The topics discussed in this monthly newsletter are as follows: ComplianceOne Newsletter – September 2022 ComplianceOne Newsletter – September 2022 The topics discussed in this monthly newsletter are as follows: 1. Auditors from the Public Company Accounting Oversight Board (PCAOB) reached Hong Kong on issues of continual listing of Chinese stocks in US 2. SFC-HKMA’s joint product survey shows increasing participation of intermediaries and investors 3. What should investors do if their broker plans to cease operation? 4. SFC suspends a responsible officer for breach of KYC and AML/CFT for eight months 5. Court sets pre-trial review date for unlicensed activities prosecution 6. Court dismisses challenge to SFC’s power of issuing restriction notices 7. SFAT affirms SFC decision to suspend hedge fund manager Christopher James Aarons 8. Thirteen people charged following SFC and Police joint operation against ramp-and-dump syndicate 9. Kindly Reminder: Climate-related Risk Disclosure by Fund Mangers MARKET NEWS 1. Auditors from the PCAOB reached Hong Kong on issues of continual listing of Chinese stocks in US A team of auditing experts had arrived in Hong Kong by the end of Sep 2022 with a mission to scrutinize the audit records of the Chinese stocks listed in the US exchanges, following the insistence from Washington that US officials should be given access to the accounts of the Chinese companies listed; or otherwise, these stocks will be forced to delist as early as 2023. Some important messages required to know: (1) The US inspectors were sent to Hong Kong with an aim at resolving the long-standing argument over the access to audit records of Chinese companies which are held in China and not accessible for national security reasons. (2) All the inspectors and investigators are from Public Company Accounting Oversight Board (PCAOB), which will select a couple of companies for inspection with targets like Alibaba, Yum Chin, JD.com etc. (3) The inspections are conducted in Hong Kong with the necessary documents transferred across the border from China in both paper and electronic forms. However , there are still obstacles to get full access the audit records as some may be deemed as "restricted data" not to be disclosed, especially for those “state owned enterprise” where most data is considered as “state secret”! Significance: Beijing and Washington need to reach a consensus on the listing issues as a big stake is involved there. The amount raised through the Chinese companies in the US was around US$85 billion through primary and secondary offerings. A more subtle issue here is the diverse opinion of interpreting what is considered as “state secret” and “confidential information”. The China Securities Regulatory Commission (CSRC) and the Securities and Exchange Commission (SEC), under the premise that "each is serving its own master", both sides have to hammer out a solution on a sustainable basis for benefits of investors on both sides. 2. SFC-HKMA’s joint product survey shows increasing participation of intermediaries and investors A joint survey of the SFC and the HKMA show that notwithstanding the continued pandemic and difficult market environment, the number of investors who purchased investment products increased 5% to 770,000. The total number of firms engaged in the sale of investment products increased slightly to 390. Major findings from the survey included: (1) Structured products ($2,385 billion or 48%) remained the predominant product type sold by firms, followed by collective investment schemes (CIS) ($1,491 billion or 30%) and debt securities ($818 billion or 16%). (2) The total transaction amount of equity-linked structured products increased by 5% to $1,674 billion; while the sales of authorized CIS helped drive the 5% increase in the overall transactions in CIS to $1,491 billion. (3) Weighed down by uncertainties in interest rates outlook, the total transaction amount for debt securities dropped 23% to $818 billion. (4) A total of 70 firms used online platforms to distribute investment products, up 21% from the last survey. CIS remained the most popular product type, accounting for 91% of total online sales. The survey reveals increased retail participation in the investment market, notwithstanding the difficult market environment, and an increasing trend for firms to use online platforms for distribution,” and provides more useful information for regulators to better serve the interests of the retail investors. Significance: The findings reveal the resilience of the HK financial market and the observation that investors become more mature after the painful experience of crucial episodes especially after the 2008 credit default crisis. From the regulatory aspect, “this joint product survey strengthens the supervisory collaboration between the SFC and the HKMA, and enhances surveillance of the market by the regulators,” as added by Mr. Arthur Yuen, Deputy Chief Executive of the HKMA. 3. What should investors do if their broker plans to cease operation? Despite the SFC grants licences to intermediaries every year, there are still some licensed intermediaries which are determined to cease operation for their own business reasons. Here below are some useful hints investors concerned are supposed to know. Under the existing regulatory regime, intermediaries are required to maintain segregated client accounts to separate clients’ assets from their own asset. If a broker plans to cease operation, it is general practice to give advance notice to its clients of the subsequent arrangements, including things like the date where the services is to be terminated, the procedures of asset withdrawal, and the transfer of money back to designated banks of the clients. Clients should liaise with the broker about transferring the outstanding holding of stocks to any of their accounts maintained with other brokers. In order to facilitate the process, clients are advised to contact the broker, and to update their contact details such that the broker can keep them abreast of any remedial procedures. Under the circumstances where the broker cannot reach the its clients, the broker will apply for payment of the clients’ assets into the court under the Trustee Ordinance; and it incurs additional costs in terms of time and money for the broker and the clients themselves. ENFORCEMENT NEWS 4. SFC suspends a responsible officer for breach of KYC and AML/CFT for eight months The SFC has suspended Mr. Tang Kai Shing, responsible officer (RO) and managing director of Rifa Futures Limited (Rifa), for eight months from 2 September 2022 to 1 May 2023 for breach of KYC, AML/CFT and other regulatory requirements between May 2016 and October 2018. The SFC considers Rifa’s breaches were attributable to Tang’s failure to discharge his duties as an RO and a member of senior management. The investigation found that Rifa, without conducting adequate due diligence, was unable to assess the above -mentioned risks associated with allowing its clients to use their client supplied system (CSS) in placing orders. Besides, Rifa was also found to have failed to conduct adequate ongoing monitoring of clients’ fund movements to ensure they were consistent with the clients’ business nature , risk profile and source of fund. Significance: It demonstrates again the fact that intermediaries permitting the clients in using their own CSS poses serious potential regulatory risks to the intermediaries per se. It can be observed that the use of CSS is usually associated with abnormal fund movements and trading pattern differing from the clients’ own risk profile for reason that the ultimate persons who originated the orders cannot be identified under the use of CSS. 5. Court sets pre-trial review date for unlicensed activities prosecution The Eastern Magistrates’ Court today fixed the pre-trial review date for prosecutions against Mr. Tony Choi Yick Man and Mr. Ma Yau Tim after they pleaded not guilty to charges by the Securities and Futures Commission (SFC) for unlicensed activities. The SFC commenced criminal proceedings on 30 June 2022 against Choi for carrying on a business in asset management without a SFC licence between 2010 and 2019 and Ma for aiding and abetting Choi’s unlicensed activity. The pre-trial review is scheduled for 27 October 2022. 6. Court dismisses challenge to SFC’s power of issuing restriction notices The Court of First Instance has dismissed a judicial review application against the SFC relating to restriction notices issued in an ongoing investigation into a suspected “ramp-and dump” scheme; the review was brought by Mr. Tam Sze Leung, Ms. Kong Chan and Ms. Lee Ka Lo, who sought to challenge the restriction notices issued by SFC to freeze their assets in various trading accounts held with certain licensed corporations. “We welcome the Court’s decision, said by SFC’s Chief Executive Officer, Mr. Ashley Alder; and he further stated that the “restriction notes” were important during the course of investigation to the SFC in carrying out its function under the SFO, and they enable the SFC to take immediate action to protect investors and the public interest. Significance: The decision of the Court was justified in the sense that the assets of the suspects might be the proceeds from their “ramp-and-dump” scheme. And the protection of the statutory power of the SFC entitled from SFO should not be challenged, or otherwise more upcoming judicial reviews will be expected afterwards. 7. SFAT affirms SFC decision to suspend hedge fund manager Christopher James Aarons The SFC has suspended Mr. Christopher James Aarons, responsible officer (RO) and chief executive officer of Trafalgar Capital Management (HK) Ltd . (Trafalgar), for two years by the Securities and Futures Appeals Tribunal (SFAT) followed administrative proceedings against Aaron in South Korea. The Korean regulatory authorities found that Aarons had breached Korean legislation by dealing in the shares of a securities company listed on the Korea Exchange (KRX) based on material non-public information in circumstances that prohibited such dealing. The information concerned a block trade of shares of the KRX-listed securities company which Aarons had obtained from a sell-side broker during a “market sounding” call. Aarons was not wall-crossed during the call with the broker, but he arranged a short swap in the company’s shares to take advantage of the information, and derived a profit of KRW337.3 million as a result. Significance: As Mr. Ashley Alder, the Chief Executive Officer of SFC, had said: “The SFAT’s determination sends an unmistakable message to the market that both sell-side brokers and buy-side participants have obligations to uphold market integrity by maintaining the confidentiality of non-public information on block trades or private placements during the market sounding process. Misuse of such information and individuals who abuse the process warrant severe sanctions! 8. Thirteen people charged following SFC and Police joint operation against ramp-and-dump syndicate Thirteen suspects were charged with various criminal offences following an earlier joint operation of the Securities and Futures Commission (SFC) and the Police against a sophisticated ramp-and-dump syndicate . The alleged syndicate members organized and executed “ramp-and-dump” schemes in the shares of two target stocks by using different social media platforms and manipulated the trading of a large volume of those shares through the use of a substantial number of nominee accounts. Prices of the target stocks were driven up to lure investors to purchase those shares after which the syndicate then disposed of their shares aggressively at a profit, and the prices drastically collapsed as a result of such profit-taking by the syndicate. Significance: It is obvious that such “ramp-and -dump” scheme to lure investors into purchasing the target stocks, together with the drastic plunge afterwards can never to tolerated in the eyes of the SFC, particularly from which the public interests of the general investors were adversely and severely jeopardized; and more importantly, the integrity and fairness of the financial market status of Hong Kong must be upheld at all times! A Kindly Reminder: Climate-related Risk Disclosure by Fund Mangers With amendment of the Fund Manager Code of Conduct, Fund Managers are required to take the climate-related risks into consideration in constructing their investment and risk management process, and make appropriate disclosure according and commensurate to nature of their funds. Key elements are as below: I. Governance II. Investment Management III. Risk Management IV. Disclosure Fund Managers have to bear in mind of the following timelines: (1) Submission in AUG 2022: for LARGE Fund Managers with AUM>HKD8 billion (2) Submission in NOV 2022: for Fund Managers with less AUM size Apart from Baseline Requirements, the LARGE Fund Managers have to comply with additional “Enhanced Standards” with respect to Risk Management and Disclosure. Fund Managers are supposed to follow the guidelines published by the SFC in fulfilling their obligations in climate-related risk disclosure while bearing in mind the following key hints: (1) Is the fund managed delegated with investment discretion, and the extent of discretion entitled to the Fund Manager (2) Are climate related risks “relevant and material” to the fund? Relevancy and Materiality determine how far and to what extent the Fund Manager has to comply with the applicable requirements (3) Is the Fund Manager “responsible for overall operation of the fund” (ROOF)? 