Thematic Cybersecurity Review of Licensed Corporations Compliance Impact Alert: Thematic Cybersecurity Review of Licensed Corporations Feb 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 Overview The Securities and Futures Commission (“SFC”) completed a thematic review of cybersecurity practices among 50 licensed corporations (“LCs”) in Hong Kong engaging in internet trading. The review assessed compliance with Cybersecurity Guidelines and the Code of Conduct, focusing on phishing, end-of-life (“EOL”) software, and third-party provider management. On-site inspections were conducted at 7 internet brokers, and deep-dive discussions were held with 6 globally operating LCs. The review identified eight significant breaches between 2021 and 2024, linked to issues like weak two-factor authentication (“2FA”), poor security configurations, delayed security patches, inadequate encryption, and unauthorized access to admin accounts. The SFC highlighted insufficient senior management oversight and weak cybersecurity measures as key contributors. To address rising threats, the SFC issued guidelines on phishing prevention, software management, and cloud security. **For more details, please refer to 2023/24 Thematic Cybersecurity review of LCs ** Findings of Cybersecurity Incidents and Expectations The SFC surveyed 50 LCs to assess cybersecurity practices. Key findings, impacts and expectations are summarized below: Findings Impact Expections 1. Ransomware Attacks One LC's systems and data were encrypted, requiring a full rebuild to resume trading. Deploy anti-malware, avoid embedded hyperlinks, conduct training, and establish incident handling. 2. Phishing Vulnerabilities A ransomware attack traced to a phishing email encrypted an LC’s systems, necessitating a rebuild. Conduct simulations and ensure effective reporting procedures. 3. EOL Software Management EOL software increased risks of unauthorized access to critical systems. Maintain IT asset inventories, monitor software validity, and cease using EOL systems. 4. Vulnerability to Unauthorized Access Cybercriminals exploited unpatched VPNs and unsecured ports to access internal networks. Enforce least-privilege access, 2FA, VPNs, session timeouts, and monitor third-party access. 5. Third-Party Provider Management A cyber-attack on a provider disrupted clearing services; some LCs had non-compliant trading systems. Conduct due diligence, establish SLAs, monitor performance, and include providers in contingency plans. 6. Cloud Security Weak network policies increased data leakage risks. Secure infrastructure, enforce access controls, manage API keys, and back up data securely. Actions and Recommendations LCs must ensure senior management (e.g. MIC-IT) addresses cybersecurity risks by: 1. Appointing qualified staff and allocating resources. 2. Reviewing and approving risk management policies. 3. Conducting regular cybersecurity reviews and addressing vulnerabilities. 4. Restricting access to sensitive systems and enforcing secure remote access. 5. Maintaining and testing contingency plans. Requirements are effective immediately, but the SFC will adopt a practical approach for LCs needing time to upgrade systems. Future plans include a comprehensive review of cybersecurity requirements to develop a broader framework for all LCs. 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 – January 2023 ComplianceOne Newsletter – January 2023 The topics discussed in this monthly newsletter are as follows: 1. FUTU and TIGER were ordered by the China Securities Regulatory Commission (CSRC) to rectify their cross-border "illegal operations”; 2. "AML-CTF (Amendment) Ordinance 2022" will take effect on 1 June 2023; 3. HKEX Publishes "Review of Issuers’ Annual Reports - 2022"; 4. HKIDR will be launched shortly on 20 March 2023; and 5. SFAT affirms SFC decision to fine Cardinalasia Consulting Limited $1.5 million for failures in managing private fund. MARKET NEWS 1. FUTU and TIGER were ordered by the China Securities Regulatory Commission (CSRC) to rectify their cross-border "illegal operations" At the end of 2022, the CSRC made an announcement making it explicit that the activities conducted by the two firms, namely Futu Securities International (Hong Kong) Limited (“FUTU”) and Tiger Brokers (HK) Global Limited (“TIGER”), have been construed as engaging in illegal securities business without proper license in China. Though licensed in Hong Kong under the SFC, FUTU and TIGER are considered as conducting regulated activities in securities across the border in China (i.e. cross-border online brokerage) without acquiring approval from the CSRC. Both FUTU and TIGER had been reprimanded by the CSRC as having involved some sort of "cross-border regulatory arbitrage (跨境監管套利)", which means taking advantage of the great difference in political and regulatory systems between two regions by engaging in a less stringent regulatory regime and thus circumventing the onerous documentation process in the stringent regime in another region. SIGNIFICANCE: The regulatory measures taken by the CSRC seems like playing an art of reconciliation by deploying a “ 有效遏制增量，有序化解存量” towards FUTU and TIGER ; instead of an “once-off ban for all ”, a more pragmatic approach, has been adopted. In essence, it means the follow ings: (1) The two firms are not allowed to accept new customers and new accounts as these activities have been construed as conducting unlicensed regulated activities; (2) Both FUTU and TIGER can continue to serve the existing accounts on condition that no additional funds can be accepted which may constitute a breach of the foreign exchange restriction, which is implemented to prevent an outflow of funds from the country, imposed by the Chinese Government. 