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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. [End of ComplianceOne Newsletter – November 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

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 . 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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 ”.

證券及期貨事務監察委員會（”證監會”）於2023年3月發佈了多份簡易參考指南簡單說明發牌及勝任能力規定。 證券及期貨事務監察委員會（”證監會”）於2023年3月發佈了多份簡易參考指南簡單說明發牌及勝任能力規定。 符合條件的內地從業人員可以省去眾多額外的考核與資格判定程序，直接在香港執業，預計將進一步加深兩地金融市場的互動。 當中包括三個主要元素分別是： 學歷及專業資格； 行業經驗及資格,以及； 香港監管架構考試 對於一些擁有足夠經驗的內地執業申請人，香港證監會可務實豁免部分相關考試，以便他們獲取牌照在香港執業。內地人員可靈活及有效地在網上提交牌照申請。 認可內地專業資格: 中國證券業協會 中國期貨業協會 中國證券投資基金業協會 若內地執業申請人已獲得中國證券業協會、中國期貨業協會或中國證券投資基金業協會的執業資格，可被視作符合相關香港持牌代表的認可行業資格。 如已擁有內地高管人員任職資格，可被視作符合相關香港負責人員的認可行業資格。 目前，證監會承認在內地取得的行業及管理經驗，並會考慮一些在無需受規範管理情況下所獲取的執業資格。證監會提到，如果申請人沒有取得大學學位但在內地取得足夠的相關行業經驗，他可以選擇完成額外的持續培訓，並通過勝任能力評估，而無需取得相關認可行業資格。 證監會例子 為了幫助從業人員更好地理解指南，證監會提供了以下例子。 例子一： 如果李先生已經持有中國內地的一般證券或期貨業務資格，在申請成為香港的持牌代表時，他可以被認可為符合第1類受規管活動（證券交易）或第2類受規管活動（期貨合約交易）的行業資格。 同樣地，如果李先生持有中國內地的基金管理資格，他可以被認可為符合第9類受規管活動（資產管理）的行業資格。 例子二： 張女士在中國內地擔任私募基金的基金經理和董事總經理已有十年。她現在被派駐到香港一家持牌的私募基金管理人子公司，擔任首席投資總監及負責人。由於張女士擁有中國內地的經濟學學位以及豐富的基金管理和領導經驗，她符合學歷、行業資格及管理經驗的要求。因此，她只需通過香港監管架構考試，便可滿足勝任能力的評估。 作為子公司的高級管理人員並擁有足夠的相關行業經驗，張女士可以申請豁免香港監管架構考試的規定，或根據相關的發牌條件，在牌照核准後六個月內通過該考試。 總體而言，證監會的努力明確表明了加強兩地金融市場互動與融合，深化金融合作的意圖。這些指南解答了常見的發牌問題，並提供了有關家族辦公室免牌照經營條件、海外行業經驗和資格的認可，以及豁免考試規定的具體資料。這將提高申請者的申請效率和成功率，同時有助於規範市場行為和促進監管的有效性。 (更多信息，請參閱證監會的發牌手冊或遊覽簡易參考指南系列)

The topics discussed in this monthly newsletter are as follows: ComplianceOne Newsletter - October 2023 The topics discussed in this monthly newsletter are as follows: 1. China banned new offshore brokerage accounts to prevent “bypassing” of forex controls 2. SFC/HKMA joint circular on intermediaries’ virtual asset-related activities 3. Circular on distributors providing additional returns and other services or arrangements when marketing SFC-authorised funds 4. SFC consulted on market sounding guidelines 5. SFC expressed support for development of an industry-led voluntary code of conduct for ESG ratings and data products providers 6. SFC banned Ivan Chan Chuk Cheung for seven years for IPO sponsor failures 7. SFC, ICAC and AFRC conducted first tripartite operation against suspected corporate fraud and misconduct MARKET NEWS 1. China banned new offshore brokerage accounts to prevent 'bypassing' of forex controls According to Reuters news on 12 October 2023, China had for the first time issued a notice prohibiting domestic brokerages and their overseas units from taking on new mainland clients for offshore trading; whereas new investments by existing mainland clients are also subject to strict monitoring to prevent investors from bypassing China’s foreign exchange controls. The China Securities Regulatory Commission (CSRC) had made it explicit earlier in September that brokers should cease providing securities trading from offshore accounts such as from Hong Kong to new mainland investors, and activities now considered as illegal include cross-border securities brokerage services, securities lending, fund sales or investment consultancy. The story can be traced back to last December when the CSRC put a ban on the offshore investments through two main online brokers, Futu Holdings Ltd and UP Fintech Holdings Ltd where it was stated that such activities were in breach of the securities laws in China. Despite of the recent tightening measures, institutional investors from mainland China are still able to gain access to the HK stock markets through the Stock Connect, though on a quota-restriction basis. SIGNIFICANCE: The notice and subsequent actions are conceived by many market participants as symbols of restricting capital outflows from mainland, particular amid the weakening of RMB in the foreign exchange market over the past months. This impact from the regulatory regime can be far-reaching and suppressing, especially for brokerage firms with strong mainland backgrounds of which larger portion of offshore retail business was originated from. 2. SFC/HKMA Joint circular on intermediaries’ virtual asset-related activities On 20 October 2023, the SFC and the HKMA published a “ Joint Circular on intermediaries’ virtual asset-related activities ” amid the buoyant interests and enquiries from intermediaries about the distribution of virtual assets-related (VA-related) products, advisory and dealing services as well as asset management services in virtual assets industry. The SFC and the HKMA have been reviewing their existing policies for intermediaries contemplating to engage in virtual assets-related industry in the light of the ever-changing and fast-growing VA activities. This Joint Circular incorporated FOUR main categories of VA-related activities with relevant Appendices, providing guidance and “terms & conditions” in details for intermediaries engaging the following categories: A. Distribution of VA-related products B. Provision of virtual asset dealing services (VA dealing services) C. Provision of asset management services in respect of virtual assets D. Provision of virtual asset advisory services SIGNIFICANCE: Intermediaries with intention to engage in VA-related business or dealing services are strongly recommended to take notes of the relevant Appendices which serve as regulatory guidelines to ensure intermediaries themselves of being in compliance while conducting their VA-related activities or VA brokerage services. Please be reminded the prevailing Joint Circular supersedes the previous versions, and intermediaries have the obligations to keep abreast of the changing VA regulatory regime in collaboration with the ongoing concerted efforts of the law-enforcing counterparts like the SFC and the HKMA in order to develop and consolidate a sound regulatory landscape. 