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The topics discussed in this monthly newsletter are as follows: ComplianceOne Newsletter – July 2022 ComplianceOne Newsletter – July 2022 The topics discussed in this monthly newsletter are as follows: 1. Publication of the latest Hong Kong’ Money Laundering and Terrorist Financing (“ML/TF”) Risk Assessment Report by the HKSAR Government (“the Report”) 2. Joint Announcement of the People’s Bank of China (“PBC”), the Hong Kong Securities and Futures Commission (“SFC”) and the Hong Kong Monetary Authority (“HKMA”) with regard to SWAP CONNECT 3. Hong Kong’s asset and wealth management business remained resilient in 2021 4. SFC reprimands and fines RBC Investment Services (Asia) Limited $7.7 million for mishandling client assets 5. SFC reprimands and fines Rifa Futures Limited $9 million for regulatory breaches 6. SFC reprimands and fines KTF Capital Management Limited $400,000 for breaching Financial Resources Rules MARKET NEWS 1. Publication of the ML/TF Risk Assessment Report The Hong Kong Government published the Report in July 2022 which examines the ML/TF threats and vulnerability facing various sectors in Hong Kong as well as the risk of proliferation financing in the city. The assessment concludes the ML risk of the securities sector remains at medium level , taking into account the ML threat and vulnerability levels for the securities sector which are both assessed to remain at medium level. It is noted that securities sector continues to be exposed to transnational, cross-border as well as domestic ML threats, in particular with the overflow of social media investment scams recently. In the light of this, the SFC has strengthened its risk-based AML/CFT supervision which enables the monitoring of a licensed corporation’s AML/CFT compliance in a more risk-sensitive and effective manner. Significance: The increased risk in ML/TF is obvious as exemplified by the increase in enforcement news of licensed corporations being sanctioned for failure to comply with the KYC , AML/CFT lately. On the contrary, licensed corporations are also confronted with the difficulties in identifying and certifying the sources of funds and nature of business of their clients, especially those originated across the border. 2. Joint Announcement between PBC, SFC and HKMA with regard to SWAP CONNECT To promote the development of financial derivatives markets in both Mainland China and Hong Kong, a joint announcement has been made that both will collaborate to develop mutual access between the Hong Kong and Mainland interest rate swap markets (Swap Connect). Details are as follows: (1) Swap Connect refers to an arrangement which will enable investors to participate in the financial derivatives markets in the Mainland and Hong Kong through a connection between Infrastructure Institutions in both places. At the initial stage, Northbound Trading will commence first. (2) Swap Connect is another important measure of the Central Government to support the development of Hong Kong and enhance Mainland-Hong Kong cooperation. (3) Swap Connect is subject to the relevant laws and regulations of both markets. (4) The regulators of the financial derivatives markets agreed to establish effective mechanisms under Swap Connect to handle any misconduct in a timely manner for the purpose of investor protection on both sides. (5) Hong Kong and Mainland Infrastructure Institutions should actively take forward the development work for Swap Connect in an orderly manner and with prudent risk management (6) The official launch of Swap Connect will take place after six months from the date of this announcement in July 2022 Significance: The SWAP Connect , together with the ETF Connect, demonstrate the determination of the Mainland Government to open up China’s interest rates derivative market to overseas investors; with the interest rate swap (“IRS”) accessible to foreign investors, it provides a hedging tool to the bond markets in Mainland China amid the anticipation of interest rate hikes in the global markets, and further helps increase the attractiveness of the bonds actively traded in China. To conclude, the new mutual access mechanism will argument the role of Hong Kong as an international financial hub and as a bridge between China and the outside world. 3. Hong Kong’s asset and wealth management business remained resilient in 2021 A survey published today by the SFC found that the asset and wealth management business in Hong Kong recorded a 2% year-on-year increase in assets under management (AUM) to $35,546 billion (US$4,558 billion) at the end of 2021 with net fund inflows reaching $2,152 billion (US$277 billion), up 6% from 2020. The AUM of the asset management and fund advisory business conducted by licensed corporations and registered institutions increased 8% to $25,888 billion (US$3,320 billion). “The survey findings underscore the core strengths of the asset and wealth management industry in the fast-changing, challenging environment; and the SFC will continue to support the development of Hong Kong as a premier global asset and wealth management center and preferred fund domicile”, as said by Ms. Christina Choi, the SFC Executive Director of Investment Products. Significance: There are also other highlights of the survey which include: i Assets held under trusts increased 5% to $4,719 billion (US$605 billion). ii The AUM of the private banking and private wealth management business decreased 6% to HKD10,583 billion (USHKD1,357 billion). iii Non-Hong Kong investors remained a major source of funding for the asset and wealth management business, accounting for 65% of AUM. iv The total number of staff in the asset and wealth management business increased 12% to 54,003. ENFORCEMENT NEWS 4. SFC reprimands and fines RBC Investment Services (Asia) Limited The RBC Investment Services (Asia) Limited (RBC) was fined by the SFC an amount of $7.7 million for regulatory breaches relating to mishandling of client assets. It was found in an investigation that between January 2018 and August 2020, RBC had failed to segregate client money as required under the Securities and Futures (Client Money) Rules (Client Money Rules) on 86 occasions; and further that between 3 December 2012 and 26 March 2020, RBC had breached the Rules again by transferring securities from 65 client accounts held by non-professional investor clients to SEHK Options Clearing House Limited as collateral without valid standing authority. Significance: It expressly demonstrates the prior importance of upholding the segregation of client money and the indispensable necessity to obtain standing authority from the clients whenever the licensed corporations are executing any kind of transfer of client money where protection of it is of paramount importance in the eyes of SFC. 5. SFC reprimands and fines Rifa Futures Limited $9 million for AML/CFT breaches The Securities and Futures Commission (SFC) has reprimanded and fined Rifa Futures Limited (Rifa) $9 million for failures in complying with know-your-client, anti-money laundering and counter-terrorist financing (AML/CFT) and other regulatory requirements between May 2016 and October 2018. The SFC’s investigation found that Rifa, which permitted 310 clients to use client supplied systems (CSSs) for placing orders, had failed to conduct adequate due diligence on the CSSs. Also, Rifa had failed to implement two-factor authentication (2FA) for clients to login to their internet trading accounts via CSSs It was further found that Rifa failed to conduct adequate ongoing monitoring of clients’ fund movements to ensure they were consistent with the clients’ nature of business, risk profile and source of fund. The SFC is of the view that Rifa’s conduct was in breach of the AML/CFT Ordinance. Significance: A couple of licensed corporations ("LC") had been fined by the SFC before for the same reasons of allowing their clients to use the CSS where the LCs had no effective measures to monitor, and thus provide loopholes for the possibilities of breaching the AML/CFT ordinance. 6. SFC reprimands and fines KTF Capital Management Limited $400,000 for breaching Financial Resources Rules The SFC has reprimanded and fined KTF Capital Management Limited (KTFCM) $400,000 for failures to comply with the Securities and Futures (Financial Resources) Rules (FRR). The SFC found that KTFCM failed to:- ii maintain its required liquid capital of approximately $2.8 million between 13 and 18 December 2018, and iii notify the SFC when it became aware of its inability to comply with the financial resources requirements; iv anticipate its proprietary trading in shares would trigger adverse implications to its liquid capital calculation under the FRR. The SFC is of the view that KTFCM’s conduct was in breach of the Code of Conduct. Significance: As a licensed corporation ("LC"), the maintenance of liquid capital at all times should always be in the mind of the responsible officers and the key finance personnel who serve as safeguard to uphold this benchmark. The deployment of competent personnel to take on various functions is also "second to none" in ensuring a certain level of compliance for a LC

The topics discussed in this monthly newsletter for insurance are as follows: ComplianceOne Insurance Newsletter – Sep 2024 The topics discussed in this monthly newsletter are as follows: Statistics showed Hong Kong insurance industry posted first increase in gross premiums in 3 years IA hosting AML/CTF Seminars for insurance practitioners in Oct 2024 Hong Kong’s pivotal role in supporting Belt and Road projects Sigma Report on World Insurance 2023: Hong Kong’s role as international financial center IA News Updates 1. Statistics showed Hong Kong insurance industry posted first increase in gross premiums in 3 years The Insurance Authority (“IA”) has published the Hong Kong insurance business statistics for 2023, referring audited returns and actuarial data submitted by authorized insurers. The total gross premiums for the year marking a 0.8% increase compared to 2022. Key Highlights: Total Gross Premiums : HKD $542.1 Billion, up by 0.8% from the previous year. General Insurance Business : Gross premiums of HKD $67.3 Billion, a 4.6% increase Long Term Business : Total revenue premiums of in-force long term business were $474.8 billion, increased by 0.3% compare with previous year, continued to be dominated by the Individual Life category. SIGNIFICANCE: The 0.8% growth is particularly notable as it represents the first increase in gross premiums since the IA began releasing provisional statistics of the Hong Kong insurance industry in 2021. 2. IA hosting AML/CTF Seminars for insurance practitioners in Oct 2024 The IA will host two AML/CTF seminars on 28 and 29 October 2024 , at the Hong Kong Science Museum in Tsim Sha Tsui. These seminars aim to enhance insurance practitioners’ awareness and understanding of AML/CTF regulatory requirements and recent ML/TF trends. Who Should Attend? Compliance Officers, Money Laundering Reporting Officers, and relevant personnel responsible for AML/CTF systems and control measures. Each company may nominate up to 3 representatives. CPD Hours: The seminars are categorized as Type 7 Continuing Professional Development (CPD) activities under GL24. Attendees will receive 3 CPD hours in the “Ethics or Regulations” category. SIGNIFICANCE: Each Company should only submit one enrolment form by 7 October 2024 , via the provided Enrolment Link . Please also find the below Schedule Table for your reference. 3. Hong Kong’s pivotal role in supporting Belt and Road projects On 11 September 2024, the IA hosted a breakout session at the Belt and Road Summit to explore the pivotal role of captive insurance in supporting Belt and Road projects, especially those focusing on less coal-intensive energy. The session emphasized how Hong Kong’s insurance professional services ecosystem can facilitate these projects. Key Topics : Captive Insurance : Managing risks from overseas energy projects and addressing challenges of energy transition. Risk Management : Opportunities in sectors like electric vehicles benefiting from sustainable development. Hong Kong’s Role : As an international risk management hub, Hong Kong is positioned to support captive insurers and serve as a preferred domicile for Mainland enterprises expanding globally. SIGNIFICANCE: The panel moderator highlighted the growing use of captives by Mainland enterprises to manage overseas project risks and enhance intra-group risk management. Emphasized Hong Kong’s readiness to provide comprehensive professional services to captive insurers. 4. Sigma Report on World Insurance 2023: Hong Kong’s role as international financial center Hong Kong remains a global financial hub, as highlighted by the IA and the Sigma 3/2024 – World Insurance by Swiss Re. With the highest insurance penetration rate and second highest insurance density globally, Hong Kong’s total premiums reached HK$550 billion, ranking it 16th worldwide. Robust regulatory framework developments: Risk Based Capital (“RBC”) Regime: Introduced in July 2024, this regime ensures that capital requirements are more sensitive to each insurer’s asset-liability profile, promoting sophisticated risk management. Public Disclosure: The focus is now shifting to public disclosure under Pillar 3 of the RBC regime, with ongoing industry collaboration to ensure transparency and mutual trust. Quality Operating Environment: IA is dedicated to reviewing and optimizing the RBC regime parameters to incentivize insurer and brokers to conduct more business in Hong Kong. SIGNIFICANCE: Hong Kong’s unique advantages such as the “One Country, Two Systems” principle and “Dual Circulation” strategy strengthen its role as a key connector in Asia. The Guangdong-Hong Kong-Macao Greater Bay Area (“GBA”) further boosts its appeal as a top international financial center. [End of ComplianceOne Insurance Newsletter – September 2024] For more details, please click on the title of the topic above. ================================= ~ Make It Right Today, Better Tomorrow ~ ================================= The Newsletter is for general information purpose only and is not intended to constitute legal or other professional advice. For enquiries, please email to support@complianceone.hk or WhatsApp us at (852) 95164607 . Unit 1104, 11/F, 299QRC, 287-299 Queen's Road Central, Sheung Wan, Hong Kong Tel: (852) 39550277 www.complianceone.hk