2. "AML-CTF (Amendment) Ordinance 2022" will take effect on 1 June 2023 The Anti-Money Laundering and Counter-Terrorist Financing (Amendment) Ordinance 2022 (the Amendment Ordinance) will take effect on 1 June 2023. Apart from the introduction of new licensing regime, namely the Virtual Asset Service Providers (VASP), which deserves attention to brokers who are currently involved in virtual assets trading; there are other AML-CFT amendments which cannot be missed out as well. The key takeaways are as follows: (1) Under the Amendment Ordinance, Politically exposed person (PEP) is re-defined as " an individual who is or has been entrusted with a prominent public function in a place outside the People’s Republic of China Hong Kong ”. (2) Former politically exposed person (former PEP) , which means “ an individual who, being a politically exposed person, has been but is not currently entrusted with a prominent public function in a place outside Hong Kong ”, is introduced. With such amendment in place, the licensed corporations can be exempted from taking special requirements or additional measures in relation to a former PEP who happens to be a client onboarded. Instead, a risk-based approach can be adopted. (3) The use of a recognized digital identification system (“RDIS”) is allowed in situations where a customer is not physically present for identification purposes (i.e., non-face-to-face). If the Customer Due Diligence (CDD) requirements are met using reliable and independent digital identification systems, the Enhanced Due Diligence (CDD) requirements can be exempted. SIGNIFICANCE: With the amendment of definition of PEP , the special requirements apply not only to a PEP from a place outside “the People’s Republic of China” but also a PEP from a place “outside Hong Kong”. And with the new definition of former PEP , there is no longer a “once a PEP, always a PEP” scenario. Licensed corporations have the flexibilities to adopt a risk-based approach provided that there is sufficient assessment to justify that the former PEP no longer poses a high AML risk as before. The Amendment merely defines RDIS as " a digital identification system that is a reliable and independent source that is recognized by the relevant authority ”. However, no specific example or further detail has been provided in the Amendment. 3. HKEX Publishes Results of Review of Issures’ 2021 Annual Reports On 20th January 2023, the Hong Kong Exchanges and Clearing Limited (HKEX) published a report on the findings and recommendations in its Review of Issuers’ Annual Reports – 2022 (the “Report”). The Listing Division of the Exchange undertakes an on-going programme to review issuers’ annual reports as part of its monitoring activities. In the review, HKEX considered the actions taken by the issuers and their directors to safeguard company’s assets, and whether material information was disclosed to allow shareholders to properly assess the relevant matters reported on. HKEX also assessed issuers’ compliance with the Listing Rules and specific accounting standards in financial statements. In addition, HKEX also reviewed issuers’ compliance with annual report disclosure requirements under the Listing Rules. According to the Report, most issuers continued to achieve a high rate of compliance with annual report disclosure requirements with only a few issuers did not adequately substantiate the fairness of asset reported values (including loan receivables) due to deficiencies in their financial reporting, risk management and internal controls. HKEX also identified areas of improvement in some issuers’ disclosure of their material loan receivables and has made the following recommendations to issuers: (1) Financial reporting and related controls – deploy adequate resources to maintain risk management and internal controls, with special regard to the accounting estimates and the reasonableness of the assumptions behind. (2) Material lending transactions – critically assess the commercial rationale, whether their terms are fair and reasonable, and whether the use of funds is in the interests of the issuer and its shareholders. (3) Financial statement disclosure under accounting standards – maintain good communications with auditors on emerging issues identified during the audit, and take prompt actions to address auditors’ concerns. 