainable and responsible development of the stablecoin ecosystem in Hong Kong .” SIGNIFICANCE: The FSTB and the HKMA will take into account the views and suggestions from respondents in finalising the legislative proposal for implementing the regulatory regime, with a view to introducing a bill into the Legislative Council as soon as possible. Actually, in early stage on 12 March 2024, the HKMA had announced the launch of the stablecoin issuers sandbox arrangement with parties interested in issuing FRS in Hong Kong, and the applicants have to come up with proposed operations under a sandbox arrangement conducted within a limited scope and in a controllable manner. 2. Enduring strength of Hong Kong as leading international asset and wealth management hub- a SFC survey 2023 On 12 July 2024, an annual survey by the SFC further affirmed the theme of Hong Kong’s position as a premier asset and wealth management hub with a highly-diversified investor base, globalised asset allocation and robust fund inflows. According to the Asset and Wealth Management Activities Survey 2023 published that date, key findings of the Survey were as follows: investors outside Mainland China and Hong Kong accounted for 54-56% of total AUM in the past five years; 60% of the assets managed in Hong Kong were allocated to overseas markets; the number of Type 9 asset management firms increased steadily by 12% to 2161 as of June 2024; overall AUM grew 2% year-on-year in 2023 to HKD31,193 billion, while net fund inflows surged 342%; a strong net fund inflow for Hong Kong domiciled SFC-authorized funds with 93% year-on-year growth to HKD87 billion in 2023; with a strong net fund inflow of HKD33 billion in Q1 of 2024! the AUM of Mainland-related firms’ asset and wealth management business grew 4% to HKD2,676 billion, with net fund inflows increased 16% to HKD153 billion; the number of registered open-ended fund companies (OFC) surged 118%! SIGNIFICANCE: As Ms Christina Choi, the SFC’s Executive Director of Investment Products, had said: “ The survey’ s findings underscored the enduring strengths of Hong Kong’ s asset and wealth management industry, particularly the market’ s growing breadth and depth, as well as its resilience in the face of unprecedented challenges and macro headwinds .” Despite the negative figures of increasing number of securities brokers opting for exit plans to cease business, Hong Kong is undergoing a structural innovation to navigate to other scope of the financial industrial regime, in particular the recent remarkable development in nascent virtual assets and wealth management landscape. 3. SFC is to launch new online application and submission system for investment products On 8 July 2024, the SFC announced its launch of a new online application and submission system named e-IP for investment products administered by the Investment Product Division (IDP) on 29 July 2024 . The e-IP is developed on the existing WINGS portal that digitalises all processes and serves as a one-stop online platform for e-IP users to facilitate the following procedures: (i) submit new product applications; (ii) proceed with post-authorisation or registration submissions; (iii) track the progress of applications; (iv) maintain information profiles of investment products and (v) settle fee payments. To start off, e-IP users are advised to activate their e-IP administrator accounts and review the account administration arrangements like account delegation to advisory firms (if applicable), or any permission rights to be assigned. SIGNIFICANCE: For market participants to get familiarized with the new system, the launch will be accompanied by a three-month parallel run of the existing application and regulatory submission channels until 29 October 2024 . Briefing sessions, user guides and online clips are all available on the SFC website. 4. Financial resources management and compliance with the Securities and Futures (Financial Resources) Rules (FRR) On 3 July 2024, the SFC published a circular which elaborated on the SFC’s expectations regarding the governance and internal controls standards of licensed corporations ( LCs ) for monitoring their compliance with the FRR of the SFO. During its monitoring of LCs’ financial resources adequacy, the SFC has discovered various cases of deficiencies, typical examples were: (i) inadequate control over the liquid capital monitoring; (ii) ineffective management oversight; and (iii) failure to employ competent and qualified staff for calculating and monitoring liquid capital; (iv) late notification to SFC regarding the deficit of required liquid capital ( RLC ). With respect to FRR monitoring, five crucial areas SFC would focus on: (1) Expected Standards (a) an LC must at all times maintain liquid capital NOT less than the RLC, and cease operation immediately in case it fails to do so; (b) an LC should be aware of the internal controls over the FRR compliance as breach of which would lead to sudden cessation of operation and incur adverse impact on its clients’ interests; (c) as contravention of the FRR would cast doubt on the fitness and competence of the LC to remain licensed; it is of top priority for an LC to identify and ensure certain standards which are the minimum to be observed. (2) Governance (a) management oversight: since the ROs and MICs are primarily accountable, it is advised for an LC’s senior management to designate at least one RO or MIC to be responsible for overseeing the compliance of FRR; (b) competence: the LC should ensure the designated RO or MIC are competent and have the relevant knowledge in complying with FRR requirements; (c) FRR returns: since the FRR returns of an LC must be signed by its RO or officer approved by the SFC (each a Signer), it is necessary for an LC to produce