3. Circular on distributors providing additional returns and other services or arrangements when marketing SFC-authorised funds On 24 October 2023, this circular was published in the light of the recent observations of licensed corporations’ practice in offering and promoting SFC-authorised funds. It was noticed that intermediaries have been offering additional returns or other incentives that may divert the client’s focus from properly considering the risks and features of the underlying funds. In some observed cases, “guaranteed returns” and “lock-up period” are the common features. Guaranteed returns The “guaranteed returns” typically comprise: (i) the actual return of the relevant fund(s) invested by the investor (i.e., fund return); and (ii) a top-up return to make up the difference between the fund return and the guaranteed rate of return offered by the distributor. Moreover, the guaranteed returns offered by some distributors may be considered as a “gift” which may contravene paragraph 3.11 of the Code of Conduct that “distributors should not offer any gifts (other than a discount of fees or charges) in promoting a specific investment product or a particular type of investment product to a client", lest investors may be distracted from the unique features and risks of such particular fund per se. Lock-up period and dealing frequency When distributing SFC-authorised funds, some distributors imposed a lock-up period on their clients’ investments or lowered the funds’ dealing frequency. It is reminded that distributors should act fairly and in the best interests of their clients in providing services in accordance with General Principle 1 (Honesty and fairness) of the Code of Conduct that clients should not be restricted to redeem his investment in a fund which interferes with his timely investment decisions. SIGNIFICANCE: SFC-authorised funds without guaranteed features are required to highlight in their offering documents that they do not have these features and that investors may not get back the principal of their investment. For this reason, any guaranteed returns provided by distributors may create a misleading impression to the investors that these returns are provided by the underlying funds which is not a factual presentation indeed! As for the lock-up period, the SFC has made its expectation expressly that distributors should use their best endeavours to adhere to a fund’s dealing frequency as stipulated in the offering documents despite the need to achieve any administrative efficiency in setting any cut-off times. 4. SFC consulted on market sounding guidelines On 11 October 2023, the SFC launched a consultation on proposed guidelines for market soundings which highlighted the general principle of honesty, fairness and best interests to the clients while conducting the regulated activities. Under the proposals, intermediaries would have to implement robust governance and effective policies and internal control procedures to prevent the misuse and leakage of non-public information they are entrusted with. As Ms Julia Leung, the SFC’s Chief Executive Officer, has said: “ both sell-side brokers and buy-side participants have obligations to uphold market integrity by keeping in strict confidence non-public information entrusted to them and not abusing that information. ” SIGNIFICANCE: This consultation follows a thematic review of market soundings the SFC commenced in early 2022. In developing the proposed guidelines, the SFC took into consideration local and overseas market practices and regulatory requirements, related cases as well as information gathered and feedback from intermediaries in the thematic review. 5. SFC expressed support for development of an industry-led voluntary code of conduct for ESG ratings and data products providers On 31 October 2023, the SFC announced that it would support and sponsor the development of a code of conduct for voluntary adoption by environmental, social and governance (ESG) ratings and data products providers providing products and services in Hong Kong. The Voluntary Code of Conduct (VCoC) will be developed via an industry-led working group, namely the Hong Kong ESG Ratings and Data Products Providers VCoC Working Group (VCWG). And The SFC also welcomed the International Capital Market Association (ICMA) to act as the Secretariat of the VCWG. The proposed VCoC would align with international best practices as recommended by the International Organization of Securities Commissions (IOSCO) and relevant expectations introduced in other major jurisdictions, with the SFC, HKMA and the Insurance Authority (IA) as observers to the VCWG. As Ms Julia Leung, the SFC’s Chief Executive Officer, has said: “ the Voluntary Code of Conduct will help strengthen the transparency, quality and reliability of ESG information used by licensed corporations in their investment decisions; this is an important initiative to mitigate the risk of greenwashing in investment products .” The initiative is the culmination of the SFC’s fact-finding exercise and industry outreach conducted since mid-2022, the key observations from the exercise and proposed way forward for these providers were summarised in a report published by the SFC that date. ENFORCEMENT NEWS 6. SFC banned Ivan Chan Chuk Cheung for seven years for IPO sponsor failures An announcement made on 11 October 2023, the SFC had prohibited Mr Ivan Chan Chuk Cheung (Chan), a former responsible officer (RO) of Changjiang Corporate Finance (HK) Limited (CJCF), from re-entering the industry for seven years from 10 October 2023 to 9 October 2030 for failing to discharge his supervisory duties as a sponsor principal in charge of five listing applications The disciplinary action followed the earlier sanctions against CJCF for serious and extensive failures in discharging its duties as the sponsor in six listing applications, five out of which were attributable to neglect on the part of Chan. SIGNIFICANCE: Given a ban of such long duration of seven