The topics discussed in this monthly newsletter for insurance are as follows: ComplianceOne Insurance Newsletter – Oct 2024 The topics discussed in this monthly newsletter are as follows: 1. Hong Kong Insurance Authority Unveils InsurTech Forum at FinTech Week 2024 2. Guangdong authorities probe illegal cross-border insurance sales IA News Updates 1. InsurTech Forum Unveiled at Hong Kong FinTech Week 2024 The IA unveiled the InsurTech Forum on Day 2 of the Hong Kong FinTech Week 2024, co-hosted with Invest Hong Kong. This event brought together industry leaders and technology experts for insightful dialogue on various topics. Mr. Clement Cheung, CEO of the IA - keynote presentation Emphasized the dire consequences of ignoring climate change and cybersecurity threats. Efforts to foster an ecosystem for insurance-linked securities, introduce the Cyber Resilience Assessment Framework, and commission a survey on AI adoption in the insurance sector. Outlined the IA's pragmatic approach to promoting AI adoption, stressing the importance of human oversight to complement AI's powerful capabilities in client acquisition, policy underwriting, customer service, claims settlement, and fraud detection. SIGNIFICANCE: The InsurTech Forum highlighted panel discussions on AI, data analytics, and next-generation innovation, reflecting the growing trend and increasing demand for AI-driven solutions. Emphasizing the necessity for a robust yet flexible regulatory framework, the forum underscored the importance of ensuring the fair, transparent, and ethical use of AI in the rapidly evolving fintech landscape. Cross-Border News Updates 2. Guangdong authorities probe illegal cross-border insurance sales In Accordance with Cailian Press on 13 Oct 2024, industry insiders have reported that the Guangdong Financial Regulatory Bureau has launched a special campaign to investigate illegal sales of overseas insurance products and cross-border insurance violations among banks and insurance institutions (excluding Shenzhen). This initiative aims to ensure regulatory compliance and protect consumer interests. This crackdown aligns with the HKIA circular issued on 22 May 2024, which targets non-compliant business models that incentivize unlicensed selling of long-term insurance policies to Mainland China visitors. The circular emphasizes the importance of licensed intermediaries and proper conduct to maintain market integrity. Potential Impact in Hong Kong The investigation by the Guangdong regulator could affect Hong Kong insurance industries if any unlicensed third-parties participated with any regulated activities, such practices would be considered illegal, and companies involved could face penalties and stricter oversight. SIGNIFICANCE: Both regulators aim to make sure that regulated activities are conducted and monitored by the appropriate regulatory authority within their respective jurisdictions. Taking significant steps to ensure the integrity of the insurance market and protect consumers. These measures reflect a broader commitment to maintaining a robust and transparent financial ecosystem in the region. [End of ComplianceOne Insurance Newsletter – October 2024] For more details, please click on the title of the topic above. ================================= ~ Make It Right Today, Better Tomorrow ~ ================================= The Newsletter is for general information purpose only and is not intended to constitute legal or other professional advice. For enquiries, please email to support@complianceone.hk or WhatsApp us at (852) 95164607 . Unit 1104, 11/F, 299QRC, 287-299 Queen's Road Central, Sheung Wan, Hong Kong Tel: (852) 39550277 www.complianceone.hk

Review of Internal controls on client asset protection Compliance Impact Alert: Review of Internal controls on client asset protection Aug 2025 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 I. INTRODUCTION Overview The Securities and Futures Commission (“ SFC ”) has issued a circular highlighting the red flags and internal control deficiencies regarding client asset protection in licensed corporations (“ LC ”). The SFC conducted a review, with the assistance of an external consultant, on 12 small-to-medium sized security brokers focusing on the brokers internal controls designed to protect client assets. Client asset protection is the top priority of the SFC, and it raises alarms that a lot of reports or complaints received from the public towards misappropriation of client assets by fraudsters and from licensed corporation towards dishonest employees. The SFC suggest that LCs should review its own operations and specific circumstances to ensure that appropriate and effective control procedures are put in place and enforced to protect client assets. To address these red flags and internal control deficiencies, the SFC has issued guidelines for maintaining appropriate standards of conduct and implementing proper policies and procedures to adequately protect client assets and diligently supervise their staffs. II. FRAUDULENT INCIDENTS ON CLIENT ASSETS 1. Using email which closely resembles legitimate client emails to issue counterfeit instructions. A fraudster successfully issued counterfeit instructions to an LC using emails that closely resembled the clients. In one case, the LC approved adding the fraudster as an authorized person, and in another, processed a significant withdrawal from a hacked account to a non-designated bank. The LC failed both times to authenticate the emails or follow its own policy of obtaining direct written confirmation from the client. 2. Forged client’s signature in issuing counterfeit written instructions. In several instances, an LC processed counterfeit written instructions that forged a client's signature. The fraudulent requests asked to change key contact information (email, phone) and withdraw assets to non-designated accounts. Each time, the LC failed to follow its own policy of calling the client directly for verification. In a critical error, staff once called the new (fraudulent) number provided in the forged request, allowing the scammer to "confirm" the changes. This led to unauthorized access to trading accounts and significant financial losses. III. DEFICIENCIES AND REGULATORY STANDARDS The SFC is concerned about the results of the review conducted on small to medium-sized securities brokers, which raised questions about their suitability to remain licensed. If an LC consistently fails to maintain effective internal controls that jeopardize client assets and the firm's interests, the SFC will consider imposing conditions on the firm's license to manage or restrict how it conducts regulated activities. Scenario Deficiencies Regulatory Standards Changes on Customer Information The system did not regularly review logs tracking changes to client information. No confirmation messages sent to clients’ registered addresses, emails, or mobile phones for account changes. No checks to compare new client contact details with existing ones. No clear policies exist to verify email change request. Assign specific staff to regularly review audit logs for client information changes. Verify and confirm the identities and signatures for client information change requests, ideally contacting clients via alternative methods. Promptly notify clients of any changes to their information at their registered addresses, emails or mobile phones. Stay vigilant for unusual patterns, such as usernames, new foreign bank accounts, or addresses resembling those of other clients. Handling of Email Request No guidance and regular training provided to staff on handling procedures. No policies exist to manage email scam risks or verify client email instructions. Provide regular training and guidance to staff on identifying email scams and handling procedures. Establish policies to manage risks from email requests for orders, asset transfers, or client details changes. Verify suspicious email instructions and requests for orders or asset transfers above a reasonable threshold. Third-Party deposits and payments and collection of physical scrips No written policies exist for handling third-party deposits and payments. Failed to independently confirm with clients the authenticity of stock withdrawals for physical scrips by third parties. Adopt a policy discouraging third-party deposits and payments, allowing them only under exceptional circumstances approved by the senior management. Verify the transaction request with the client before processing any securities withdrawals to third parties. Operation of Bank Accounts Failed to implement proper authorized signer arrangements. No authorization control measures on payments from house account to client bank accounts. Resigned staffs authorized signatories were not promptly removed. Sharing of user accounts to access the LCs online banking accounts. Blank cheques were pre-signed by the authorized signer. Authorized signer of an LC client’s bank accounts should only be ROs, MICs, or their delegates. Require two or more authorized signers and set appropriate limits for payments from house and client bank accounts, including online banking. Review and update the authorized signing arrangement in a timely manner. Payment cheques should be crossed and signed only after filling in the payee’s name, amount, and the date. Dormant Accounts Failed to establish and implement written policies to identify dormant accounts and review their trading activities. No record of reviews on trading activities in dormant accounts. Establish policies to identify and review irregular trading in dormant accounts not exceeding 24 months. Maintain proper record of reviews for dormant account trading activities. Updates and Maintenance of Client Information Outdated clients contact information, with 8% of confirmation letters undelivered. No records of account opening documents to verify client signatures on instructions. Update client information promptly and ensure accuracy. Ensure relevant client specimen signature information is accessible to staff. Segregation of Duties Account Executives handled client assets and changes without proper controls. No marker-checker controls for key operational functions. Ensure key duties are segregated to minimize conflicts and abuses. Front office staffs should be restricted from handling non-trade-related matters. Implement marker-checker controls for key operational duties. System Access Controls Did not grant access right to staff on a need-to-have basis. Ensure access rights are granted on a need-to-have basis. Enforce access and security controls to prevent unauthorized database access. Reconciliation of Client Asset Records Failed to reconcile ledgers with external records. Failed to promptly follow up on reconciliation discrepancies. Regularly reconcile internal records with third-party reports. Reconcile client and bank accounts, fund transfer per Client money rules. IV. ACTIONS AND RECOMMENDATIONS 1. Assess and document current controls Document all your current client asset protection internal controls. This will provide a clear overview of what exists and reveals any gaps or areas for improvement. 2. Identify and evaluate risks Assess the risks. Ongoing risk assessments are crucial as they ensure your controls align with your organization’s evolving needs. These assessments help ensure your controls address the real-world challenges your organization encounters. 3. Test control effectiveness Assessing your controls is the backbone of any internal control review. This will ensure that your controls not only exist but also function as intended. 4. Review and analyze results Review your testing data to identify trends, failures, or areas where controls are lacking. It is recommended to maintain clean documentation of control failures and recommended fixes, ensuring a clear audit trail. 5. Implement Improvements Implement improvement to ensure that your client’s asset protection internal controls stay relevant and effective. This includes providing training for key staff on new or updated controls to ensure proper implementation. V. 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. We understand the complexities of regulatory requirements and provide tailored solutions to meet your specific needs and close any material gaps. Our expertise ensures adherence to regulatory standards and enhances overall compliance practices. If you have any questions, please feel free to Contact Us .