reliable, up-to-date and accurate financial information to the Commission. (3) Internal Control Standards According to internal control guidelines, an LC should implement effective controls for its FRR compliance in areas like: (a) a maker-checker mechanism for calculation; (b) effective ongoing monitoring of its RLC status; (c) maintaining a regular projection of its liquid capital conditions; (d) any advance alerts when certain thresholds of Excess Liquid Capital ( ELC ) are triggered. (e) the frequency of liquid capital monitoring should be commensurate with the operational complexity of an LC (4) Incident Report and Remedial Measures (a) in case where an LC is aware of its failure to maintain the RLC, it should notify the SFC in full details of the incidence, the reasons for such occurrence and the immediate remedial measures to mitigate the situation. (5) Financial Distress Situation (a) In case where an LC has ceased business operations, it is still subject to all FRR requirements until the license has been revoked by the Commission. SIGNIFICANCE: LCs are strongly advised to take a look at the Appendix A where illustrative examples of deficiencies commonly discovered in FRR compliance, and expected standards are delineated in details. The examples also serve as guidelines for the LCs to follow and examine themselves if the same deficiencies in calculations have been adopted before, and to implement remedial measures accordingly in due course. 5. SFC sets clear timeline for implementing an uncertificated securities market in Hong Kong On 16 July 2024, the SFC released a consultation conclusion on its proposed subsidiary legislation, code and guidelines for implementing an uncertificated securities market ( USM ) in Hong Kong in the wake of its two consultation papers in March & October 2023 respectively. In response to market feedback, the SFC now proposed a 5-year timeline as below: subject to completing the legislative process, the USM regime will be implemented towards the end of 2025; companies whose laws are compatible with the regime will have to transition to the new regime in batches by the end of 2030; a more detailed timeline will be set to ensure an orderly transition. In the interim, the SFC will conduct a separate consultation on the maximum levels of certain USM-related fees, aiming to set upper limits in respect to the three fees charged by share registrars, i.e. transfer fees, dematerialisation fees and the fees charged for setting up a new facility since these fees may be shifted to the investors, thus affecting their participation in the USM. Under the USM arrangement, the need for manual and paper-based process will be removed, and thus enhancing the operational efficiencies with Hong Kong’s financial market infrastructure. Investors will be able to hold securities in uncertificated form electronically with better protection and convenience. ENFORCEMENT NEWS 6. HKMA takes disciplinary action against DBS Bank (Hong Kong) Limited for contraventions of the AML-CTF Ordinance On 5 July 2024, the HKMA announced its disciplinary action against DBC Bank (Hong Kong) Limited ( DBSHK ) for contraventions of AML-CTF Ordinance, and fined the bank with HKD10 million as pecuniary penalty. The disciplinary action followed an investigation by the HKMA on DBSHK’s systems and controls for compliance with the AMLO , key findings of contravention were reported during various periods between 1 April 2012 and 30 April 2019, precisely that DBSHK had failed to : obtain the copies of the identity document of 609 Authorizers of a corporate internet banking service offered by the bank; duly complete the trigger event review of customer due diligence ( CDD ) documents of 23 customer; identify transactions that have no apparent economic or lawful purpose when there were review alerts generated from its transaction monitoring system, or take any action to examine the background and purpose of these suspicious transactions in respect of 15 customers; take reasonable measures to establish the source of wealth ( SoW ) and the source of funds ( SoF ) of the high-risk customers, or take any additional measures to mitigate the risks of money laundering involved in the business relationship with 15 customers; establish and maintain effective procedures for purpose of carrying out its “ duties to continuously monitor business relationships ” with customers under section 5 of Schedule 2 to the AMLO; in particular with respect to the requirements of enhanced due diligence in high-risk situations where it is necessary to establish the principal business activities of customer in particular to SoF and SoW information; keep records required under section 20(1)(b) of Schedule 2 to the AMLO for a period of at least 5 years on the date on which the business relationship ended. SIGNIFICANCE: The AMLO and its relevant guidelines have been made available to all financial institutions, and there is no reason of ignorance or omission if the management team has taken the measures with due care, to implement the measures effectively and conduct reviews as required in order to identify, mitigate and remediate any deficiencies thus discovered. It could be deducted to the very interactive relationship between the "policies and procedures" per se and the personnel to whom these policies are applied and to be implemented! To foster a culture of compliance and integrity is an indispensable technique to harmonize such interactive relationship. 