years, Chan had failed in his role as the sponsor principal to: (i) exercise due skill, care and diligence in handling the Five Listing Applications; (ii) diligently supervise the transaction teams in carrying out the sponsor work; and (iii) ensure the maintenance of appropriate standards of conduct by CJCF. 7. SFC, ICAC and AFRC conducted first tripartite operation against suspected corporate fraud and misconduct On 19 October 2023, the SFC, the Independent Commission Against Corruption (ICAC), and the Accounting and Financial Reporting Council (AFRC) have conducted the first tripartite operation involving two Hong Kong-listed companies on suspicion that they falsified corporate transactions totalling HK$193 million. In the joint operation, three persons, including an executive director of a listed company, were arrested by the ICAC for suspected offences of agent using documents with intent to deceive his principal under the Prevention of Bribery Ordinance. The investigation revealed that the management of the two companies listed on the SEHK had allegedly conspired with members of the syndicate to falsify corporate transactions, resulting in overstatements of HK$83.9 million in their revenue and misstatement of assets in the sum of HK$109.2 million. Such overstatements and misstatement of assets might lead to disclosure of false or misleading information in the interim results and/or annual reports of the two listed companies. The SFC’s Executive Director of Enforcement, Mr Christopher Wilson, said: “ Directors of listed companies are entrusted to govern truthful and accurate financial disclosures which serve as the bedrock of our capital markets. The tripartite operation, and the first with the AFRC, underscores our shared commitment to holding accountable those who abuse that trust and defraud investors .” Meanwhile, Deputy Commissioner and Head of Operations of the ICAC, Mr Ricky Yau Shu-chun, and Ms Janey Lai, Acting Chief Executive Officer of the AFRC, separately expressed their appreciation of the tripartite operation in upholding the integrity of the financial market in Hong Kong. For more details, please click on the title of the topic above. ================================= ~ Make It Right Today, Better Tomorrow ~ ================================= The Newsletter is for general information purpose only and is not intended to constitute legal or other professional advice. For enquiries, please email to support@complianceone.hk or WhatsApp us at (852) 95164607 . Unit 1104, 11/F, 299QRC, 287-299 Queen's Road Central, Sheung Wan, Hong Kong Tel: (852) 39550277 www.complianceone.hk To unsubscribe, please click “ unsubscribe ”.

The topics discussed in this monthly newsletter are as follows: ComplianceOne Newsletter – Apr 2025 The topics discussed in this monthly newsletter are as follows: REGULATORY UPDATES The SFC Enforcement Reporter is back in action SFC sets out staking guidance for licensed VATPs and authorised VA funds MARKET NEWS A Revised grant scheme for Open-ended fund companies and Real estate investment trusts Uncertificated Securities Market Regime to be launched in early 2026 SFC and HKEX co-organise inaugural International Carbon Markets Summit ENFORCEMENT NEWS Interactive Brokers Hong Kong is Fined HK$4.2 Million for mishandling of Client Assets SFC Takes Disciplinary Action Against CSC Futures and Former Executive for Inadequate Due Diligence on Customer Supplied Sysytems Regulatory Updates 1. The SFC Enforcement Reporter is back in action In March, the SFC announced that the “Enforcement Reporter” is back in action again. A snapshot of focus on the highlights of the “New Market Scanning Initiative” and the “SFC & AFRC# Joint Statement and Enforcement Actions on Dubious Loans” are as follows. # Accounting and Financial Reporting Council (AFRC): The independent regulator of the accounting profession. A. New Market Scanning Initiative The SFC is of the view that early intervention is the key to prevent governance failures, and the Commission is leveraging the use of artificial intelligence (AI)-empowered analytics to: (i) identify red flags in listed companies engaged in money-lending activities including: e.g. granting substantial loans with insufficient due diligence and internal control; (ii) through the adoption of “Market Scanning Detection Model” and to engage with boards and audit committees to highlight key risk areas and governance concern before the issues are worsened. The goal is to prevent rather than to discipline , the SFC aims to achieve: (i) Early Intervention to identify, prevent and mitigate. (ii) Behavioural Change in management culture to take proactive steps to address issues. (iii) Market Confidence from investors through promoting transparency and accountability. B. SFC & AFRC Joint Statement and Enforcement Actions on Dubious Loans It was found that in recent years, corporate executive at listed companies may use loan arrangements to divert corporate funds to related parties which usually lack genuine commercial purpose, and not for interest of the company itself. In the light of this, the SFC and the AFRC had issued a joint statement in July 2023, signalling to the public their collaboration in addressing the trend in capital market in Hong Kong. The statement highlighted an observed increase in suspected misconduct by listed issuers using dubious loans, some red flags are: (i) Loans granted without sound commercial rationale. (ii) Poor Due Diligence with insufficient risk assessments or supporting documentation. (iii) Weak Internal Controls in managing loan approvals. The SFC & AFRC had set out some guidelines in addressing the issue of dubious loans with expected standards as below: (a) Expectation on Management (i) undergo effective vetting of loans; (ii) act with duty of good faith; (iii) ensure proper documentation; (iv) report material issues timely to the board. (b) Expectation on