4. HKIDR will be launched shortly on 20 March 2023 With reference to the Circular dated 12 December 2022, Relevant Regulated Intermediaries ( RRIs ) have to get themselves ready for launch of the HKIDR on 20 March 2023. RRIs are reminded to submit the BCAN-CID Mapping File that contains Broker-to-Client Assigned Number ( BCAN ) and client identification data ( CID ) of their clients to the SEHK effective 19 December 2022. RRIs are strongly advised now to ensure that they can login via the SEHK’s Electronic Communication Platform ( ECP ) web interface and / or the ECP ( SFTP ) interface, and submit the BCAN-CID Mapping Files as soon as possible so as to allow the SEHK with sufficient time to verify the data and rectify any error discovered during the file submission process For compliance with the applicable data privacy ordinance, RRIs should have obtained the necessary consent from the individual clients before submitting their BCAN and CID to SEHK. SIGNIFICANCE: Once again, the prioritized aim of the introduction of BCAN and HKIDR is to enhance the effectiveness of market surveillance by improving the transparency of the identity behind who initiates an order to the market, and reduce the investigation and execution costs of regulatory institutions. ENFORCEMENT NEWS 5. SFAT affirms SFC decision to fine Cardinalasia $1.5 million for failures in managing private funds The Securities and Futures Commission (SFC) has reprimanded and fined Cardinalasia Consulting Limited (CCL) $1.5 million over its failures in acting as a principal investment adviser to five private funds between August 2014 and October 2017. The licence of CCL’s responsible officer, Mr Edward Lee Shiu Lun, has also been suspended for nine months. The Securities and Futures Appeals Tribunal (SFAT) imposed a heavier penalty than proposed by the SFC, as the SFAT’s chairman the Hon Justice Hartmann said: “ The clear importance of an investment adviser in protecting the interests of investors lies in the simple, single fact that the person so appointed acts in an independent way ”, even the advice is contrary to that of the investment managers. Also, the SFC’s Executive Director of Enforcement, Mr Christopher Wilson, has said: “ This case serves as a timely reminder to fund managers and advisers of the high standards of conduct the SFC expects of them ”; and “ the SFC is determined to crack down on asset management misconduct and will impose harsher penalties going forward to deter such misconduct .” SIGNIFICANCE: The message delivered from the regulator is explicit that “ the role of an investment adviser is a role of real substance ” which seems to be perceived as a lesser role in conventional practice. The investment advisor should always uphold its independent role in giving advice even that advice is not in line with those higher in the delegated chain of management. 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Considering the amendments to the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (Chapter 615), a new registration regime for Dealers in Precious Metals and Stones (“DPMS”) on 1 April 2023. Online Training Program for - Dealers in Precious Metals and Stones (DPMS) 貴金屬及寶石交易商 (DPMS) - 線上持續培訓課程 Considering the amendments to the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (Chapter 615), a new registration regime for Dealers in Precious Metals and Stones (“DPMS”) on 1 April 2023. The Hong Kong Customs and Excise Department (the “Customs”) is responsible for implementing this system and supervising the compliance of registered dealers with anti-money laundering and counter-terrorist financing (“AML-CFT”) regulations. To help regulated cooperate (including DPMS) stay updated on the latest regulatory requirements, we have launched a series of online courses. These courses are designed to ensure that dealers can grasp and adhere to the latest compliance standards, with content that is continuously updated and revised. Click Thinkific platform link - About the Precious Metals and Stones Dealers Training 根據《打擊洗錢及恐怖分子資金籌集條例》（第615章）的修訂，香港於2023年4月1日引入了貴金屬及寶石交易商（DPMS）的註冊制度。香港海關負責該制度的執行，並監管註冊交易商在打擊洗錢及恐怖分子資金籌集方面的合規性。 為了幫助貴金屬及寶石交易商持續了解最新的法規要求，我們特別開設了一系列在線課程。這些課程旨在確保交易商能夠掌握並遵守最新的合規標準，並會持續更新及修訂内容。 點擊Thinkific平台連結 - 關於貴金屬及寶石交易商培訓課程 Training Program Each session lasts 1 hour and is conducted through the Thinkific platform. After completing the training and passing a short quiz, participants will receive a certificate of participation. You can also log in to Thinkific at any time to review your training records. Intended Audience: Dealers in precious metals and stones Management personnel Compliance officers Money laundering reporting officers Frontline staff Back-office staff New employees Training Topics Include: Registration Guide for DPMS Overview of the registration background for DPMS Obligations and responsibilities AML-CFT requirement Duties for senior management Joint Financial Intelligence Unit - Reporting Suspicious Transactions How to identify suspicious transactions Reporting process and requirements Protective measures and legal responsibilities Case studies and practical applications Conduct and Ethical Definition and importance of business ethics Conduct and integrity Compliance and ethical decision-making Case discussions and industry best practices 關於培訓課程 每節課程為1小時，透過Thinkific平台參與課堂。培訓結束後，只要通過簡短的測驗，即可獲發參與證書。你亦可隨時登錄Thinkific檢閱培訓記錄。 適用人士 : 貴金屬及寶石交易商 管理人員 合規主任 洗錢報告主任 前線職員 後勤職員 新入職人員 課程的題材範圍包括: 貴金屬及寶石交易商註冊指引 金屬及寶石註冊制度的背景簡介 註冊人的責任 相關法例和法定責任 反洗錢系統/制度/核心要求 各職位的責任 聯合財富情報組 - 舉報可疑交易 如何識別可疑交易 舉報流程及要求 保護措施及法律責任 案例分析與實務操作 商業行為和道德標準 商業道德的定義與重要性 職業操守與誠信 法規遵循與道德決策 實例討論與行業最佳實踐 Why ComplianceOne? Professional : Our courses are specifically designed for DPMS to ensure your acknowledgement of the latest compliance knowledge and skills. Flexible: You can log in to Thinkific platform to start or review your training records, anytime, anywhere. Easy access: The Platform supports multiple devices, no installation needed, all you need is a browser. Certification : After finished the training, certificate will be provided for enhancing your professional credentials and credibility. Payment Method: Convenient payment methods by using Visa credit card or PayPal. Courses are valid for 365 days after purchase. During this period, you can log in to Thinkific platform to take course or print certificates at any time. 為什麼選擇天匯合規的網上持續培訓平台？ 專業培訓 ：我們的課程專為貴金屬及寶石交易商設計，確保您獲得最新的合規知識和技能。 靈活學習 ：您可以根據自己的時間安排進行學習，並隨時登入平台檢閱培訓記錄。 簡單易用 ：網上持續培訓平台支援多種裝置，無需安裝，操作簡單。 獲得認證 ：通過簡短測驗後即可獲得參與證書，提升您的專業認證和可信度。 支付方式 ：接受 Visa信用卡或PayPal方式支付，方便快捷。 課程在購買後365天內有效。在此期間，您可以隨時登入Thinkific平台參加課程或列印證書。