The topics discussed in this monthly newsletter are as follows: ComplianceOne Newsletter – June 2023 The topics discussed in this monthly newsletter are as follows: No "light-touch regulation" in Hong Kong new crypto rules SFC updated guidance to prepare for HKD-RMB Dual Counter Model HKEX’s New IPO Settlement Platform (FINI) to be launched in October HK Aiming to invite 200 family offices domiciled in Hong Kong by the end of 2025 130 Sustainability-Linked Bonds and ESG ratings of hundreds of listed companies displayed on the STAGE The SFC Annual Report 2022-23 SFC banned Xie Yanxiong for life for fraudulence and misrepresentation Taiping Securities (HK) Co Limited was fined $1.3 million for internal control failures over employee dealings Four people charged following SFC and Police joint operation against securities fraud and illegal short selling SFC obtained disqualification orders against former directors of National Agricultural Holdings Limited MARKET NEWS 1. No "light-touch regulation" in Hong Kong new crypto rules As Hong Kong has been advocating to global arena of its determination to develop HK as an international financial hub for virtual assets; in an interview at Bloomberg, the HKMA Chief Executive Eddie Yue Wai-man said that, “We will let them create the ecosystem here and that actually brings a lot of excitement. But that doesn’t mean light-touch regulation. ” Hong Kong has started marching into a new licensing regime for virtual assets service providers with effect from 1 June, and is preparing to grant the access to retail-investor participation for trading major tokens like Bitcoin and Ether. Apart from the regulatory guidelines published by the SFC, further guidelines for banks on serving crypto clients are still under progress. Despite negative news like bankruptcy of FTX exchange, and the high profile demonstration of the US officials to crack down on digital-asset business with enforcement actions, Hong Kong has been lowering its crypto guardrail to a “ reasonable and sustainable level ” from previous tight environment before. Aside from permits for virtual-asset platforms, a mandatory licensing regime for stablecoins — a type of crypto token that’s meant to hold a constant value — is due by 2023-2024. SIGNIFICANCE: Though regulatory bodies are showing that the surveillance of virtual asset landscape in Hong Kong is analogous to regulatory regime in other regions, and are by no means lenient compared with others, it cannot be denied that Hong Kong is one of the few jurisdictions where the government proactively participating in the nourishment and development of regulatory regime to foster the nascent growth of virtual assets business. It is also noted that the government is facilitating the onerous due diligence process of virtual asset exchanges to open bank accounts with local banks in Hong Kong which has always been a tough issue for many new participants or awaiting licensees in the virtual assets licensing regime. 2. SFC updated guidance to prepare for HKD-RMB Dual Counter Model The SFC published on 6 June 2023 a revised guidance on short selling reporting and stock lending record keeping to prepare for the launch of the HKD-RMB Dual Counter Model in the Hong Kong securities market on 19 June 2023. The Guidance Note on Short Selling Reporting and Stock Lending Record Keeping Requirements has been updated to cover inter-counter transactions of securities under the Dual Counter Model; and practical and operational examples can be found in the Frequently Asked Questions for Short Position Reporting as well. Suffice to say that the Guidance Note clarified that as HKD and RMB counters for the same security are of the same class, the following inter-counter transactions fall within the current framework: when an investor buys a security at one counter first and sells at another, the sale is considered an ordinary sale, and when a Dual Counter Model market maker sells a security at one counter and buys it at another, the inter-counter transaction falls under the current exemption, subject to certain conditions. SIGNIFICANCE: As Ms Julia Leung, the SFC Chief Executive Officer, had said, “the SFC supports dual counter trading, which will help promote the renminbi’s internationalisation and use as an investment currency.” With such dual counter in place, it provides an effective and efficient mechanism for market makers with improved market liquidity and helps minimise price differences between the two counters. 3. HKEX’s New IPO Settlement Platform (FINI) to be launched in October HKEX announced on 28 June of the launch of FINI, its innovative IPO settlement platform, in October this year, which significantly shortened the time between the pricing of an IPO and the trading of shares from five business days (T+5) to two business days (T+2). HKEX Chief Executive Officer Nicolas Aguzin said: “By digitalising, streamlining and modernising IPO settlement workflows, FINI will shorten the time between IPO pricing and the start of trading, enhancing market efficiency and strengthening the competitiveness and attractiveness of Hong Kong’s IPO market.” Following the successful completion of the FINI External User Testing earlier in June, HKEX will arrange market practice sessions and market rehearsals in July and August, to simulate interactive, end-to-end IPO settlement operations under FINI, paving the way for full migration to FINI in October. The new platform will also introduce a new public offer pre-funding model to help alleviate the scale of funds that are locked up in over-subscribed IPOs. 4. HK Aiming a target to invite 200 family offices domiciled in Hong Kong by the end of 2025 The Financial Secretary, Paul Chan, delivered a speech on 12 June in the launch of a family office network, proclaiming a plan to develp Hong Kong as a premier hub for family offices and a target of 200 family offices to be established by the end of 2025 has been on schedule. On the government side, legislations have been passed to enhance the competitiveness of the tax system for family offices, and with concerted efforts from various regulatory bodies like the SFC and HKMA, to fuel the momentum for accelerating the development . SIGNIFICANCE: Having recovered for the 2019 social movement and the global epidemic of COVID-19, the HKSAR government has been endeavoring to start off the engine for moulding Hong Kong not only as international financial centre as it is used to be, but also a pioneer around the world for the nascent virtual asset licensing regime and a premier hub for the growth of family offices. 5. 130 Sustainability-Linked Bonds and ESG ratings of hundreds of listed companies displayed on the STAGE Mr Wilfred Yiu, Co-Chief Operating Officer & Head of Equities of the HKEX stated that up to end of May this year, the Sustainable & Green Exchange (STAGE) has displayed more than 130 Sustainability-Linked Bonds and ESG ratings of hundreds of listed companies in Hong Kong. Mr Yiu also said in a forum that the number of ESG ETFS listed on HK continued to grow, and there was a total of 11 ESG ETF amounting in market capitalization of HKD 2.5 billion dollars, with turnover approaching HKD 6 million dollars. Beside the First Carbon Futures ETF listed last year, through the Stock Connect came another new China A Low Carbon Index ETF and the first Greater Bay Area Climate Transition ETF listed in Hong Kong in March this year. Mr Yiu further pointed out that the Exchange’s ESG reporting requirements had incorporated certain key recommendations of the Task Force on Climate-Related Financial Disclosures (TCFD), proposing for the issuers to prepare for the mandatory TCFD-aligned climate-related disclosures by 2025. 6. The SFC Annual Report 2022-23 The SFC published its Annual Report 2022-23 on 21 June 2023, which sets out its achievements in the past year as well as its vision for nurturing high-quality market growth and upholding world-class regulation to advance Hong Kong’s position as a leading international financial centre. Some key achievements included: the introduction of Swap Connect; launch of a new lsiting regime for specialist technology companies with limited or no revenue or track record; the investor identification regime for Hong Kong (HKIDR); the Hong Kong Dollar-Renminbi (RMB) Dual Counter Model for the secondary market trading of a first batch of stocks; the regulatory requirements for the new licensing regime for virtual asset trading platforms effective in June; the proposed risk management guidelines for licensed persons dealing in futures Mr Tim Lui, Chairman of SFC, said, “ We are committed to strengthening market resilience and integrity and expanding the breadth and depth of our financial markets as a premier gateway to Mainland China .” The Chief Executive Officer, Ms Julia Leung, also said, “ We strive to promote sustainable and responsible development of our financial markets whilst safeguarding investor interests and managing market risks through our robust regulation, vigilant supervision and resolute enforcement action. ” SIGNIFICANCE: The transition from 2022 to 2023 was fraught with many challenging changes lauched by the regulatory bodies and its determination to crack down on the investment fraud and social media ramp and dump scams which were detrimental to the integrity of the financial market Hong Kong has strived to uphold. Nowadays, maintaining in compliance is not merely an obligation to be fulfilled, but more of a challenge to be encountered amid such avalanche of regulatory innovations formulated and launched by the HKSAR government while orchestrating a regulatory landscape to accomodate the latest developments in the international financial markets. ENFORCEMENT NEWS 7. SFC banned Xie Yangxiong for life for fraudulence and misrepresentation The SFC had banned Mr Xie Yangxiong, a director of Wansom Asset Management (Hong Kong) Limited (WAML) and Wansom Securities (Hong Kong) Limited (WSL), from the industry for life. It was found in the SFC investigation that Xie, who had access and control of bank accounts of WAML and WSL, was providing false information of both firms to SFC in support of their license applications in July and August 2018. In the case, Xie deliberately made deposits in the bank accounts of WAML and WSL, and then withdrew the same amount afterwards. With the withdrawn funds into consideration, the liquid capital condition of both WAML and WSL would fail to meet the regulatory requirement for their licenses to be granted. Further that Xie also failed to ensure that WAML and WSL should have notified the SFC of their liquid capital deficits within one business day of their liquid capital falling below the required level. The SFC was of the view that the misconduct of WAML and WSL was the direct result of Xie’s consent or connivance, and his conduct cast serious doubt on his fitness and properness to be a “regulated person”! SIGNIFICANCE: Given the fact that Xie was also the sole owner of the entity which wholly owned WAML and WSL. Although Xie was not a licensed person under the Securities and Futures Ordinance (SFO), he came within the definition of a “regulated person” under section 194(7)(c) of the SFO which includes a person who is or at the relevant time was involved in the management of the business of a licensed corporation. 8. Taiping Securities (HK) Co Limited was fined $1.3 million for internal control failures over employee dealings The SFC had reprimanded and fined Taiping Securities (HK) Co Limited (TSCL) $1.3 million for internal control failings in relation to employee dealings between 1 January 2016 and 30 November 2018. It was found in the investigation that TSCL failed to put in place adequate and effective internal controls over monitoring of employee dealings, and the senior management, compliance department and responsible officers (RO) did not have a clear understanding of their roles and duties as well. The SFC also found that TSCL failed to communicate its personal dealing policy applicable during the relevant period to all employees and ensure their compliance with it. 9. Four people charged following SFC and Police joint operation against securities fraud and illegal short selling Four suspects appeared at the Eastern Magistracy on 23 June 2023 charged with offences of fraud with alternative charge of illegal short selling following an earlier joint operation of the SFC and the Police against fraudulent activities in securities transactions and illegal short selling. Suspicious trading activities during an intensive investigation of suspected ramp-and-dump activities were discovered which were found to involve suspected money laundering and other fraudulent activities, the case was referred to the Police. 10. SFC obtained disqualification orders against former directors of National Agricultural Holdings Limited The SFC had obtained disqualification orders in the Court of First Instance against a former executive director Mr Liu Yong, and two former independent non-executive directors, Ms Kathy Chiu Kam Hing and Mr William Fan Chung Yue of National Agricultural Holdings Limited (NAH). Liu was disqualified for three years while Chiu and Fan for 20 months from being any director, liquidator, or receiver or manager of any corporation in Hong Kong including NAH or any of its subsidiaries and affiliates. The Court proceedings followed the SFC’s investigations into allegations of a series of misconduct orchestrated by NAH’s controlling shareholder Parko (Hong Kong) Limited (Parko), the former chairman Mr Chen Li-Jun and three other senior officers of NAH (Chen and others) from 2015 to 2017. The orders were made having regard to the findings that Liu, Chiu and Fan had neglected or omitted to identify or rectify the misconduct of Chen and others. They also failed to raise concerns, queries or seek necessary information in relation to the significant and questionable transactions discovered in SFC’s investigation as above. For more details, please click on the title of the topic above. ================================= ~ Make It Right Today, Better Tomorrow ~ ================================= The Newsletter is for general information purpose only and is not intended to constitute legal or other professional advice. For enquiries, please email to support@complianceone.hk or call us at (852) 39550277 . Unit 1104, 11/F, 299QRC, 287-299 Queen's Road Central, Sheung Wan, Hong Kong Tel: (852) 39550277 www.complianceone.hk To unsubscribe, please simply reply with “ I don’t like to know more about Compliance ”.