Audit Committees (i) ensure oversight of internal controls; (ii) ensure accurate financial reporting of the loans in the financial statements; (iii) engage with auditor to ensure a robust audit on the loans. (c) Expectation on Auditors (i) design responsive audit procedures to evaluate the effectiveness of internal controls over the loans granted; (ii) heighten professional scepticism when come across loans without proper commercial rationale; (iii) timely report any observed or suspected fraud to the audit committee. For more details of the highlights in the Reporter, please click Enforcement Reporter Returns . Source: Enforcement Reporter Returns of SFC 2. SFC sets out staking guidance for licensed VATPs and authorised VA funds The SFC provided on 7 April 2025, together with two additional circulars of regulatory guidance, to: (i) licensed virtual asset trading platforms (“ VATP ”s) on their provision of staking services; (ii) SFC-authorized funds with exposure to virtual assets (“ VA Funds ”) on their engaging in staking. “ Staking refers to the process of committing or locking client virtual assets for a validator to participate in a blockchain protocol’s validation process based on a proof-of-stake consensus mechanism, with returns generated and distributed for that participation ”. The SFC recognised the potential benefits of staking in enhancing the security of blockchain networks and allowing investors to earn yields on virtual assets within a regulated market environment . The guidelines allow VATPs to expand the product and service offerings which are in line with one of the five pillars (“ Products ” as one of the Pillar P ) set out in the “ ASPIRe ” roadmap to develop the VA ecosystem in Hong Kong. In the circular to VATPs, clear guidance is provided to licensed platforms when providing staking services. To further protect investors, VATPs should maintain measures to prevent any errors associated with provision of the services, to safeguard the staked client virtual assets, and ensure proper risks disclosure of staked assets to investors. Also, VATPs interested in providing staking services have to acquire SFC’s prior written approval, and be subject to specific conditions imposed by the SFC. The “ Terms and conditions for providing staking services ” have already been enclosed as Appendix in the relevant circular for reference to interest parties. In the revised circular on SFC-authorized VA Funds to facilitate their engagement in staking, these funds are required to stake virtual assets holdings only through SFC-licensed VATPs or authorized institutions, and be subject to a cap to manage the liquidity risk. Also, the VA Funds have to seek prior consultation with and approval of the SFC before engaging in VA-related staking activities. SIGNIFICANCE: The perspective of SFC is clear as Ms Julia Leung, the SFC’s CEO, has said, “ Broadening the suite of regulated services and products is crucial to sustain the healthy advancement of Hong Kong’ s virtual asset ecosystem ”; yet she also added that such mission should be done in a regulated environment to safeguard clients’ interests in virtual assets in order to uphold the compliance framework. Market News 3. A Revised grant scheme for Open-ended fund companies and Real estate investment trusts Since the launch of the grant scheme in May 2021, which gained overwhelming industry support for its vision to support the setting up of open-ended fund companies (“ OFC ”s) and real estate investment trusts (“ REIT ”s) in Hong Kong, the SFC has recorded a strong growth in the number of OFCs. As of the end-February 2025, the number of OFCs in Hong Kong was recorded with a year-over-year increase of 81% to 502, among which 430 OFCs and one REIT have benefitted from the grant scheme. In the light of keen industry demand, the Hong Kong Government announced in the 2024-25 Budget with an extension of the grant scheme for another three years to 2027 to facilitate continued development of the industry and adoption of OFC structure in Hong Kong. In order to benefit more participants, the eligibility criteria of the grant scheme have been adjusted. With effect from 11 April 2025 , for OFCs incorporated in or re-domiciled to Hong Kong and any SFC-authorized REITS newly listed on the Stock Exchange of Hong Kong Limited, they will be subject to the following criteria under the “adjusted” grant scheme (the “ New Scheme ”): The New Scheme will cover 70% of eligible expenses paid to HK-based service providers with a cap of HKD300,000 for a public OFC ( down from HKD1 million before ), HKD150,000 for a private OFC ( down from HKD500,000 ) and HKD5 million ( down from HKD8 million ) for a REIT, with a maximum of one OFC per investment manager. Details of the eligibility criteria of the New Scheme are set out in the Attachment under the circular. SIGNIFICANCE: It should be noted that a “ first-come-first-served ” basis is adopted by the grant scheme, and the scheme will expire when the funding is fully disbursed or in May 2027, whichever is earlier. Upon full utilisation of the funding, an applicant may not receive a grant at all or may only receive less than the original eligible grant amount. Despite reduction in subsidies, the scheme undoubtedly continues to help sustain the momentum of the development of the OFC and REIT regimes in Hong Kong. 4. Uncertificated Securities Market Regime to be launched in early 2026 The SFC is pleased to announce the enactment of all necessary legislation to get readiness for implementation of the uncertificated securities market initiative (“ USM ”) in early 2026. From recent consultations during previous years, the SFC found that the launch of USM gained wide support from market participants and investors as the USM not only increases efficiency in the securities market and also provides better protection and trading convenience to investors. A dedicated USM webpage