7. Hedge Fund manager ordered to disgorge HKD5.6 million illicit profits from false trading and disqualified for four years On 3 July 2024, the Market Misconduct Tribunal (MMT) had ordered Mr Jonathan Dominic Iu Wai Ching (LU), a former responsible officer of Tarascon Capital Management (Hong Kong) Limited (Tarascon), to disgorge illicit profit of over $5.6 million from false trading and disqualified him for four years following legal proceedings brought by the SFC. In findings of the investigation, on 22 trading days between August and September 2014, LU placed contemporaneous orders in the shares of Sinopharm Tech Holdings Limited and Quantum Thinking Limited through the brokerage accounts of the hedge fund managed by Tarascon and of his mother, leading to opposing orders to be executed against each other. The matched trades artificially created a false appearance of active trading in the listed shares, resulted in gains of HKD5.6 million in the brokerage account of LU’s mother at the expense of the hedge fund. The MMT has made the following orders against LU precisely as below: a disqualification order to prohibit him from being a director, effective from 28 June 2024; LU is banned from dealing in securities, futures contracts, leveraged foreign exchange contracts or CIS in HK for four years, effective from 28 June 2024; LU is not to engage in any conduct which constitutes market misconduct; LU is to pay the sum of the amount of profits gained by his market misconduct; and pay the SFC ‘s investigation costs. SIGNIFICANCE: At the material time, LU, who was responsible for managing and making investment decision for the hedge fund, was also a director, the chief investment officer, and a substantial shareholder of Tarascon. So ironical that LU was supposed to be the key management person to safeguard compliance of Tarascon and the hedge fund, and he turned out to be the main culprit to breach the rules he had to uphold by his capacity! 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 – Dec 2024 The topics discussed in this monthly newsletter are as follows: 1. The SFC grants 4 more VTAP licenses under swift licensing process 2. HKEX Data Marketplace is launched 3. Mainland-Hong Kong Mutual Recognition of Funds enhancements to take effect on 1 January 2025 4. SFC Quarterly Report states greater connectivity is driving Hong Kong’s capital markets a further step forward 5. The SFC launched “Don’t be Sucker” campaign to raise anti-scam awareness 6. A joint investigation by SFC and ICAC on suspected misconduct in public office 7. Fund manager Ng Ka Shun banned for life by SFC and fined $1.7 million for window-dressing FRR 8. SFC reprimands and fines Ever-Long Securities Company Limited $3 million for sponsor failures 9. Alpha Advice is on suspicious list of the SFC for its deceptive unauthorised advertisements on Facebook Market News 1. SFC grants 4 more VTAP licenses under swift licensing process On 18 December 2024, the SFC granted licenses to four virtual asset trading platforms (“ VATPs” ) under the swift licensing process for handling deemed-to-be-licensed VATP applicants (“ deemed applicants ”). In First-Phase , the SFC will engage proactively with senior management and ultimate controllers of the deemed applicants (or the VATPs) through onsite inspections, and provide feedback with the VATP to reach a rectification plan. The SFC will grant a conditional license that requires the VATP to complete penetration test and vulnerability assessment with satisfactory results. The VATP can then operate on a restricted scope of business as a licensing condition; and the VATP can proceed to engage a suitable External Assessor (“ EA ”) to perform the Second-Phase Assessment through a Tripartite Agreement with the SFC and the EA. The revamped Second-Phase will focus on VATP’s policies, procedures, system and controls (“ P&P ”) if these are suitably designed and implemented. The VATP is required to assess and revise its P&P in response to the findings & exceptions identified by the EA and the SFC with remediation measures. Upon completion of the Second-Phase Assessment, the licensing condition(s) that restricts the scope of business of the VATP will eventually be uplifted . SIGNIFICANCE: A clear roadmap has been posted in another Circular as Appendix to provide a comprehensive guidance to the VATPs who are interested to acquire a VATP license, and helps alleviate the burden from the previous onerous procedures. 2 . HKEX Data Marketplace is launched On 18 December 2024, the HKEX announced the launch of the HKEX Data Marketplace (the “ Platform ”), a web-based platform that offers data users a more intuitive experience in accessing HKEX’s historical and reference data. The new Platform allows modern interface with multiple data delivery channels, including cloud transfer, to obtain data directly from the HKEX and offers investors with optimal user experience and convenience. In its initial stage, the Platform will provide shareholding data from the Central Clearing and Settlement System (“ CCASS ”) for commercial use, as well as historical full book data from HKEX’s securities and derivatives markets, and securities market daily non-trading reference data. The HKEX will progressively add more data product offerings and functionality to the Platform, including tools to customise data, and additional options for data delivery, supporting the evolving needs of global investors. More details are available in the HKEX website . SIGNIFICANCE: Given the vogue of global investors for richer and more insightful market data to complement their investment strategies, the HKEX is pioneering itself to seize the opportunities as commented by Bonnie Y Chan, the HKEX CEO, that “ We are therefore delighted to be launching the HKEX Data Marketplace, providing clients with value-added services from our universe of comprehensive proprietary market data, further enhancing the vibrancy and attractiveness of Hong Kong’s financial markets. Data and analytics will complement our core business and present new and exciting opportunities for us as an adjacency. ” Opportunities are for those who are well prepared. 