The SFC and HKMA issued a Joint Circular on 20 October 2023 to provide further guidance on intermediaries’ virtual asset-related activities. We have prepared an executive summary to summarize the key points for easier reference.

The topics discussed in this monthly newsletter are as follows: ComplianceOne Newsletter – Feb 2025 The topics discussed in this monthly newsletter are as follows: REGULATORY UPDATES 1. SFC convenes inaugural VA Consultative Panel meeting 2. SFC sets out ASPIRe roadmap as blueprint to navigate Hong Kong as a global virtual asset hub 3. Hong Kong's market watchdog reviews 8 brokerages amid IPO oversubscription frenzy 4. SFC Supports Listing of Alternative Funds to Boost Investor Options 5. SFC Leads Regional Consensus on Sustainability, Tech, and Investor Protection 6. SFC proposes to relax position limits for key exchange-traded derivatives 7. SFC flags cybersecurity incidents in a thematic review report MARKET NEWS 8. SFC supports government budget measures 9. HashKey Capital is granted approval for VA discretionary accounts management services ENFORCEMENT NEWS 10. SFC Imposes Restriction Notices on Money Concepts Entities 11. SFC Launches Insider Dealing Case Against Wong Pak Ming Regulatory Updates 1. SFC convenes inaugural VA Consultative Panel meeting Earliest on 14 FEB, the SFC had convened an inaugural meeting of the Virtual Asset Consultative Panel (“ VACP ”) for the licensed virtual asset trading platforms (“ VATP ”s). Chaired by the SFC’s Executive Director of the Intermediaries Dr Eric Yip, the VACP comprises all the licensed VATPs represented by members of their senior management, and is expected to provide invaluable contribution to the SCF’s formulation of regulatory policy to further facilitate the development of a sustainable and resilient virtual asset ecosystem. Members of the VACP will collaborate towards the aim of identifying policy priorities, paving way for market and regulatory developments. As added by Dr Eric Yip, “The SFC looks forward to close collaboration with the members to encourage and develop innovation while ensuring adherence to regulatory standards in this rapidly changing landscape”. SIGNIFICANCE: The VACP is a good example of SFC’ s proactive engagement with the licensed VATPs in addition to its previous engagement in launching the swift licensing process for new VATP applicants with a streamlined approach. 2. SFC sets out ASPIRe roadmap as blueprint to navigate Hong Kong as a global virtual asset hub The SFC outlined 12 major initiatives to enhance the security, innovation and growth of Hong Kong’ s virtual asset (“ VA ”) market under a five- pillar “ ASPIRe ” roadmap, which stands for Access, Safeguards, Products, Infrastructure and Relationships. A snapshot of the pillars and initiatives: FIVE-pillars (incorporating the TWELVE initiatives) “ A-S-P-I-Re ” Roadmap for a Resilient Virtual Asset Ecosystem (1) Pillar A (Access) – Streamline market entry through regulatory clarity Key objectives: (i) Expand market accessibility (ii) Encourage responsibility participation (iii) Enhance investor opportunities Initiative 1 : Establish licensing regimes for OTC trading and custody services Initiative 2 : Attract global platforms, order flows and liquidity providers (2) Pillar S (Safeguards) – Optimising compliance burdens without compromising security Key objectives: (i) Align compliance requirements (ii) Adopt risk-proportionate oversight (iii) Promote regulatory clarity Initiative 3 : Explore adopting a dynamic approach to custody technologies and storage ratios Initiative 4 : Enhance insurance and compensation frameworks Initiative 5 : Clarify investor onboarding and product categorization (3) Pillar P (Products) – Expand product offerings and services based on investor categorisation Key objectives: (i) Enable risk-appropriate investment tools (ii) Safeguard retail investors (iii) Mitigate potential risks Initiative 6 : Explore regulatory framework for professional investor-exclusive new token listings and virtual asset derivative trading Initiative 7 : Explore virtual asset margin financing requirements aligned with securities market risk management safeguards Initiative 8 : Consider allowing staking and borrowing/lending services under clear custody and operational guidelines (4) Pillar I (Infrastructure) – Modernise reporting, surveillance and cross-agency collaboration Key objectives: (i) Strengthen market-wide oversight capabilities (ii) Early detection of illicit activities and misconduct (iii) Safeguard investor assets Initiative 9 : Consider solutions for efficient regulatory reporting and deploy advanced surveillance tools to detect illicit activities Initiative 10 : Strengthen local cross agency collaboration and promote cross border cooperation with global regulators (5) Pillar Re (Relationships) – Empower investors and industry through education, engagement and transparency Key objectives: (i) Enhance investor understanding (ii) Foster industry participation (iii) Promote fit-for-purpose policy making Initiative 11 : Consider regulatory framework for financial influencers (Finfluencers) to address new investor engagement channels Initiative 12 : Cultivate sustainable communication and talent network SIGNIFICANCE: Encountered with the ever-changing VA ecosystem, market participants are facing challenges from all edges: institutional-retail bifurcation, fragmented liquidity, and regulatory arbitrage risk due to discrepancies in development of VA regulatory regimes across regions; the SFC is pioneering itself with a pragmatic ASPIRe roadmap to secure and gradually materialize the mission of positioning Hong Kong as an international VA hub. 3. Hong Kong's market watchdog reviews 8 brokerages amid IPO oversubscription frenzy On 14 February 2025, a press release showing the SFC’s explicit concern with the oversubscription frenzy in IPO offering observed recently from eight brokers. Some key points are worth noted: the SFC will examine the brokers IPO financing policies, and advise that brokers should take into consideration the clients’ repayment ability, and set appropriate loan limit to avoid overfinancing; in November 2023 a couple of years ago, a circular form the SFC had been posted to remind brokers of the need to adopt a prudent risk management policy in providing IPO subscription services to its clients, in particular after the launch of FINI on 22 November then; since under the new FINI settlement, brokers are only required to pay for the maximum number of shares allotted in the IPO instead of the “full amount” of the subscriptions, thus allowing opportunities to further scale up the leverage offered to the clients. It is observed that some brokers tend to accept large subscription orders without collecting sufficient initial subscription deposits from clients as minimum upfront payments; brokers tend to take advantage of “the exemption to pay the full amount” to grant more IPO loans to the clients with larger multiples which further add fuel to boost up the oversubscription frenzy. SIGNIFICANCE: The FINI mechanism shortens the settlement period from “t+5” to “t+2” while at the same time alleviating the financial costs burden of having to pay the full amounts of subscription in previous arrangements. Though initial intention of the FINI is to streamline the IPO settlement process, it unexpectedly allows the possibility for more speculative IPO overfinancing activities. Market participants also expect the SFC to provide more clear guidelines on the margin-financing policies, not only as reference for prudent risk management, but also as a note of reminder to brokers of the potential risk of breaching the financial resources requirements amid the vehement buoyancy of IPO offerings. 4. SFC Supports Listing of Alternative Funds to Boost Investor Options The SFC of Hong Kong has issued new regulatory circular to encourage the listing of closed-ended alternative funds on the Stock Exchange of Hong Kong Limited (“ SEHK ”). Announced on 17 February 2025, this move aligns with the HKSAR Government’s 2024 Policy Address to expand private equity fund distribution and solidify Hong Kong’s position as a global asset management hub. Key takeaways: Funds already listed on recognized international exchanges may also qualify, subject to comparable regulations. Size & Scale: Funds must be sizeable (HK$780 million market cap), with management companies managing at least HK$780 million in alternative assets. Diversification: Funds should invest in well-balanced portfolios, with borrowing capped at 30% of net asset value (NAV). Transparency: NAV must be published quarterly, and offering documents must detail investment strategies, risks, and valuation methods. Investor Education: Management companies are urged to educate investors before launching these funds in Hong Kong. SIGNIFICANCE: “We’ve always welcomed closed-ended alternative funds,” said Ms. Christina Choi, SFC’s Executive Director of Investment Products. “This clarity will help investors tap into opportunities managed by top-tier asset managers.” This initiative broadens Hong Kong’s investment landscape, offering sophisticated investors access to alternative assets while maintaining robust safeguards. The SFC aims to balance innovation with investor protection, reinforcing the city’s financial competitiveness. 5. SFC Leads Regional Consensus on Sustainability, Tech, and Investor Protection The SFC has taken a pivotal role in shaping the future of capital market regulation across the Asia-Pacific, forging a united front with regional counterparts at the International Organization of Securities Commissions (“ IOSCO ”) Asia-Pacific Regional Committee (“ APRC ”) meetings held from 19 Feb 2025 to 21 Feb 2025, in Da Nang, Vietnam. Key takeaways: Collaborative Roadmap: Chaired by SFC CEO Ms. Julia Leung, the APRC brought together over 70 regulators from 19 jurisdictions to align on tackling scams, online harm, and investment fraud, while leveraging technology for regulatory innovation. Supervisory Cooperation: Vietnam’s State Securities Commission (“ SSC ”) joined as the 14th signatory to the APRC Multilateral Memorandum of Understanding (“ SMMoU ”), a milestone witnessed by Vietnam’s Finance Minister Mr. Nguyen Van Thang and celebrated during a signing ceremony. Global Dialogue: Ms. Leung co-chaired the EU-Asia-Pacific Forum on Financial Regulation, driving discussions on digitalization, fintech, and sustainable finance with European and regional financial leaders. Unified Approach to Emerging Challenges Regulators agreed on strategies to combat scams and harness generative AI and other technologies to enhance oversight. SFC senior executives also contributed to Enforcement and Supervisory Directors’ Meetings, sharing insights on enforcement trends, virtual asset safekeeping, and tech-driven supervision. Ms. Leung, in her keynote at the SSC Vietnam Symposium, underscored the APRC’s role: “This platform fosters collaboration essential for trust in our growing markets. Together, we can navigate emerging trends and risks effectively.” SIGNIFICANCE: As capital markets evolve with technology and sustainability at the forefront, the SFC’s leadership in the APRC reinforces Hong Kong’s role as a regulatory hub. This consensus sets the stage for stronger investor protection and innovation-friendly frameworks across the region. On the sidelines, Ms. Leung met with SSC Chairwoman Ms. Vu Thi Chan Phuong to deepen supervisory ties, focusing on crypto regulation and shared capital market priorities. Vietnam’s SMMoU entry marks a step forward in regional cooperation, enhancing information-sharing among Asia-Pacific regulators. For Ms. Leung’s full speech and more details, visit the SFC website . 