is introduced to provide one-stop access to all useful information with FAQs for illustrations. Among the key changes under USM are: (i) for newly listed securities , they will have to be in paperless form upon listing, securities in paper form are no longer available to investors; (ii) for existing securities , paper certificates will not be invalidated. Yet, each issuer has to take steps to ensure investors can hold and transfer the securities in their own names without paper before a specific deadline after which the issuers will no longer be able to issue new paper certificates. The SFC is working with Hong Kong Exchanges and Clearing Limited (“ HKEX ”) and the Federation of Share Registrars Limited (“ Federation of Share Registrars ”) on a detailed five-year implementation timetable which will cover around 2,500 issuers from Hong Kong, Mainland China, Bermuda and Cayman Islands for a gradual participation in the USM scheme. SIGNIFICANCE: The USM provides an efficient means for investors to hold and manage securities in their own names electronically, using platforms that are operated by approved securities registrars and connected to systems of Hong Kong Securities Clearing Company Limited (“ HKSCC ”). Precisely, under the USM : (i) investors hold legal title to securities but in uncertificated form; (ii) investors enjoy full shareholder rights directly and can transfer and manage their securities electronically online; (iii) enables a faster and more efficient processing, effecting of transfers as quickly as within the same business day; (iv) this option is available to all investors, regardless of how they currently hold their securities. Source: Uncertificated Securities Market | Securities & Futures Commission of Hong Kong of SFC 5. SFC and HKEX co-organise inaugural International Carbon Markets Summit The SFC and HKEX co-organized the inaugural International Carbon Markets Summit in Hong Kong, signalling as a pioneer in hosting this kind of Summit in Hong Kong. More than 200 participants with representatives from local and overseas regulators, carbon trading venues, corporates and investors attended the forum. Key takeaways in discussion are: (i) the challenges in scaling global voluntary carbon markets; (ii) expansion of cross-border carbon transactions; (iii) the role of technology in facilitating linkages. Below is a concluding highlight from Ms. Julia Leung, the SFC’s CEO: “ Today marks the start of a collaborative effort where stakeholders across the carbon market ecosystem come together to discuss the scaling of voluntary carbon markets. Adhering to best practices and international principles is fundamental to building a harmonized, credible and transparent carbon market ecosystem. ” Enforcement News 6. Interactive Brokers Hong Kong is Fined HK$4.2 Million for mishandling of Client Assets SFC has reprimanded and fined Interactive Brokers Hong Kong Limited (“ IBHK ”) HK$4.2 million for regulatory breaches in relation to the handling of client assets. Key Findings Between December 2017 and October 2020, IBHK loaned client securities worth approximately HK$586 billion without valid standing authorities, affecting 7,911 clients. The issue arose due to a programming error that prevented the distribution of renewal notices for Client Securities Standing Authority (“ SLOA ”) documents, which are required to remain valid for no more than 12 months under the Securities and Futures (Client Securities) Rules (“ CSR ”). IBHK's system was designed to send renewal notices to clients to extend the validity of SLOAs. However, a staff error in December 2017 left updated notice templates inactive, halting their distribution. As a result, IBHK relied on expired authorities to lend securities listed on the Stock Exchange of Hong Kong (“ SEHK ”) under a securities borrowing and lending agreement. Remedial Actions Upon discovering the error on 27 October 2020, IBHK promptly activated the revised templates and obtained updated standing authorities from clients by Q2 2021. Further remedial actions included: Distributing renewal notices every 11 months to ensure timely renewals. Removing expired or deactivated templates to prevent future errors. Enhancing its compliance assurance program to ensure accurate and timely notice distribution. IBHK confirmed that no clients suffered financial losses due to the incident. SFC's Decision SFC considered IBHK’s self-reporting, remedial efforts, cooperation, and the absence of deliberate misconduct or client harm in determining the sanction. The fine and reprimand underscore the importance of robust compliance systems to protect client assets and adhere to regulatory standards. SIGNIFICANCE: This enforcement action serves as a reminder for licensed entities to maintain rigorous internal controls and ensure compliance with client asset protection rules. The SFC continues to prioritize investor protection and market integrity through vigilant oversight. For more details, please refer to the Statement of Disciplinary Action from the SFC. 7. SFC Takes Disciplinary Action Against CSC Futures and Former Executive for Inadequate Due Diligence on Customer Supplied Systems SFC has taken disciplinary action against CSC Futures (HK) Limited and its former responsible officer, Mr. KAO Cheng Yung, for compliance failures occurring between January 2017 and December 2018. These failures were attributed to Mr. KAO’s inability to effectively discharge his duties as a responsible officer and member of senior management. Key Findings The compliance issues centred on two key areas: inadequate due diligence on customer supplied systems (“ CSSs ”) and insufficient monitoring of client accounts for suspicious activities. 1. Customer Supplied Systems : CSC permitted 100 clients to use their own trading software without proper oversight. Specific shortcomings included: Allowing CSSs, such as Xinguanjia , which enabled sub-accounts, potentially facilitating unlicensed trading and increasing money laundering risks. Conducting only compatibility checks, neglecting to assess the software’s features or associated risks. 