主題：《跨境投融資實務操作-系列一：香港金融牌照實務解析》香港作為中資企業出海的橋樑和亞洲金融中心，不論監管架構的成熟度、公開交易 跨境投融資實務操作-系列一：香港金融牌照實務解析 主題：《跨境投融資實務操作-系列一：香港金融牌照實務解析》 香港作為中資企業出海的橋樑和亞洲金融中心，不論監管架構的成熟度、公開交易市場的完善性、及金融產品的豐富性都處於國際金融市場的前列。 作為天匯合規顧問有限公司的合夥人，本人非常榮幸得到匯智集團和財視中國的邀請，擔任《跨境投融資實務操作-系列一：香港金融牌照實務解析》的線上直播講座的主講嘉賓，為大家講解申請香港金融牌照的注意事項，希望能為大家解決難題，以助中資企業發展跨境投融資業務。 線上直播講座詳情： 主題：《跨境投融資實務操作-系列一：香港金融牌照實務解析》 日期：10-5-2022 (星期二) 時間：2:00PM-3:00PM 如您有興趣參加的話，請您掃碼參與，本人期待跟大家在線上見面，謝謝！

The topics discussed in this monthly newsletter for insurance are as follows: ComplianceOne Newsletter – December 2025 The topics discussed in this monthly newsletter are as follows: Regulatory Updates FSTB and SFC conclude consultations on virtual asset dealer and custodian regimes Market News A quarter of connecting, innovating and diversifying Hong Kong markets: SFC Report Enforcement News - Intermediary SFC Suspends Loretta LEE Si Kar for Three Months and Two Weeks Over Neglect of Duties in Safeguarding Client Assets at Tung Tai Securities SFC Reprimands and Fines EFG Bank AG $10.85 Million for Regulatory Breaches and Internal Control Failures Enforcement News - LISTCO SFC Convicts and Sentences Former Vice President of Computershare to Imprisonment and Fine for Insider Dealing SFC Obtains Order to Freeze $101 Million Belonging to Suspected Shadow Director in Corporate Misconduct Case Involving Teamway (1239.HK) SFC Secures Conviction and Eight-Month Prison Sentence in False Trading Prosecution Involving China All Access Shares SFC Suspends Dealings in Dashan Education (9986.HK) Shares over Significant Overstatement of Corporate Bank Balances Regulatory Updates 1. FSTB and SFC conclude consultations on virtual asset dealer and custodian regimes The Financial Services and the Treasury Bureau (“ FSTB ”) and the SFC published two consultation conclusions on legislative proposals to regulate virtual asset (VA) dealing and custodian service providers in Hong Kong; and also proceed for further consultation on new regimes to cover VA advisory and management services providers adopting the familiar philosophy of “same business, same risks, same rules” principle, these new regimes are formulated on the model base of similarities with the securities market. For VA dealers , the regime will be aligned closely with that for Type 1 (dealing in securities) regulated activity, some key takeaways from the consultation conclusions are as follows: Scope and Coverage : still adhering to the principle of“same business, same risks, same rules”; Regulatory Requirement : SFC-licensed VATPs are permitted to integrate with intra-group liquidity via a shared order book while still upholding an appropriate balance between investor protection and market development; Transitional Period : no plan for any deeming arrangement to existing VA dealing service providers; Expedited Licensing Process : SFC-licensed VATPs and licensed corporations currently providing VA dealing services will be subject to an expedited approval process; Prohibition : any person is prohibited from actively marketing its VA dealing services, whether in Hong Kong or elsewhere, to the public of Hong Kong, unless that person is licensed by with the SFC; Powers of Regulatory Authorities : the SFC and the HKMA would be provided with the proposed powers. For VA custodians , the new regime will focus on managing risks related to safekeeping private keys of client VAs in Hong Kong, to secure client assets and protect investors. Key takeaways from the consultation conclusions are as follows: Scope and Coverage : target entities safekeeping private keys which represent the core risk area in VA custody; Activities Allowed : safekeeping of VAs and provision of staking services; Financial Resource Requirements: subject to the similar financial requirements as an LC carrying on Type 13 regulated activity of providing depositary services; Transitional Arrangement : no plan for any deeming arrangement to existing VA custodian service providers; Prohibition : any person is prohibited from actively marketing VA custodian services, whether in Hong Kong or elsewhere, to the public of Hong Kong, unless the person is licensed by with the SFC; Powers of the Regulatory Authorities : the SFC and the HKMA would be provided with the proposed powers. SIGNIFICANCE: As Julia Leung, CEO of the SFC, said: “ The significant progress in our VA regulatory framework ensures Hong Kong remains at the global forefront of digital asset market developments by fostering a trusted, competitive and sustainable ecosystem .” Meanwhile, Mr. Christopher Hui, the Secretary for Financial Services and the Treasury, said: “ The proposed licensing regimes strike a prudent balance among fostering market development, managing risks and protecting investors. ” Market News 2. A quarter of connecting, innovating and diversifying Hong Kong markets: SFC Report In the Jul-Sep 2025 