6. SFC proposes to relax position limits for key exchange-traded derivatives On 27 February 2025, the SFC launched a Consultation proposing to increase the position limits for exchange-traded derivatives based on the three major stock indices in Hong Kong to keep pace with market development. To facilitate hedging activities of market participants, the proposals will lift the current position limits for the futures and options contracts as the table shown below: Underlying Index Existing position limit (net long/short position delta) Proposed position limit (net long/short position delta) Hang Seng Index (HSI) 10,000 15,000 (↑50%) Hang Seng China Enterprises Index (HSCEI) 12,000 25,000 (↑108%) Hang Seng TECH Index (HSTECH) 21,000 30,000 (↑43%) SIGNIFICANCE: These will enable Hong Kong’ s derivatives markets to keep pace with the growth in the market capitalisations of major stock indices and trading volumes of their constituents over the past years, without introducing additional risks to the markets. As Ms Julia Leung said, “ The relaxation of position limits will not only allow market participants to enjoy greater flexibility in managing positions, but also promote the liquidity and efficiency of both the derivatives and broader markets. ” 7. SFC flags cybersecurity incidents in a thematic review report Material cybersecurity incidents in recent years involving cyberattacks against licensed corporations (“ LC ”s) aroused attention of the SFC as LCs were vulnerable to significant business disruptions or hacking of client accounts. A Report on the 2023/24 Thematic Cybersecurity Review of Licensed Corporations (“ Report ”) was issued by the SFC on 6 February 2025 where eight incidents of material cybersecurity breach were reported to SFC between 2021 and 2024, examples identified are: unauthorized access to trading in clients’ account through loopholes in the network security of the LCs; end-of-life (“ EOL ”) software and weak algorithm for encrypting client data. In the light of these insufficient management oversight and inadequate controls on cybersecurity measures, the SFC has set out in the Report some standard of conduct expected of the LCs in relation to phishing detection and prevention, EOL software management, remote access control, third-party IT service providers management and cloud security. SIGNIFICANCE: As emphasized by Dr Eric Yip, the SFC’ s Executive Director of Intermediaries, that the LCs should take all necessary measures to tackle the sophisticated and prevalent cyberattacks, and failure to address these threats would cause detrimental influence on the LCs, their clients as well as the entire financial system in such a highly interconnected and digitalised world. Senior management should recognize the critical importance of safeguarding from and mitigating the cybersecurity risks by making reference to the Report for details. Market News 8. SFC supports government budget measures The SFC has expressed strong support for the Hong Kong government’s 2025-2026 budget measures, unveiled by Financial Secretary Paul Chan on 26 February 2025. These initiatives aim to solidify Hong Kong’s status as a leading international financial hub. Key takeaways: Boosting Securities and Derivatives Markets: SFC Chairman Dr. Kelvin Wong praised the budget for advancing Hong Kong’s securities, derivatives, and asset management sectors, reinforcing its competitive edge. Tech-Focused Listing Channel: The SFC will collaborate with Hong Kong Exchanges and Clearing Limited (“ HKEX ”) to launch a "technology enterprises channel," streamlining listings for tech and biotech firms. Listing Regime Refinement: A comprehensive review of listing rules, vetting processes, and market structures is underway, including exploring post-delisting trading mechanisms and optimizing dual/secondary listing thresholds. Risk Management Enhancements: The SFC will soon consult on raising position limits for key index derivatives to better serve investors. RMB Bonds and Fixed Income Hub: Partnering with the Hong Kong Monetary Authority, the SFC is crafting a roadmap to develop primary and secondary bond markets, alongside hosting a flagship forum in late 2025 to highlight Hong Kong’s strengths. Virtual Assets and Fintech: Following a mid-February regulatory roadmap, the SFC will guide the sustainable growth of Hong Kong’s virtual asset market, aligning with the government’s upcoming policy statement on blending traditional finance with innovative tech. SIGNIFICANCE: SFC CEO Ms. Julia Leung emphasized ongoing collaboration with regulators and stakeholders to strengthen Hong Kong’s role as a fixed income and currency hub, advance virtual asset markets, and deepen ties with Mainland China and global markets. The SFC’s proactive stance signals a dynamic year ahead for Hong Kong’s financial ecosystem. 9. HashKey Capital is granted approval for VA discretionary accounts management services Following the approval from SFC, Hashkey Capital is now able to offer discretionary account management services for virtual assets to professional investors (“ PI ”s) subject to type 9 license. This approval enables HashKey Capital to deliver customised services to professional investors subject to a pre-approved list of exchanges across the entire investment lifecycle ranging from: (i) tailored investment mandates: from spot investments to OTC trading and derivatives; (ii) flexibility in trading platforms: to offer discretionary account management service across a multiple of exchanges available to the clients taking into consideration the issues of compliance, operational efficiency; (iii) seamless strategy execution: providing a full-fledged discretionary account management from buying, selling, asset allocation, monitoring, rebalancing and final reporting. SIGNIFICANCE: Hindered by the complex virtual assets landscape, investors are always averse to the unforeseeable risks beyond their investment perspectives; discretionary account management services offer a bespoke solution by shifting the burden of regulatory and technical complexities from investors to professional market practitioners who are more conversant in the newly evolving regime. Enforcement News 10. SFC Imposes Restriction Notices on Money Concepts Entities The SFC took decisive action on 18 February 2025, issuing restriction notices to Money Concepts (Asia) Holdings Limited (“ MCAH ”) and its subsidiary, Money Concepts Asset Management Limited (“ MCAM ”). The SFC cited potential risks to the investing public and the broader public interest as key drivers for the restrictions. Restriction in Place: Both firms are barred from engaging in any licensed regulated activities—directly or via agents—without prior SFC approval, until further notice. SIGNIFICANCE: The move stems from concerns over their honesty, reliability, integrity, and competence in conducting regulated activities, raising doubts about their fitness to remain licensed. 11. SFC Launches Insider Dealing Case Against Wong Pak Ming The SFC kicked off criminal proceedings against businessman Wong Pak Ming on 27 February 2025, at the Eastern Magistrates’ Court. Wong, former chairman and controlling shareholder of Transmit Entertainment Limited (formerly Pegasus Entertainment Holdings Limited), faces charges of insider dealing tied to the company’s shares. Case Details Allegations : Wong is accused of counselling or procuring someone to trade Pegasus shares between 25 August 2017 and 17 October 2017, while possessing inside information about the company. Background : Pegasus, listed on Hong Kong’s Growth Enterprise Market in 2012 and later moved to the Main Board in 2015, was renamed Transmit Entertainment in March 2018 after Wong sold his controlling stake. Legal Basis : Insider dealing violates section 291 of the Securities and Futures Ordinance (“ SFO ”) . SIGNIFICANCE: No plea has been entered yet. The case is adjourned to March 27, 2025. Wong was released on $200,000 cash bail with conditions to stay at his provided address, notify police of any residence change, and inform the SFC 24 hours before leaving Hong Kong.This prosecution highlights the SFC’s ongoing efforts to combat market misconduct. [End of ComplianceOne Newsletter –February 2025] For more details, please click on the title of the topic above. ================================= ~ Make It Right Today, Better Tomorrow ~ ================================= The Newsletter is for general information purpose only and is not intended to constitute legal or other professional advice. For enquiries, please email to support@complianceone.hk or WhatsApp us at (852) 95164607 . Unit 1104, 11/F, 299QRC, 287-299 Queen's Road Central, Sheung Wan, Hong Kong Tel: (852) 39550277 www.complianceone.hk