2. Client Account Monitoring : CSC also failed to implement an effective system to detect suspicious activities in client accounts. Notable lapses were: Lacking procedures to ensure deposits aligned with clients’ declared financial profiles. Failing to investigate suspicious deposits in five client accounts that were disproportionate to their declared financial situations. SFC's Decision As a result, SFC has imposed a six-month prohibition on Mr. KAO from engaging in regulated activities, effective from 19 April 2025 to 18 October 2025, and fined CSC Futures $4.95 million. In determining these sanctions, the SFC weighed the seriousness of the failures against Mr. KAO’s otherwise clean disciplinary record. SIGNIFICANCE: The SFC concluded that these failures breached the Code of Conduct and the Anti-Money Laundering and Counter-Terrorist Financing Ordinance, demonstrating a lack of due skill, care, and diligence, as well as inadequate internal controls. This enforcement action emphasizes the vital role of robust compliance systems in preventing financial crimes and upholding the integrity of Hong Kong’s financial markets. For more details, please refer to the Statement of Disciplinary Action from the SFC. [End of ComplianceOne Newsletter –April 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

This article delves into the ongoing obligations of LCs under the SFC, focusing on AML requirements, the pivotal role of ongoing monitoring, and the severe consequences of non-compliance. Ongoing AML Obligations of SFC Licensed Corporations In Hong Kong, the Securities and Futures Commission (“ SFC ”) is the cornerstone of financial regulation, overseeing the securities and futures markets to ensure their integrity and stability. Licensed Corporations (“ LCs ”), which are entities authorized by the SFC to conduct regulated activities, face stringent compliance obligations to uphold these standards. Among these, Anti-Money Laundering (“ AML ”) requirements are particularly critical, given the global emphasis on combating financial crimes. This article delves into the ongoing obligations of LCs under the SFC, focusing on AML requirements, the pivotal role of ongoing monitoring, and the severe consequences of non-compliance. 1. AML Requirements for Licensed Corporations AML encompasses a set of laws, regulations, and procedures designed to prevent criminals from disguising illegally obtained funds as legitimate income. In Hong Kong, the SFC enforces these standards through the Guideline on Anti-Money Laundering and Counter-Financing of Terrorism (For Licensed Corporations and SFC-licensed Virtual Asset Service Providers) , which outlines comprehensive requirements for LCs to mitigate money laundering and terrorist financing (“ ML/TF ”) risks. The following table summarizes the core AML obligations for LCs: Requirement Description AML/CFT Systems LCs should implement systems and controls proportionate to identified ML/TF risks, approved by senior management, and regularly reviewed. Customer Due Diligence (“CDD”) Before establishing business, relationships or conducting transactions above HK$120,000 (or HK$8,000 for wire transfers), LCs must verify customer identities, understand their business, and assess the purpose of establishing the business relationship. Suspicious Transaction Reporting LCs should report transactions suspected of involving ML/TF to the Joint Financial Intelligence Unit ("JFIU”). Record-Keeping Records of CDD, transactions, and related documents must be maintained for at least five years after the business relationship ends or transaction completes. Risk-Based Approach (“RBA”) LCs should assess institutional and customer risks to tailor their AML/CFT measures, ensuring higher scrutiny for high-risk scenarios. 2.1 Ongoing Monitoring Functions Ongoing monitoring is a cornerstone of AML compliance, ensuring that LCs can detect and respond to potential ML/TF activities in real time. The SFC mandates that LCs continuously monitor their business relationships and transactions to ensure consistency with their knowledge of customers, their business activities, and risk profiles. The following table outlines the key ongoing monitoring obligations: Continuous Review Regularly update customer information to ensure it remains relevant and accurate. Transaction Scrutiny Monitor transactions for consistency with customer profiles, flagging complex, unusually large, or unusual patterns lacking apparent economic or lawful purpose. CDD Record Reviews Conduct periodic reviews of CDD records, with annual reviews (or more frequent) for high-risk customers like PEPs. Systematic Monitoring Implement systems to monitor transactions, tailored to the LC’s size, complexity, and risk profile, providing timely data to relevant staff. System Effectiveness Regularly review and validate transaction monitoring systems, including parameters and thresholds, to ensure adequacy. 2.2 Enhanced Monitoring for High-Risk Customers For high-risk customers, LCs must apply enhanced measures, including obtaining senior management approval, establishing the source of wealth and funds, and conducting more frequent monitoring. SFC also requires LCs to use reliable data sources, such as publicly available information or commercial databases, to identify PEPs, while acknowledging the limitations of such databases. 3.1 Penalties for Non-Compliance with AML Guidelines Non-compliance with AML regulations carries significant consequences, reflecting the SFC’s commitment to maintaining a robust financial system. The Anti-Money Laundering and Counter-Terrorist Financing Ordinance (Cap. 615) (“ AMLO ”) and SFC’s Disciplinary Fining Guidelines outline the penalties for violations. The following table summarizes the consequences of AML non-compliance: Fines: Up to HK$10 million or three times the profit gained from non-compliance, whichever is higher. Regulatory Actions: Restrictions on business activities, license suspension, or revocation. 