Quarterly Report, it showed Hong Kong’s capital markets continued to deepen connectivity with Mainland and overseas markets, while driving advanced financial innovation and diversification. Some key takeaways of the Report on the financial areas are as follows: The SFC signed six MOUs in 2025 (three in the quarter) with overseas and Mainland markets to strengthen global asset management ties and reinforce Hong Kong’s super‑connector role. Swap Connect, with its product expansion, recorded a 56% year-on-year (“ YoY ”) increase in trading volume as of November 2025, with aggregate transactions exceeding RMB9.3 trillion since its 2023 launch. The SFC collaborating with the HKSAR Government to finalize two new virtual asset (“ VA ”) regulatory regimes, namely , in dealing and custodian areas. VA spot ETFs authorized by the SFC reached $5.47 billion in market cap (+33% YoY) increasing to 11 ETFs as of end‑November; tokenized retail money market fund hit $5.48 billion AUM (+557% since the first launch this year) with eight funds in total. To support Hong Kong as an offshore renminbi and fixed‑income hub, the SFC and HKMA issued a RMB fixed income and currency roadmap in September and are preparing a detailed workplan for implementing the roadmap initiatives. The 24 IPOs in the quarter raised over $70 billion, more than 70% higher YoY, keeping Hong Kong among global leaders by IPO funds raised. Hong Kong‑domiciled funds recorded net inflows of $46.9 billion; their AUM grew 35.9% YoY to $2.27 trillion as of September, while SFC‑authorized ETFs’ market capitalization rose 31.8% YoY to $653.5 billion, accounting for 13% of daily turnover. 2,799 new SFO license applications were filed in the period (+12% YoY); SFC‑licensed corporations and individuals increased to 3,379 and 46,457 respectively (+2.7% and +3.6% YoY). The SFC and HKMA issued a joint statement highlighting the development of the stablecoin regime. On the regulatory landscape, we can take a look at the table below relating breaches noted during the SFC on-site inspections. Quarter ended 30.9.2025 Six months ended 30.9.2025 Six months ended 30.9.2024 YoY change (%) Breach of the Code 72 180 193 -6.7 Breach of FMCC 40 99 56 +76.8 Non-compliance with AML guidelines 55 113 142 -20.4 Internal control weakness 176 341 472 -27.8 It is obvious that there was an increasing trend in deficiencies found in asset management regulatory regime in 2025 as contrast to the other categories where the figures were decreasing. SIGNIFICANCE: As Julia Leung, CEO of the SFC, said: “ Our capital markets delivered another quarter of steady and diversified growth despite global headwinds and volatility. ” On the regulatory side, the acute increase in breaches of FMCC signalled the need to have more comprehensive guidelines and implementable measures to safeguard compliance from market participants. Enforcement News - Intermediary 3. SFC Suspends Loretta LEE Si Kar for Three Months and Two Weeks Over Neglect of Duties in Safeguarding Client Assets at Tung Tai Securities On 3 December 2025, the SFC announced the suspension of Ms Loretta LEE Si Kar (“ LEE ”), a responsible officer (“ RO ”), manager-in-charge (“ MIC ”), and director of Tung Tai Securities Company Limited (“ Tung Tai ”), for three months and two weeks, effective from 1 December 2025 to 14 March 2026 (see Statement of Disciplinary Action ) Case Details This action stems from LEE's neglect of her supervisory duties, which contributed to Tung Tai's failures in handling unauthorized instructions from a bogus email, leading to the sale of client securities and improper transfers totaling US$3,301,740 to undesignated overseas accounts. Despite red flags such as rejected telegraphic transfers (“ TTs ”) and inconsistent beneficiary details, Tung Tai processed the transactions without client verification, breaching requirements to safeguard assets and maintain effective internal controls against theft or fraud. Enforcement Act Following the incident, Tung Tai compensated the affected client, implemented remedial measures, and engaged independent reviewers to strengthen procedures. The SFC factored in LEE's cooperation, clean record, and the seriousness of the lapses when determining the sanction, after previously reprimanding and fining Tung Tai HK$900,000 for related violations (see the SFC’s press release dated 13 November 2025 ). For more details of the background, please refer to ComplianceOne Newsletter (Nov) - Topic 6 SIGNIFICANCE: This disciplinary measure reinforces the SFC's emphasis on senior management's responsibility to uphold robust internal controls and vigilance against fraud in securities firms. It serves as a reminder for financial intermediaries, including those in related sectors, to prioritize client asset protection through proactive verification and risk management, as lapses can result in significant financial losses, regulatory penalties, and reputational harm. The case may prompt firms to review email authentication protocols and TT processes to mitigate similar cyber-enabled threats. 