Ensuring Effective Compliance of MSO Licenses - Through Internal Audit and The Achievement of Business Sustainability Join us and the Association of International Accountants (AIA) for this year's seminar! We'll be discussing the topic of Ensuring Effective Compliance of MSO Licenses - Through Internal Audit and The Achievement of Business Sustainability . Topics: (Part 1) 1. MSO License Guide 2. MSO License Compliance 3. Payment Security and Compliance of Cross-border Payments (Part 2) 4. Current Status of MSO License Compliance 5. Key Aspects of CE&D's Annual Reviews and Interviews 6. Internal Audit and Business Sustainability Event Details: Date: 3 August 2024 (Saturday) Time: 14:00 – 16:30 Fee: $ 200 for AIA or ACIA / $ 250 for non-members (Free for PolyU HKCC and SPEED students) Language: Cantonese 廣東話 (Supplemented with English PPT) Venue: PolyU Hong Kong Community College (West Kowloon Campus) Address: 9 Hoi Ting Road, Yau Ma Tei, Kowloon Training hours: 2.5 * Training Certificate will be sent via email after the seminar Speakers: Tao Wong, Co-founder & Partner, ComplianceOne Consulting Limited Boris Luk, Chief Compliance Officer and Money Laundering Reporting Officer (MLRO), with qualifications including Master of Business Administration, Master of Laws, and Forensic CPA. Don't miss out on this informative and valuable event! Register now to secure your spot. https://forms.gle/TMouCWJ8THssBspJ7 For further information, please contact Tiffany Chan at WhatsApp +852 54908117. ComplianceOne Consulting Limited

The topics discussed in this monthly newsletter for insurance are as follows: ComplianceOne Insurance Newsletter – Jan 2025 The topics discussed in this monthly newsletter are as follows: 1. Hong Kong Solidifies Insurance-linked Security Leadership with First Multi-Peril Catastrophe Bond 2. Insurance Sector Pivots to Silver Economy as Population Ages 3. Key highlights of provisional business Q1–Q3 2024 Statistics 4. Revision of the Mainland China Visitors Definition 5. SFC bans Chan Ka Him for life for insurance fraud IA News Updates 1. Hong Kong Solidifies Insurance-linked Security Leadership with First Multi-Peril Catastrophe Bond The IA announced the successful issuance of a catastrophe bond by Taiping Reinsurance Company Limited through its special purpose insurer, Silk Road Re Limited. This bond marks a milestone as the first insurance-linked security (“ ILS ”) in Hong Kong covering multiple perils and triggers, offering three-year protection against named storms in the United States and earthquakes in Mainland China from 1 January 2025. Key Highlights: This is the sixth ILS issuance in Hong Kong since the launch of the city’s dedicated regulatory framework and pilot grant scheme in 2021. Total ILS transactions in Hong Kong now stand at US$748 million (HK$5.86 billion), reflecting robust growth in the region’s insurance-linked securities market. SIGNIFICANCE: The bond highlights Hong Kong’s evolution into a versatile ILS hub capable of structuring complex, multi-jurisdictional risk solutions. By covering both U.S. and Mainland China perils, it demonstrates the city’s ability to attract global investors while supporting regional resilience against climate-related risks. Note: ILS are different from Investment-Linked Assurance Schemes (“ ILAS ”); ILS: Financial instruments linked to insurance events like natural disasters, transferring risk to capital markets; ILAS: Life insurance policies combining investment and insurance, focused on long-term savings and retirement planning. 2. Insurance Sector Pivots to Silver Economy as Population Ages The IA spearheaded a critical dialogue on the role of insurance in harnessing opportunities within the silver economy at the Asian Financial Forum (“ AFF ”). Titled “Navigating the Silver Economy: Insurance Sector Opportunities in an Aging Society,” the panel convened industry leaders and academics to address challenges and innovations in serving aging populations, both locally and across the Greater Bay Area (“ GBA ”). Key Highlights: Demographic Shifts: Explored Hong Kong’s rapidly aging population and the growing demand for tailored insurance solutions. Protection Gaps: Identified unmet needs in elderly healthcare, retirement planning, and long-term care coverage. Cross-Border Potential: Emphasized opportunities for Hong Kong insurers to collaborate with GBA partners to deliver integrated services. Education & Literacy: Stressed the need to boost public understanding of retirement planning and insurance products. SIGNIFICANCE: With over 20% of Hong Kong’s population projected to be aged 65+ by 2030, the panel underscored the urgency for insurers to develop products that address longevity risks, chronic care, and income security. The discussion also highlighted Hong Kong’s strategic role in leveraging GBA integration to create region-wide solutions. For more details, please refer to AFF full programme here . 3. Key highlights of provisional business Q1–Q3 2024 Statistics The IA’s released the provisional business statistics for the first three quarters of 2024, which highlights trends of long-term business, general business, and regulatory shifts critical for insurance licensees. Mainland Visitor Business: Adapt to Shifting Dynamics: While premiums from Mainland visitors remain significant (27.6% of new individual life business), the IA’s focus on monitoring this segment signals stricter enforcement of unlicensed referral practices. Recent discussions indicate a zero-tolerance stance on: (i) Unlicensed cross-border referrals (e.g. unlicensed Mainland agents/brokers directing clients to Hong Kong insurers); and (ii) non-compliant commission-sharing arrangements with unregulated third parties. For more details of unlicensed referral, please refer to circular issued by IA on 22 May 2024. Regulatory Overhaul: Prepare for RBC Changes: The Risk-based Capital (“ RBC ”) regime, effective 1 July 2024, introduces new reporting standards. Insurers now report by financial year instead of calendar year, and offshore general insurance metrics are now included. Historical comparisons may be unreliable—verify data context with partners. For more details of RBC regime, please refer to here . Semi-Annual Reporting: Starting Q1 2025, the IA will publish Mainland visitor business statistics semi-annually due to seasonal fluctuations. Long-Term Business Growth: New policy premiums for long-term business (excluding retirement schemes) reached $169.6 billion, up 15.7%. General Business Performance: Gross and net premiums for general business in the first three quarters of 2024 were $75 billion and $51.7 billion. For additional summary of the provisional statistics, please refer to the Annex and Market & Industry Statistics published by IA. SIGNIFICANCE: As the insurance landscape evolves, licensees must stay agile and informed. Adapting to the shifting dynamics of Mainland visitor business is crucial, especially with the IA's stricter enforcement on unlicensed referral practices. Aligning product offerings with Mainland visitor preferences and ensuring compliance with the new RBC regime will help licensees effectively navigate these regulatory changes. Market News 4. Revision of the Mainland China Visitors Definition The IA proposed to revise the official definition of Mainland China Visitors (“ MCV ”) to exclude individuals under related talent schemes (e.g. Top Talent Pass Scheme) to prevent data inflation and improve data accuracy and address risks tied to visitors’ limited familiarity with local insurance regulations. MCV Definition proposal Current MCV Definition: Mainland residents entering Hong Kong with a Double Entry Permit or Chinese passport. Proposed MCV Definition: Specific talent schemes participants may no longer be classified as MCV. Additionally, the IA will explore the possibility of collecting data on new policies from different regions. Considering the seasonal travel patterns of Mainland visitors, the related business statistics will be published semi-annually instead of quarterly starting from Q1 2025. Participating Business Reforms The IA has proposed three major changes to enhance transparency and consumer protection: Cap on Commission Rates: An annual review of maximum illustration rates, divided into HKD and non-HKD policy categories. Commission Ratio Comparison Platform: A public platform to compare insurers' actual vs. projected dividend payouts. Referral Compensation Review: An overhaul of unlicensed referrer’s commission structures. The above-mentioned will be reviewed and announced by IA within the year, with the cap on commission rates expected to be implemented first. SIGNIFICANCE: Reviewing the definition of Mainland visitors aims to prevent data inflation and improve consumer protection and risk management. The reforms in participating business practices will enhance transparency and ensure fair treatment of consumers. Licensed insurance companies and brokers need to adjust the business strategies promptly to comply with the new regulations and maintain client trust. Enforcement News 5. SFC bans Chan Ka Him for life for insurance fraud The SFC has permanently banned Mr. Chan Ka Him, a former insurance specialist at Standard Chartered Bank (Hong Kong) Limited, from re-entering the industry following his criminal convictions for insurance fraud. Case Details: Between January and March 2019, Chan assisted two clients in taking out insurance policies. Between August and September 2019, Chan induced one client to transfer US$52,300 and another client to transfer over HK$420,000 to a bank account connected to him, under the pretense that these transfers were for premium payments. Chan attempted to cancel the clients’ insurance policies by falsely representing to the insurer that the clients wished to do so. SIGNIFICANCE: Chan was sentenced to 20 months’ imprisonment by the District Court on 2 February 2024 after being convicted of three counts of fraud and one count of attempted fraud. For more details, please refer to Judgment – DCCC 1157/2022 The SFC considers that Chan is not fit and proper to be a regulated person due to his criminal convictions. [End of ComplianceOne Insurance 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

分享金錢服務經營者牌照的合規性與跨境支付安全的合規指南概述 天匯合規再次獲邀參與國際會計師公會香港分會主辦之可持續發展講座 天匯合規榮幸再次受到國際會計師公會香港分會（AIA）的邀請，共同主辦有關合規反洗錢新動向加行業指引分享的研討會。 藉此機會，我們很高興能分享金錢服務經營者牌照的合規性與跨境支付安全的合規指南概述。我們旨在傳達客戶盡職調查（CDD）程序和實施安全風險管理的重要性，特別是作為金錢服務經營者（MSOs）的角色。 我們非常感謝這次的合作，並對觀眾的熱烈參與感到高興。 我們期待未來能夠舉辦更多研討會與大家分享更多合規的資訊！ ComplianceOne are honoured to be invited one year again from the Association of International Accountants (AIA) to co-host the seminar regarding to the updates on anti-money laundering guidelines. We were delighted to share about the security and compliance guidance of the cross-border payment by this opportunity. We aimed to convey the significance of Customer Due Diligence (CDD) procedure and risk management strategy as being Money Service Operators (MSOs). We greatly appreciated our collaboration and were thrilled by the enthusiastic participation from the audience, with many attendees joining the conference. We anticipate organizing more seminars in the future to share further insights on compliance topics with everyone!