3.2 Enforcement Examples SFC recently took disciplinary action against CSC Futures (HK) Limited (“ CSC ”) and its former responsible officer (“ RO ”), highlighting critical failures in AML compliance, including ongoing monitoring obligations. SFC’s investigation, covering the period from January 2017 to December 2018 (the Relevant Period), uncovered two primary areas of non-compliance by CSC, with ongoing monitoring being a significant focus: Inadequate Due Diligence on Customer Supplied Systems Failure in Ongoing Monitoring of Client Accounts Disciplinary Action For LC: A HK$4.95 million fine and a public reprimand, signaling reputational damage and financial loss. For RO: A six-month industry ban, reflecting personal accountability for oversight failures. SFC emphasized that such lapses undermine market integrity and public confidence, necessitating strong deterrence. For more details of the case, please refer to SFC – Enforcement News 4.1 Our Solution for Ongoing Monitoring Effective ongoing monitoring relies heavily on technology to process large volumes of data and identify risks promptly. It is recommending LCs to implement systems that can integrate with existing infrastructure, provide real-time updates, and support holistic monitoring across multiple accounts and business lines. This is where Screen-X AML/CRM Solutions excel. We recognize the complexities faced by licensed corporations in meeting the continuous monitoring requirements of SFC. Screen-X AML/CRM Solutions — supported by data from the globally authoritative database Acuris Risk Intelligence and developed with input from and ComplianceOne Consulting Limited — provides a set of efficient and compliant AML solutions. It also supports API connections, is easy to operate, and offers seamless API integration, flexibly adapting to the compliance needs of institutions of different sizes. 4.2 Key Features of Screen-X AML/CRM Solutions The following table highlights how our solution supports ongoing monitoring: Feature Benefit Global Blacklist Matching Automatically checks customers against over 1.4 million PEPs and 5 million high-risk records, ensuring comprehensive risk identification. Real-Time Updates Sanctions updated within 30 minutes, PEPs within 24 hours, keeping data current. Adverse Media Monitoring Curated articles in native languages using advanced technology and human intelligence to detect reputational risks. Company Credit Reports Provides credit reports on approximately 200 million limited companies to assist in due diligence. API Integration Seamless integration with existing systems for real-time monitoring and data exchange. High Data Growth Adds up to 40,000 high-risk profiles monthly, ensuring coverage of emerging risks. Historical Data Access 16 years of historical data for in-depth risk analysis. Screen-X AML/CRM Solutions provide a powerful tool for LCs to navigate this regulatory landscape. With features like real-time blacklist matching, adverse media monitoring, and seamless API integration, our platform enables LCs to meet SFC requirements efficiently while focusing on their core business activities. By leveraging advanced technology, LCs can not only ensure compliance but also enhance their risk management capabilities, safeguarding their operations and reputation in Hong Kong’s dynamic financial market. 5.2 Conclution The ongoing obligations of LCs, particularly in the realm of AML compliance, are both complex and critical. Implementing effective AML/CFT systems, conducting thorough CDD, and maintaining rigorous ongoing monitoring are essential to prevent financial crimes and uphold regulatory standards. The severe penalties for non-compliance—ranging from substantial fines to license revocation—emphasize the need for LCs to prioritize these obligations. Screen-X AML/CRM Solutions provide a powerful tool for LCs to navigate this regulatory landscape. With features like real-time blacklist matching, adverse media monitoring, and seamless API integration, our platform enables LCs to meet SFC requirements efficiently while focusing on their core business activities. By leveraging advanced technology, LCs can not only ensure compliance but also enhance their risk management capabilities, safeguarding their operations and reputation in Hong Kong’s dynamic financial market. For more information on how our solutions can support your AML compliance needs, visit EDON website . Any further assistance with other Compliance inquiries, please visit: https://www.complianceone.hk/ongoingcompliancesupportservice

The SFC issued a circular highlighting the observed unsatisfactory behaviours of licensed corporations (“LCs”) and the expected statutory obligations and standards of conduct throughout the inspection process. Statutory Obligations during SFC Inspection (February 2026) On 29 January 2026, the Securities and Futures Commission (“ SFC ”) issued a circular stating the observed unsatisfactory practices and behaviours of Licensed Corporations (“ LCs ”) and reminding the LCs on their statutory obligations and expected standards of conduct throughout the inspection process. LCs Unsatisfactory Practices and Behaviours Obstructing Inspection Arrangements Attempting to postpone, delay, or reject, the SFC’s notices to conduct inspections or interviews with relevant staff. Disputing the Inspection without Good Reason Challenging the SFC’s inspection scope, review areas or selected samples, or the necessity of inspection inquiries, without a valid legal basis. Evading Responses Delay in providing responses or providing evasive, misleading, intentionally incomplete or partial responses to inspection enquiries. Submitting