3. Mainland-Hong Kong Mutual Recognition of Funds enhancements to take effect on 1 January 2025 On 20 December 2024, the SFC made a publication of the revised Provisions on the Administration of Recognised Hong Kong Funds (香港互認基⾦管理規定) by the China Securities Regulatory Commission (“ CSRC ”) and also the revised operating guidelines jointly by the People’ s Bank of China and the State Administration of Foreign Exchange (國家外匯管理局), for the purpose of implementing the enhancements to the Mutual Recognition of Funds (“ MRF ”) scheme. Key takeaways of the enhancement: (i) The MRF is one of the five measures on the capital market cooperation announced by the CSRC on 19 April 2024; (ii) Relaxation of the sales limit on the value of units of a recognised fund sold to investors from 50% to 80% of the fund’s total assets; (iii) Relaxation of overseas delegation restriction which provides more opportunities for international asset managers to offer more offshore solutions and products to investors in Mainland with their expertise and knowledge. SIGNIFICANCE: The straight impact of the relaxation of the sales limit is an anticipated increase in maximum potential sales value on the Mainland by three times. Ms Julia Leung, CEO of the SFC, has said, “ We also feel confident that these enhancements will significantly increase the diversity as well as the scale of products under the MRF, thus injecting fresh momentum into the scheme .” The MRF enhancements becomes effective from 1 January 2025. 4. SFC Quarterly Report states greater connectivity is driving Hong Kong’s capital markets a further step forward On 12 December 2024, the SFC publicly a Quarterly Report showing that Hong Kong’ s capital markets have continued to reap benefits since the third quarter from the success of Connect schemes with the Mainland and breakthroughs in Middle East market connectivity. Highlights in the quarterly report are: (a) Hong Kong’ s ETF market continued to grow, with the market capitalisation of ETFs up 34% year-on-year (YoY). (b) The numbers of both corporate and individual licence applications received by the SFC increased in the quarter, up 56% and 23% YoY, respectively. (c) The SFC is reviewing 15 licence applications from virtual asset (“ VA ”) trading platforms (11 deemed to be licensed), and is on track to license a few deemed operators this year under a swift licensing process ( Remark: Our comment on the licensing process is also covered in this Newsletter ). (d) A number of leading Mainland enterprises went public through IPOs in Hong Kong after the Mainland announced support measures in April last year. (e) The Court of First Instance handed down the heaviest jail sentence on market manipulation cases (i.e. the enforcement news on 22 July 2024 ) since the Securities and Futures Ordinance took effect. SIGNIFICANCE: As Ms Julia Leung, CEO of the SFC, said, “ Our ETF market has achieved new milestones this year with continued robust growth in eligible ETFs under the Connect scheme and with new connectivity to the Middle East. Going forward, with broadening mutual market access with the Mainland, the SFC will strive to elevate Hong Kong to a global hub for multi-asset investing and offshore renminbi fixed-income business. ” 5. The SFC launched “Don’t be Sucker” campaign to raise anti-scam awareness On 13 December 2024, launched a new anti-scam campaign titled “ Don’t be Sucker ” to raise public awareness of the common tactics used in fraudulent schemes, as part of its ongoing efforts to caution investors against investment scams especially in the digital realm. The main character in this campaign promulgated by the SFC is named Shui Yu (⽔⿂) which symbolises an impulsive, simple-minded and gullible personality, an easy target of the investment scams. The focus is on three common scam scenarios, namely online romance scams, impersonation, and deceptive tips from financial influencers. As Ms Julia Leung, CEO of the SFC, said, “ Like enforcement, education is another essential prong of our efforts to maintain financial market integrity and protect investors against fraudsters. ” To achieve this aim, the SFC adopts more innovative approach on Shui Yu to attract audience among investors of all age groups, especially the young generation, delivering to them the message to “stay cool-headed towards too-good-to-be-true investment offers” coming upon them. Complimented with this was a series of catchy reap song and music video , and YouTube channels which reinforce the SFC’s fraudulence prevention message to and to cultivate the audience with a mindset of alertness. To go further, the SFC also set up booths themed “Rescuing Shui Yu” providing fund and educational games for all age groups at large. SIGNIFICANCE: Preventive education is always more preferred to learning a lesson by paying a heavy cost with regret. The crux is not to be greedy, and be alert to any temptations in the camouflage like "it is now or never!" Enforcement News 6. A joint investigation by SFC and ICAC on suspected misconduct in public office The SFC confirmed that a former staff member is one of the three individuals in a case of suspected misconduct in public office brought by the ICAC as a result of a joint investigation which remains ongoing. The other two defendants are a senior government counsel of the Department of Justice and a registered nurse of the Hospital Authority. The joint investigation was triggered by an internal probe of the SFC followed by its suspicion of obtaining and misusing of confidential information came to its attention. It was found in the SFC’s investigation that the former staff had acted on his own with other two individuals mentioned above, and the Commission is looking into potential