The topics discussed in this monthly newsletter for insurance are as follows: ComplianceOne Insurance Newsletter – February 2026 The topics discussed in this monthly newsletter are as follows: Regulatory Updates Anti-Money Laundering and Sanctions Updates Market News Hong Kong’s Single-Family Offices total surpasses 3,380, Contributing Approximately $12.6 Billion Annually to Hong Kong’s Economy IA Launches Public Consultation on Enhancements to the Risk-based Capital Regime Enforcement News IA Reprimands and Fines Three Licensed Broker Companies HK$429,000 Total for Failures in AML/CFT Requirements Regulatory Updates 1. Anti-Money Laundering and Sanctions Updates In early March 2026, the Insurance Authority (“ IA ”) issued several key circulars and updates on anti-money laundering (“ AML ”) and counter-financing of terrorism (“ CFT ”) matters, accessible via the dedicated IA page for 2026 AML circulars. These updates primarily relate to international sanctions regimes, United Nations measures, and Financial Action Task Force (“ FATF ”) guidance, requiring prompt attention from authorized insurers and licensed insurance intermediaries (especially those handling long-term business). Circulars / Sanction List Updates Contents 3 March 2026 Circular on United Nations (Anti-Terrorism Measures) Ordinance [G.N. (E.) 11 of 2026] Significant Updates: The updated Schedule specifies the following individuals (no entities or groups are added in this update): QDi.001: Mohammed Salahaldin Abd El Halim Zidane , who’s Responsible for security of Usama bin Laden. QDi.002: Amin Muhammad Ul Haq Saam Khan , who’s Security coordinator for Usama bin Laden. QDi.003: Salim Ahmad Salim Hamdan , who’s supporting acts or activities of Al-Qaida and Usama bin Laden. These designations trigger asset freezing, prohibitions on making funds or financial services available, and other restrictions under the Ordinance. 3 March 2026 Circular on Statements issued by the Financial Action Task Force (" FATF ") Informs insurance institutions (“ IIs ”) of the FATF Plenary outcomes (11–13 February 2026), including: High-Risk Jurisdictions subject to a Call for Action : DPRK (Democratic People's Republic of Korea) and Iran remain listed due to ongoing strategic deficiencies and proliferation/terrorism financing risks; countermeasures and enhanced vigilance required. Myanmar continues under enhanced due diligence with potential future countermeasures if no progress by June 2026. Jurisdictions under Increased Monitoring : IIs must factor these into risk assessments and monitor the FATF website for changes. Where the Virgin Islands (UK) (BVI) still remain in the list. Emerging focus areas: Cyber-enabled fraud, virtual assets, offshore VASPs, stablecoins, and unhosted wallets (with related FATF reports expected in March 2026). 2 March 2026 United Nations Sanctions (Sudan) Regulation 2013 [G.N. (E.) 10 of 2026] Significant Updates: United Nations Sanctions (Sudan) Regulation 2013 (Cap. 537 sub. leg. BF), notice updates the list of relevant persons specified under section 31 of the Regulation. It reflects amendments or additions to designations related to Sudan sanctions (imposed by UN Security Council resolutions concerning the situation in Sudan, including arms embargoes, asset freezes, and travel bans on certain individuals or entities linked to conflict or violations). 2 March 2026 Updated list of relevant persons and entities under the United Nations Sanctions (ISIL and Al-Qaida) Regulation Features the latest consolidated list (as at 27 February 2026) of designated individuals and entities linked to ISIL (Da'esh) and Al-Qaida; Insurers and intermediaries must screen clients and transactions against this list to avoid sanctions violations. SIGNIFICANCE: These updates reinforce Hong Kong's alignment with global standards set by the FATF and UN, helping to safeguard the insurance sector against money laundering, terrorism financing, and proliferation risks. Insurance companies, agents, and brokers need to be aware of immediately updating their name screening databases to include the latest UN Security Council Consolidated List, FATF High-Risk Jurisdictions subject to a Call for Action, and FATF Jurisdictions under Increased Monitoring, while conducting enhanced due diligence on high-risk elements, incorporating emerging risks into assessments, and ensuring staff training for ongoing compliance. Timely compliance is essential to avoid regulatory breaches, reputational damage, or enforcement actions by the IA. With increasing scrutiny on virtual assets and cyber fraud, these notices underscore the need for robust screening, risk assessment, and staff training to maintain policyholder protection and industry integrity in an evolving threat landscape. Markets News 2. Hong Kong’s Single-Family Offices total surpasses 3,380, Contributing Approximately $12.6 Billion Annually to Hong Kong’s Economy On 10 February 2026, the Financial Services and the Treasury Bureau (“ FSTB ”) and Invest Hong Kong (“ InvestHK ”) jointly released findings from the Market Study on the Family Office Landscape in Hong Kong , commissioned by InvestHK and conducted by Deloitte. The study estimates that 3,384 single-family offices were operating in Hong Kong as of the end of 2025, marking an increase of 681 offices (over 25%) since the end of 2023. Two major affects to the Hong Kong Market: Economic Impact: Single-family offices contribute approximately HK$12.6 billion annually to the local economy through operating expenditures alone and directly employ over 10,000 full-time professionals. When including multifamily offices and supporting service providers, the overall economic benefits are expected to be substantially greater. Hong Kong’s Wealth Management Position: As of end-2024, assets under management in Hong Kong reached approximately HK$35 trillion (about US$4.5 trillion). The city ranked second globally in the number of ultra-high-net-worth individuals as of June 2025, reinforcing its status as a leading destination for family offices. Key highlights from the announcement and study: Upcoming measures in 2026 Upcoming measures include legislative proposals in the first half of 2026 to expand preferential tax regimes for funds and single-family offices to cover additional asset classes such as precious metals, loans, private credit investments, and digital assets. Achieving the new target set out in the Chief Executive's 2025 Policy Address The Government aims to assist more than 220 family offices to establish or expand in Hong Kong from 2026 to 2028. *The target was set out in the Chief Executive's 2025 Policy . Comments from Representatives of FSTB and InvestHK Mr Christopher HUI, Secretary for Financial Services and the Treasury, attributed the sustained growth to Hong Kong’s advantages under the “one country, two systems” framework, including its role as a leading global asset and wealth management hub with predictable environment, connectivity to the mainland and the world, and supportive policies. Ms Alpha LAU, Director-General of Investment Promotion at InvestHK, highlighted strong overseas interest (particularly from Europe and Southeast Asia) in Hong Kong’s flexible investment environment, no geographical restrictions on investments under the preferential tax regime, high privacy (no general licensing requirement for single-family offices), and tax incentives. SIGNIFICANCE: The surge in single-family offices underscores Hong Kong’s strengthened position as Asia’s premier wealth and asset management hub, attracting diverse global capital through targeted policy enhancements, tax competitiveness, privacy protections, and strategic connectivity. The substantial annual economic injection of HK$12.6 billion (via operating expenditures) and direct employment of over 10,000 professionals highlight the sector’s growing role in driving local financial services growth, job creation, and broader ecosystem development. With forthcoming tax expansions (including digital assets) and ambitious growth targets, these developments reinforce Hong Kong’s appeal to ultra-high-net-worth families amid global shifts toward sustainable wealth management and intergenerational planning, further solidifying its status as a trusted international financial centre. 3. IA Launches Public Consultation on Enhancements to the Risk-based Capital Regime On 11 February 2026, the IA launched a public consultation on proposed amendments to the Insurance (Valuation and Capital) Rules (Cap. 41R) , applied for authorized insurers only (excluding licensed insurance agencies and licensed insurance broker companies). This follows a comprehensive review of the Risk-based Capital (“ RBC ”) Regime, which commenced on 1 July 2024. The proposed changes seek to refine the framework while preserving strong prudential safeguards for policyholders. Key areas include: Preferential capital treatment for eligible infrastructure investments, to encourage financing that supports local economic development. Revisions to the required capital amounts for general business lines. Technical adjustments for indexed universal life (“ IUL ”) business. Specific treatments for crypto assets (with a proposed 100% risk charge in related discussions) and specified stablecoins, reflecting evolving exposures to digital assets. These refinements aim to enhance Hong Kong’s position as a competitive global risk management hub, attract more international activity, and align capital requirements with market innovations and emerging asset classes. The consultation paper is available on the IA website. Interested parties, including insurers, intermediaries, industry associations, and the public, are invited to submit comments by 10 March 2026 via: email to rbc@ia.org.hk ; or by post to the IA office at 19/F, 41 Heung Yip Road, Wong Chuk Hang, Hong Kong. SIGNIFICANCE: This consultation represents a forward-looking adjustment to the RBC Regime, balancing innovation with stability. By incentivizing infrastructure investments and clarifying treatment of modern assets like crypto and stablecoins, the proposals support Hong Kong’s strategic goals in sustainable development and digital finance. They also reinforce the city’s attractiveness to multinational insurers and investors, while ensuring continued robust protection for policyholders amid global regulatory evolution. Industry participants are encouraged to engage actively to shape these important enhancements. Enforcement News 4. IA Reprimands and Fines Three Licensed Broker Companies HK$429,000 Total for Failures in AML/CFT Requirements On 4 March 2026, the IA announced disciplinary action against three licensed insurance broker companies for breaches of the Anti-Money Laundering and Counter-Terrorist Financing Ordinance ( Cap. 615 ). The affected companies are: Insurance Broker Companies’ Name License Number ASI-Union Global Assets Management Ltd. FB1534 Macroscopica International Wealth Management Ltd. FB1557 Bay Union Insurance Brokers Limited (formerly known as Huize Hong Kong Insurance Broker Limited) FB1661 The contraventions include: Failure to establish and maintain effective internal procedures for conducting customer due diligence (“ CDD ”). Failure to determine whether customers were politically exposed persons (“ PEPs ”) or whether a person was purporting to act on behalf of the customer. Failure to keep relevant records as required. In addition to the companies, three related individuals were reprimanded for their involvement in these compliance failures. The total pecuniary fine imposed across the three broker companies amounts to HK$429,000. The IA noted that the companies have since implemented effective remedial actions to address the identified deficiencies. SIGNIFICANCE: No evidence of actual money laundering or terrorist financing was reported in connection with these cases, but the breaches highlight gaps in frontline controls that could expose the insurance sector to misuse. Broker companies play a critical role as the primary point of contact with policyholders and are essential in preventing the insurance industry from being exploited for financial crime, thereby protecting Hong Kong's reputation as an international financial centre. This enforcement action reinforces the IA's ongoing priority on robust AML/CTF compliance among insurance intermediaries, particularly broker companies. As intermediaries interact directly with clients, effective CDD, PEP screening, and record-keeping are foundational to preventing financial crime and maintaining trust in Hong Kong's insurance market. The penalties serve as a reminder that even post-remediation cooperation does not eliminate accountability for systemic control weaknesses. With increasing regulatory scrutiny on financial crime risks, licensed entities are urged to review and strengthen their AML/CTF frameworks to avoid similar outcomes, including potential reputational damage, higher supervisory intensity, or escalated sanctions in future cases. [End of ComplianceOne Insurance Newsletter – 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 1605, 16/F, West Tower, Shun Tak Centre,168-200 Connaught Road Central, Sheung Wan, Hong Kong Tel: (852) 39550277 www.complianceone.hk