4. SFC Reprimands and Fines EFG Bank AG $10.85 Million for Regulatory Breaches and Internal Control Failures On 11 December 2025, the SFC reprimanded and fined EFG Bank AG (“ EFG ”) $10.85 million for failures in product due diligence, record-keeping, and late reporting during the period from January 2015 to December 2020 (the “ Relevant Period ”). The SFC’s action followed an investigation triggered by a self-report from EFG and findings referred by the Hong Kong Monetary Authority (“ HKMA ”). Case Details EFG, registered to conduct regulated activities including dealing in securities, advising on securities, and asset management under the Securities and Futures Ordinance, failed to adequately assess special features of 322 bonds during product due diligence. It also neglected to update internal policies promptly in line with regulatory changes and did not provide customers with sufficient information or warning statements for certain complex products prior to transactions. Additionally, EFG did not maintain product due diligence records for 141 bonds and delayed reporting its suspected failures to the SFC, despite identifying them in July 2020. These breaches contravened the Code of Conduct for Persons Licensed by or Registered with the SFC and the Management, Supervision and Internal Control Guidelines for Persons Licensed by or Registered with the SFC. Enforcement Act In determining the sanctions, the SFC considered EFG’s remedial actions to strengthen its product due diligence framework, its cooperation with the HKMA and SFC investigations, and its commitment to implement Enhanced Complaint Handling Procedures (“ ECHP ”). Under the ECHP, EFG will review complaints from customers who acquired any of the 351 affected products during the Relevant Period, ensuring fair resolution. An impact assessment by EFG indicated potential failures in considering special features for these 351 products. For more details of the background, please refer to Statement of Disciplinary Action (appended with a list of the 351 products) SIGNIFICANCE: This enforcement action highlights the SFC’s emphasis on robust internal controls, timely compliance with evolving regulations, and proactive self-reporting in the financial sector. For institutions like EFG, which intersect with banking, securities, and potentially insurance-linked activities, such failures can erode investor trust and expose clients to undue risks. The case serves as a reminder for all regulated entities to prioritize comprehensive due diligence, accurate record-keeping, and swift disclosure of issues to maintain market integrity and avoid severe penalties. The implementation of ECHP demonstrates a balanced approach, allowing for remediation while reinforcing accountability. Enforcement News - LISTCO 5. SFC Convicts and Sentences Former Vice President of Computershare to Imprisonment and Fine for Insider Dealing SFC’s press release dated 4 December 2025 & 18 December 2025 . The SFC prosecuted Mr. CHOI Chun Wai (“ CHOI ”), former Vice President of Computershare Hong Kong Investor Services Limited (“ Computershare ”), a global provider of share registration and investor services, for insider dealing in the shares of ENM Holdings Limited (“ ENM ”) ( 128.HK ), listed on the Main Board of the Stock Exchange of Hong Kong Limited since 1972. Computershare was engaged by ENM to despatch and collect proxy forms, and to act as the scrutineer for the voting process at a court meeting related to ENM's proposed privatisation. CHOI, while employed as a vice president of Corporate Services, was involved in coordinating and monitoring the voting process. He accessed inside information indicating the privatisation would fail and sold his shares ahead of the public announcement, avoiding a significant financial loss. Case Details Date Event 2 June 2023 ENM and the Offeror (Solution Bridge Limited) jointly announced a proposed privatisation of ENM by way of a scheme of arrangement under section 673 of the Companies Ordinance, offering $0.58 per share for cancellation of approximately 55.72% of ENM's issued share capital, subject to 75% approval from disinterested shareholders at a court meeting scheduled for 26 September 2023. 22 September 2023 CHOI learned from proxy forms that the required voting threshold for the privatisation could not be met, constituting inside information. 25 September 2023 CHOI sold all his 1,500,000 ENM shares, despite knowing the inside information. 27 September 2023 ENM announced the lapse of the privatisation, causing ENM’s share price to fall 10.26% to close at $0.35, resulting in CHOI avoiding a loss of around $289,500. Court Order On 4 December 2025, the Eastern Magistrates’ Courts convicted CHOI of insider dealing following a prosecution by the SFC. CHOI pleaded guilty. The Eastern Magistrates’ Courts then sentenced CHOI to two months of imprisonment on 18 December 2025. He was ordered to pay a fine of $289,500 (equivalent to the losses avoided) and the SFC's investigation costs of $120,407. The Court noted that although CHOI showed remorse, insider dealing is a serious offense warranting an immediate custodial sentence. SIGNIFICANCE: The SFC’s Executive Director of Enforcement, Mr. Michael DUIGNAN, stated: “ The conviction underscores the SFC’s commitment to tackle insider dealing and enhance the integrity of Hong Kong’s financial markets. The immediate jail sentence by the Court serves as a strong deterrent. The misuse of non-public information for personal gain, particularly market professionals in a position of trust, is unacceptable and will have serious consequences. The SFC will continue to take robust enforcement action to protect investors and uphold a level playing field