violations under the Securities and Futures Ordinance. SIGNIFICANCE: The SFC upholds the highest standard of integrity and takes any misconduct seriously. It had conducted a thorough review of its internal policies regarding the handling of confidential information and conflict of interest. Further, the employment of the former staff had been terminated, and the matter was under investigation by the ICAC. 7. Fund manager Ng Ka Shun banned for life by SFC and fined $1.7 million for window-dressing FRR On 23 December 2024, it was announced that SFC had banned Mr Ng Ka Shun (“ NG ”), responsible officer (RO) of Agg. Asset Management Limited (“ Agg” ), for life and fined him $1.7 million for window-dressing Agg’ s financial resources and mismanaging two funds. Key findings of the case are as follows. (1) Window-dressing the financial resources NG misled the SFC into believing that Agg had satisfied the financial requirements for a licence by window-dressing the firm’ s liquid capital as of 31 March 2017. NG continued to conceal the fact of Agg’s inability to maintain sufficient liquid capital of HKD3 million after obtaining the license for a period of 34 months from May 2017 to February 2020 by providing misleading information in the financial returns submitted to the SFC. (2) Deficiencies and substandard conduct in fund management The SFC also found that Agg mismanaged two funds in its capacity as investment manager which seriously jeopardised the interests of the funds’ investors. The issues identified are: a) Conflicts of interest and risk management Agg invested all of its assets in debentures issued by companies controlled by Ng, resulting in Ng granting loans to himself with investors’ subscription; b) Investment within mandate, safety of fund assets and valuation Agg failed to properly safeguard the fund’ s assets by allowing Ng to withdraw part of the investors’ subscriptions from the fund ultimately for his own benefits; Agg further failed to ensure that the fund’ s investments were in line with its stated investment objective and its assets were valued properly. SIGNIFICANCE: This lifelong ban imposed by the SFC indicated the severity of the breach which not only jeopardised the integrity of the market, but induced investors with substantial loss which transcended the bottom-line of the regulatory body; a deterrent message must be manifested to the wrong-doers that they have to pay for their misfeasance. 8. SFC reprimands and fines Ever-Long Securities Company Limited $3 million for sponsor failures On 27 December 2024, the SFC reprimanded and fined Ever-Long Securities Company Limited (“ Ever-Long” ) $3 million for failing to discharge its duties as the sole sponsor in the application of Coastal Corporation Limited (“ Coastal ”) in 2016 to list on the Growth Enterprise Market (“ GEM ”) of the Stock Exchange of Hong Kong Limited (“ SEHK ”). At the material times, Coastal and its subsidiaries (“ Coastal Group” ) were providers of vessel chartering services based in Singapore. The important incidence was the change of business model. In January 2014, Coastal’s subsidiary underwent a change of business model from leasing vessels to one of Coastal’s connected persons (Connected Person A) to leasing them to the top customer, an independent third party. Under this business arrangement, the top customer was able to utilise the vessels to provide bunkering services to its customers, which included another connected person of Coastal (Connected Person B). This leasing arrangement accounted for over 50% of Coastal Group’s revenue for each of the financial years ended 30 June 2015, 2016 and 2017, which fell within the track record periods of Coastal’s listing applications. Findings in the investigation showed Ever-Long was charged with: (1) Failure to perform proper due diligence on rationale for and legality of leasing arrangement which might involve a license requirement in Singapore. (2) Failure to perform proper due diligence on operations of leasing arrangement and Coastal’s business : the descriptions of the operation model of the leasing arrangement in the Application Proof and relevant agreements were at odds with evidence available to Ever-Long. (3) Failure to perform proper due diligence on deemed connected transactions Though under the Application Proof, the Coastal’s directors considered it prudent to deem the transactions between Coastal’s subsidiary and the top customer as connected transactions under the GEM Listing Rules; Ever-Long failed to conduct reasonable due diligence to ascertain and ensure the basis and accuracy of such disclosure. (4) Failure to disclose a known material issue to SEHK and ensure completeness of information in Application Proof Despite Ever-Long’s knowledge of the top customer’s lack of licence and the materiality of the same to Coastal’s suitability for listing, Ever-Long did not disclose this in the Application Proof and its submission to SEHK. SIGNIFICANCE: The SFC is of the view that Ever-Long’s conduct failed to fulfil the standards expected of it as a sponsor and breached the requirements of the Code of Conduct. 