False/Distorted Information Withholding information from the SFC, or submitting documents, information or responses which were ambiguous, illegible, inaccurate, incomplete, inconsistent, false, misleading or even forged. Actively Disrupting the Inspection Process Arranging affairs or manipulating circumstances to delay, disrupt or obstruct the SFC’s inspection efforts. Unprofessional Conduct Toward Inspectors Engaging in unprofessional, uncooperative or antagonist conduct towards an authorized person, or treating inspection inquiries as an inconvenience. Expected Standards/ Statutory Obligations Key Requirements & Notes Access to Information & Answers s Must provide access to records/ documents and answer questions as required under SFO section 180. s Criminal Offence : Failure to comply (without reasonable excuse)/ providing false. misleading information, fraudulent non-compliance. s Confidentiality is generally not a valid reason for non-compliance s Inspection matters are themselves confidential under SFO section 378. Maintenance & Retrieval of Records s Must maintain proper business records at all times for ready retrieval without undue delay as stated under Securities and Futures (Keeping of Records) Rules and Management, Supervision and Internal Control Guidelines for Persons Licensed by or Registered with the Securities and Futures Commission (Internal Control Guidelines). s Contravention of the Keeping of Records Rules is an offence. Availability of Responsible Officers (ROs) s ROs are responsible in ensuring LC’s compliance. s Must have at least one RO available at all times to supervise regulated activities. s During inspections, ROs are expected to be available. Unavailability is generally not a reasonable excuse for non-compliance with SFO section 180. s An SFC inspection notice is an official notice, not an appointment. Fitness & Properness of LCs s Must comply with all requirements and cooperate with the SFC. s Must adhere to Code of Conduct General Principles (honesty, fairness, due care, compliance, senior management responsibility. s Non-compliance with SFO section 180 or other codes/guidelines constitutes misconduct and may affect licensed status. Engagement of External Representative s LC remains fully responsible and accountable to the SFC for the conduct and information provided by authorized external representative (e.g. consultants, lawyers). Key Implications for Senior Management 1. Personal Liability and Discipline – Under Part IX of the SFO, the SFC can sanction any person involved in the management for misconduct or being “not fit and proper”. This applies to all senior managers, even if they are not licensed. 2. Attributed Misconduct – If an LC commits misconduct due to a manager’s consent, connivance, or neglect, that individual is also personally guilty of misconduct. 3. Fitness & Properness Assessment – The SFC will look into a manager’s past and present conduct. Failure to ensure LC compliance rules can directly undermine an individual's deemed fitness and properness to hold their position. 4. Designated Oversight Duty – The MIC of the Overall Management Oversight function, supported by the MIC of Compliance is now explicitly called upon to exercise proactive leadership to ensure full LC compliance during SFC inspections. Actions and Recommendations 1. Senior Management Must Take Ownership – Recognize that accountability for inspection outcomes extends beyond the firm to you personally. 2. Ensure Readiness & Cooperation – Proactively ensure all records are accessible, ROs must be available, and the firm is prepared to comply fully and promptly with SFC information requests under Section 180 of the SFO. 3. Clarify Roles – The MICs for Overall Management Oversight and Compliance should explicitly confirm and align their roles and process for overseeing and guiding the firm’s response to regulatory inspections. [End of ComplianceOne's Impact Analysis – Statutory Obligations during SFC Inspection (February 2026) ] For more details, please click on the title of the topic above. ================================= ~ Make It Right Today, Better Tomorrow ~ ================================= The Newsletter is for general information purpose only and is not intended to constitute legal or other professional advice. For enquiries, please email to support@complianceone.hk or WhatsApp us at (852) 95164607 . Unit 1104, 11/F, 299QRC, 287-299 Queen's Road Central, Sheung Wan, Hong Kong Tel: (852) 39550277 www.complianceone.hk

在此次分享中，我們分享了金融科技在合規與風險管理中的重要性。 天匯合規獲邀參與“第三屆澳琴現代金融發展趨勢與金融科技座談會” 我們很榮幸受邀參加由澳門生產力暨科技轉移中心與澳門經濟民生聯盟合辦的“ 第三屆澳琴現代金融發展趨勢與金融科技座談會 ”。 “ 金融+科技 ”是推動現代金融產業實現高質量發展的關鍵。大灣區金融科技的創新必將引領現代金融產業未來發展的方向，為大灣區贏得獨特優勢和發展機遇，促進經濟多元化發展。 億東金融科技有限公司的聯合創始人王陶浚先生在會上就“ 引領金融合規與風險管理新紀元 ”主題，與大家分享了金融科技在合規與風險管理中的重要性。我們對所有與會者的積極參與和寶貴提問表示衷心感謝，並期待在不久的將來再次與大家相聚，交流有關金融科技與合規的最新見解！ We are honored to be invited to participate in the 3 rd Macau-Hengqin Modern Finance Development Trend and Financial Technology Seminar , co-organized by the Macao Productivity and Technology Transfer Center and the Macau Economic and Livelihood Alliance. ' Finance + Technology ' is key to promoting the high-quality development of the modern financial industry. The innovation of fintech in the Greater Bay Area will undoubtedly lead the future development direction of the modern financial industry, bringing unique advantages and development opportunities to the region and promoting diversified economic development. Mr. Tao Wong, Co-Founder of Edon Fintech Limited, shared insights on the importance of fintech in compliance and risk management, focusing on the theme ' Leading a New Era of Financial Compliance and Risk Management '. We would like to express our sincere gratitude to all attendees for their active participation and valuable questions and look forward to meeting you again in the near future to share the latest insights on fintech and compliance!