for all market participants. ” 6. SFC Obtains Order to Freeze $101 Million Belonging to Suspected Shadow Director in Corporate Misconduct Case Involving Teamway (1239.HK) On 16 December 2025, the SFC obtained a court order from the Court of First Instance to freeze more than $101 million in cash held in the personal bank account of Mr NG Kwok Fai (“ NG ”), a suspected shadow director of Teamway International Group Holdings Limited ( 1239.HK ) (“ Teamway ”). This action was taken by consent between the SFC and NG in ongoing legal proceedings under section 214 of the SFO, stemming from allegations of corporate misconduct. The freeze follows NG and others agreeing to pay $192 million in compensation to independent public shareholders of the delisted Combest Holdings Limited (“ Combest ”) for related misconduct. Case Details The SFC's investigation revealed that NG and Mr YANG Zhihui (“ YANG ”) allegedly gained control of Teamway and acted as shadow directors, transforming it into a "listed shell" for injecting new businesses while prejudicing the company's interests through a series of transactions. The SFC claims that the below individuals breached their fiduciary duties by approving these transactions or allowing NG and/or YANG to dominate company affairs: Name Position/Role Mr LIU Liangjin; Mr HE Xiaoming; Ms XIE Yan; Mr LING Zheng; Ms NGAI Mei; Mr XU Gefei; and Ms DUAN Mengying The seven former executive directors (“ ED ”) Mr CHAN Chun Kau; Mr LAM Chi Wai; and Mr Joshua LEE Chi Hwa The three Former independent non-executive directors (“ NED ”) Additionally, the former company secretary, Ms CHOI Yee Man (“ CHOI ”), is accused of negligence or recklessness in her duties. This case spans several years, involving interconnected corporate actions and related proceedings. Below is a timeline of key events: Date Event 2015 NG and YANG acquired a 75% interest in Teamway through a nominee, becoming shadow directors and planning to transform it into a "listed shell" by injecting new businesses to replace its original packaging operations. 2015–2022 NG and YANG, as shadow directors, allegedly engineered prejudicial transactions, with former directors approving them and the company secretary failing in oversight duties. May 2020 SFC commenced court proceedings under sections 212 and 214 of the SFO against NG, Mr LIU Tin Lap (“ LIU ”), and Mr LEE Man To (“ LEE ”) for misconduct related to Combest. Source: SFC’s press release dated 21 May 2020 . 8 November 2022 SFC initiated section 214 proceedings against Teamway and 13 individuals, including NG, YANG, the seven EDs, three NEDs, and the company secretary. September 2024 SFC and Combest, NG, LIU, and LEE reached an agreement via the Carecraft procedure to dispose of Combest proceedings. Source: SFC’s press release dated 16 September 2024 . 2 June 2025 Court ordered NG, LIU, and LEE to pay $192 million in compensation to Combest's independent public shareholders. Source: SFC’s press release dated 2 June 2025 . Enforcement Act The SFC is seeking compensation orders totaling $532 million against NG, YANG, and the 10 former directors for losses incurred by Teamway and its subsidiaries, along with disqualification orders against them and CHOI from serving as directors or managing any listed or unlisted corporation in Hong Kong. The asset freeze against NG remains in effect until the proceedings are resolved or further court order. SIGNIFICANCE: This enforcement action highlights the SFC's commitment to combating corporate misconduct in listed entities, particularly where shadow directors exploit control to prejudice company and shareholder interests. By freezing assets and seeking substantial compensation and disqualifications, it underscores the importance of fiduciary duties, transparency, and accountability in Hong Kong's financial markets. Company with listed affiliations should review governance practices to mitigate similar risks, as such cases can erode investor confidence and trigger broader regulatory scrutiny across financial sectors. 7. SFC Secures Conviction and Eight-Month Prison Sentence in False Trading Prosecution Involving China All Access Shares On 4 December 2025, the Shatin Magistrates’ Courts convicted Ms WONG Yuk Lan (“ WONG ”), Administration Controller of China All Access (Holdings) Limited (former stock code: 633.HK ) (“ China All Access ”), for false trading in the company’s shares, following a prosecution initiated by the SFC. Case Details The case stemmed from WONG’s actions as the “Spouse” of Mr Chan Yuen Ming, the company’s Chairman, who held a beneficial interest in 381,400,000 China All Access shares through a securities margin account under Creative Sector Limited, a company he wholly owned and controlled. Between 29 and 31 December 2014, WONG placed a series of bid orders for China All Access shares via her personal securities account. These orders were executed in the final minutes before market close and at prices above prevailing market levels. The court determined that WONG had no genuine intent to purchase the shares but aimed to create a false or misleading appearance of market demand to alleviate margin call pressures on Creative’s account. Court Order This offense violates section 295 of the SFO, which prohibits actions intended to create a false or misleading appearance regarding the market for, or price of, securities. Magistrate Mr Jeffrey