9. Alpha Advice is on suspicious list of the SFC for its deceptive unauthorised advertisements on Facebook On 19 December 2024, the SFC warned the public of Facebook advertisements paid by Alpha Advice in relation to a suspicious investment product “Litigation Asset-Backed Notes” or “90-Day Notes” The advertisements appeared to be targeting Hong Kong investors, and contain references to the common features of debentures which are not authorised by the SFC. In the view of the SFC, these advertisements may constitute “prospectuses” under the Companies (Winding Up and Miscellaneous Provisions) Ordinance (“ CWUMPO ”) without the SFC’ s authorisation for registration, and have already been posted on the Suspicious Investment Products Alert List on 19 December 2024. SIGNIFICANCE: The SFC urges the public not to invest in any securities (including debentures) without a document authorised by the SFC for registration and/or issue, where appropriate. The public should also be vigilant and sceptical about “too-good-to-be-true” investment opportunities when making investment decisions. [End of ComplianceOne Newsletter –January 2025] 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 - August 2023 The topics discussed in this monthly newsletter are as follows: SFC’s Consultation Conclusion on Proposed Risk Management Guidelines for Futures Contracts Dealing Activities was released SFC concluded Consultation on Amendments to Enforcement-related Provision of the SFO SFC and CSRC reached Consensus on Introducing Block Trading under Stock Connect HKMA, SFC, and IA jointly Published a New Roadmap to Promote Fintech Adoption in Financial Services Sector Reminder to Intermediaries on the Over-the-counter Securities Transactions Reporting Regime (OTCR) SFC Warned Investors about Improper Practices of Unlicensed Virtual Asset Trading Platforms Changjiang Corporate Finance (HK) Limited was fined $20 million for Serious Sponsor Failures in 6 Listing Applications during 2015 to 2017 China Industrial Securities International Brokerage Limited was fined $3.5 million for failures to monitor Suspicious Trading Activities and record of Client Order Instructions Mayer Holdings Limited ( 1116.HK ) and its Former Senior Management were found misconduct for Late Disclosure of Inside Information MARKET NEWS 1. SFC’s Consultation Conclusion on Proposed Risk Management Guidelines for Futures Contracts Dealing Activities was released The SFC had published the consultation conclusions on its proposed risk management guidelines for the licensed futures brokers. The guidelines provide a very comprehensive risk management approach which covers market risk management, commodity futures trading, client credit risk management, concessionary margining and risk management over executing or clearing agents. Other requirements like the funding of liquidity risk management, safeguarding client assets, trading in futures markets outside Hong Kong and stress testing are also included. As Ms Julia Leung, the SFC’s Chief Executive Officer, had said, “ a robust risk management framework is crucial in ensuring the resilience of futures brokers when the market is volatile .” A prudent risk management approach not only helps futures brokers ensure their continuity in business; it is also crucial for protection of clients’ assets held under the brokers. Futures brokers have a transitional period of six months to comply with the guidelines and an additional 12 months to implement system changes for compliance with requirements relating to the automation of client risk limit controls and stress testing. SIGNIFICANCE: There are some key takeaways futures brokers have to bear in mind in order to maintain themselves compliant with the coming requirements: (i) Responsible Officers (ROs) and Managers-In-Charge (MICs) of the futures brokers are revised to have coordination in the risk management of futures business; (ii) Futures brokers handling physical settlement of commodity futures are required to have sufficient knowledge about the underlying commodity markets; (iii) Futures brokers can follow their internal policies in deciding whether a forced liquidations (“FLQ”) on a client who has triggered the internal policy’s threshold should be executed or not. Waivers can be granted provided that the senior management has a proper justification and be safeguarded that a deviation from FLQ would not have adverse influence on the financial stability of the futures broker ; (iv) The thresholds for applying concessionary margining to clients have been revised to a limit of 50% of the higher of a futures broker’s excess liquid capital (ELC) and its available fundings; (v) For margins maintained with overseas brokers, futures brokers should adopt a prudent approach to manage their exposures to maintain excess clients’ margins and to disclose to clients the relevant risks involved in conducting transactions overseas; (vi) As a minimum requirement, futures brokers have to perform stress tests at least on a weekly basis; further that it is necessary to follow the requirements set by the exchanges or clearing houses in formulating the scenarios for conducting the stress tests; (vii) Last but not least, futures brokers have to observe the transitional period after which they have to ensure that client risk limits have been incorporated in the risk management system, order management system or the trading platforms; and to carry out stress tests using the assumed stress scenarios as designed by the Guidelines. 2. SFC concludes Consultation on Amendments to Enforcement-related Provision of the SFO The SFC published on 8th August 2023 a consultation conclusions on proposed amendments to enforcement-related provisions of the SFO. It was stated that the SFC would proceed with the proposal which was intended to broaden the scope of the SFO’s insider dealing provisions to cover: (i) insider dealing perpetrated in Hong Kong with respect to securities listed on overseas stocks markets; and (ii) insider dealing perpetrated outside of Hong Kong involving stocks listed on a recognised stock market like the SEHK. Having received responses from industry practitioners, and considered the complexities in implementation raised by the respondents, the SFC has decided to put a hold on the other two proposed amendments which concern the professional investors exemption and injunctions and other orders at this stage. SIGNIFICANCE: The proposed amendments consisted of three parts: Part 1: Amendments to section 213 of the SFO: Despite comments on legal and implementation issues from the industry, the SFC reiterated that the policy objective of the proposal was to enhance the remedies to protect the investing public in situations where the SFC cannot directly require the regulated persons in breach of SFC codes or guidelines to compensate the suffered clients. Part 2: Amendments to exemptions in section 103 of the SFO: Many respondents had expressed concerns about the (i) necessities of the amendments and (ii) foreseeable operational difficulties and impact on the marketing process to professional investors. The SFC reiterated that the policy objective of the proposal was to enhance investor protection by limiting retail investors’ exposure to unauthorised advertisements of investment products intended for professional investors and by reducing the risk of the professional investor exemption being abused by advertisements. Part 3: Amendments to the insiders dealing provision of the SFO: Most respondents supported for these proposed amendments and the SFC would proceed with the amendments to the insider dealing provisions of the SFO accordingly. 3. SFC and CSRC reached Consensus on Introducing Block Trading under Stock Connect On 11 Aug 2023, the SFC and the China Securities Regulatory Commission (CSRC) jointly announced that they had reached a consensus on the introduction of block trading (manual trades) under Stock Connect. Block trading provides an alternative trading mechanism to enable market participants to execute large-sized transactions, and such an introduction under the Stock Connect will enable southbound and northbound investors to participate in the block trading facilities currently available in the Hong Kong and Mainland markets respectively. The block trading arrangements for Stock Connect will be developed based on the existing operational models and regulations in each market with appropriate adjustments. SIGNIFICANCE: As Ms Julia Leung, Chief Executive Office of the SFC, had said: “ block trading is an important trading mechanism to achieve best execution of large-sized transactions and minimise the price impact on the market ”. From a markert participant’s point of view, block trading arrangements can help maintain price stabilities by avoiding large orders placed directly to the market which may exhibit substantial influence on the market prices. 4. HKMA, SFC, and IA jointly Published a New Roadmap to Promote Fintech Adoption in Financial Services Sector The Hong Kong Monetary Authority (HKMA), the SFC and the Insurance Authority (IA) jointly published on 25th August 2023 a new Fintech Promotion Roadmap (the “Roadmap”) which contains a series of initiatives to be undertaken by the three regulators over the next 12 months to give further impetus to Fintech adoption in the financial services Sector. HKMA has all along been actively promoting the “ All banks go Fintech ” initiative under the “Fintech 2025” strategy, and a Tech Baseline Assessment was conducted. The assessment highlights substantial potential developments in Fintech areas like Wealthtech, Insurtech and Greentech as well as the Artificial Intelligence (AI) and Distributed Ledger Technology (DLT). To further expedite Fintech adoption in the wider financial services sector, the new Fintech Promotion Roadmap will provide practical recommendations at different stages of the Fintech adoption journey, from sourcing to implementation. These initiatives will present excellent opportunities for financial institutions to share practical insights, exchange innovative ideas across sectors and expand your institution’s Fintech network. SIGNIFICANCE: The Fintech and AI has penetrated into our daily walk of life with the widely used in retail banking and mobile devices, any institutions having intention to develop technology-oriented business must equip themselves with relevant and competent staff to “catch the train” in order not to be left out from the market. 5. Reminder to Intermediaries on the Over-the-counter Securities Transactions Reporting Regime (OTCR) Relevant Regulated Intermediaries (“RRIs”) are reminded that the OTCR will become effective on 25th September 2023. Those that have not yet completed the testing and preparation for reporting under the OTCR are urged to do so before the effective date. RRIs have to submit the OTCR through the OTCR WebApp or the OTCR SFTP submission channels on WINGS depending on their licensed status. RRI are strongly advised to take a look at the quick start for reference to proceed whereas technical details are available from the updated version of the OTCR Technical Information Paper for specifications and configurations. 6. SFC Warned Investors about Improper Practices of Unlicensed Virtual Asset Trading Platforms The SFC has observed some unlicensed virtual asset trading platforms (VATPs) engaging in improper practices recently, and a statement had been published on 7th August 2023 warning VATPs of the potential legal and regulatory consequences of these improper practices and reminded investors to be wary of the risks of trading virtual assets on unregulated VATPs. Some crucial observations as stated as below. Falsely claiming to have submitted an application to the SFC Some unlicensed VATPs claim to have submitted licence applications to the SFC when in fact they have not done so. These untrue and misleading claims give the public a false sense of assurance that the VATP is in compliance with the SFC’s regulatory requirements, and is considered as an offence by the SFC. VATPs which do not comply with the SFC’s requirements The transitional arrangements under the new regime were designed to provide reasonably sufficient time for VATPs which provided virtual asset services in Hong Kong before 1 June 2023 to prepare for compliance with the legal and regulatory requirements applicable to licensed VATPs. Yet, it has come to the attention of the SFC that some unlicensed VATPs set up new entities to provide virtual asset services in Hong Kong where the services and products offered by some of these new entities may not be in compliance with the new regulatory regime. Some examples are advertisements providing virtual assets services to retail investors in the disguise of virtual asset “depost”, “savings” or “earnings” which are not allowed under the new regime. Unlicensed VATPs’ established entities operating in Hong Kong The SFC also reminds that any other established entities of unlicensed VATPs which are operating a business in Hong Kong of providing virtual asset services will also be subject to the new virtual asset service provider regime to be licensed as well. SIGNIFICANCE: The SFC has taken this opportunity to warn investors that some unlicensed VATPs are misleading the public by claiming to have submitted licence applications to the SFC when in fact they have not done so. Some other unlicensed VATPs may have publicly announced an intention to apply for a licence from the SFC. Given the high profile approach of the HKSAR before to advocate itself as a pioneer in virtual assets licensing regime, the protection of investors amid the transitional period is an obligation on priority list to the regulatory bodies. ENFORCEMENT NEWS 7. Changjiang Corporate Finance (HK) Limited was fined $20 million for Serious Sponsor Failures in 6 Listing Applications during 2015 to 2017 On 21st August 2023, the SFC had reprimanded and fined Changjiang Corporate Finance (HK) Limited (CJCF) HK$20 million for serious and extensive failures in discharging its duties as the sponsor in six listing applications. The license of CJCF has been partially suspended to the extent that the firm shall not act as a sponsor for listing applications on the SEHK of any securities, for one year from 18th August 2023 or until the SFC is satisfied with the controls and procedures of CJCF. The investigation of the SFC reveals systemic records keeping failures of CJCF, and thus failed to demonstrate that it had exercised professional scepticism by querying the reliability of information provided by the listing applicants and their experts, and verifying the statements disclosed in their respective Application Proof prospectuses SIGNIFICANCE: The SFC is of the view that CJCF’s conduct fell substantially below the standards expected of it as a sponsor and breached the requirements under Chapter 17 of the Code of Conduct and other regulatory requirements. 8. China Industrial Securities International Brokerage Limited was fined $3.5 million for failures to monitor Suspicious Trading Activities and record of Client Order Instructions It was published on 22nd August 2023 that the SFC had reprimanded and fined China Industrial Securities International Brokerage Limited (China Industrial) HK$3.5 million for internal control failures relating to monitoring of suspicious trading activities and recording of client order instructions. Findings of the SFC investigation showed that China Industrial had failed to effectively implement its internal policy on post-trade monitoring and ensure all unusual transactions flagged by its post-trade surveillance system (Alerts) were properly examined; even worse was that the findings and outcomes thus examined were not adequately documented or to have in place effective compliance procedures to ensure proper implementation of the internal policy on post-trade monitoring during the Relevant Periods. In addition, China Industrial also failed to diligently supervise its account executives and take adequate and timely follow-up actions against those in breach of the internal policy on recording of telephone orders and report immediately to the SFC after it became aware of its account executives’ breaches of the regulatory requirements on recording of telephone order instructions. 9. Mayer Holdings Limited (1116.HK) and its Former Senior Management was found misconduct for Late Disclosure of Inside Information Announced on 9th August 2023, the Market Misconduct Tribunal (MMT) has found that Mayer Holdings Limited (Mayer) and nine of its former senior executives failed to disclose inside information as soon as reasonably practicable as required under the SFO following remitted proceedings after the Court of Appeal allowed appeals by Mayer and its directors against an earlier determination by the MMT. In the remitted proceedings, upon assessing the cumulative impact of the undisclosed pieces of specific information regarding suspicious transactions and the resignation of auditors that would have had on the potential buyers and sellers of Mayer shares at the material time, the MMT was satisfied that the undisclosed information would have been likely to have had a material effect on the share price of Mayer and therefore found that the undisclosed specific information constituted inside information. It was also found by the MMT that Mayer had no written guidelines and/or internal control policies on the statutory requirements to disclose inside information which resulted in the breach of the disclosure requirement imposed on it under the SFO. As for the other nine former senior executives, the MMT also found that they had also breached the disclosure requirement imposed on them under the SFO, in that their intentional, reckless or negligent conduct resulted in the breach of the disclosure requirement by Mayer. The MMT will determine the sanctions against Mayer and its former senior executives in a later hearing on a date to be fixed. 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 ”.