SZE Cho Yiu emphasized during sentencing that WONG’s misconduct harmed market integrity by fabricating an illusion of active trading. WONG was subsequently sentenced to eight months in prison on 17 December 2025, and ordered to pay the SFC’s investigation costs. SIGNIFICANCE: This enforcement action underscores the SFC’s dedication to preserving market integrity and deterring manipulative practices that undermine investor confidence in Hong Kong’s financial markets. By securing a conviction and prison sentence for false trading, it highlights the severe consequences of creating artificial market appearances to evade financial pressures, such as margin calls. Financial professionals and firms should strengthen internal controls and compliance measures to prevent similar misconduct, as such cases can lead to reputational damage, regulatory penalties, and broader scrutiny across interconnected sectors. 8.SFC Suspends Dealings in Dashan Education (9986.HK) Shares over Significant Overstatement of Corporate Bank Balances On 3 December 2025, the SFC directed The Stock Exchange of Hong Kong Limited (“ Stock Exchange ”) to suspend dealings in the shares of Dashan Education Holdings Limited ( 9986.HK ) (“ Dashan ”) effective from 9:00 am, under the Securities and Futures (Stock Market Listing) Rules (“ SMLR ”). This measure aims to maintain a fair and orderly market and protect investors amid an ongoing SFC investigation into suspected financial irregularities. Case Details The SFC's inquiry revealed discrepancies in bank statements related to a software development project (April 2022 to November 2023) and a UK company acquisition (September 2022), including omitted circular fund flows and overstatements of bank balances totaling RMB36.4 million as of 30 June 2023 (19% of net asset value) and RMB76.3 million as of 31 December 2023 (55% of net asset value). These findings suggest the transactions may not have been genuine or at arm's length, with potential fabrication of documents to conceal issues, raising concerns about management integrity, particularly involving executive director Mr. ZHANG Hongjun (“ ZHANG ”), internal controls, and market disclosures. Follow-up Action Dashan has not provided satisfactory explanations, and the SFC suspects the September 2024 trading resumption was based on misleading information. Trading had been halted at Dashan's request since 28 November 2025 pending inside information release. See HKEX News 28 November 2025 for more information. SIGNIFICANCE: This suspension emphasizes the SFC's role in upholding market transparency and investor protection by addressing potential financial misrepresentations in listed companies. It highlights risks associated with overstated assets, inadequate internal controls, and management accountability, which could impact stakeholder confidence and prompt enhanced due diligence for financial intermediaries dealing with similar entities. As the investigation continues, it may lead to further regulatory actions, underscoring the need for robust compliance frameworks in Hong Kong's capital markets. [End of ComplianceOne Newsletter – December 2025] For more details, please click on the title of the topic above. ================================= ~ Make It Right Today, Better Tomorrow ~ ================================= The Newsletter is for general information purpose only and is not intended to constitute legal or other professional advice. For enquiries, please email to support@complianceone.hk or WhatsApp us at (852) 95164607 . Unit 1104, 11/F, 299QRC, 287-299 Queen's Road Central, Sheung Wan, Hong Kong Tel: (852) 39550277 www.complianceone.hk

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

The topics discussed in this monthly newsletter for insurance are as follows: ComplianceOne Insurance Newsletter – July 2025 The topics discussed in this monthly newsletter are as follows: 1. Practice Note: Commission Up to 70% in the first year, with the remainder paid over 5 years 2. Compulsory RO-CPD Requirement for Responsible Officers 3. Anti-Scam Consumer Protection Charter 3.0 Regulatory News 1. Practice Note: Commission Up to 70% in the first year, with the remainder paid over 5 years On 30 July 2025, the IA released a Practice Note . It builds on Guideline GL16, which covers long-term insurance business (excluding investment-linked policies). The goal is simple: ensure insurance companies pay commissions to agents and brokers in a way that encourages fair treatment of customers. This practice guideline shall come into effect on 1 January 2026 . Who Does This Apply To? Insurers: All authorized insurance companies in Hong Kong that issue participating policies with regular premiums. Intermediaries: Licensed individual agents, agencies, and broker companies who sell and service these policies. Key Rule: How Commissions Must Be Paid To avoid "front-loading" (paying too much too soon, which might lead to pushy sales and poor after-sales service), commissions must be spread out: Up to 70% can be paid in the first policy year (from the start date to 12 months later). The remaining at least 30% must be paid evenly over the next minimum 5 years (policy years 2 to 6) – or over the full premium payment term if it's shorter than 5 years. Example - a policy where the total commission is $100 (based on premiums paid): Policy Year Before 1 January 2026 After 1 January 2026 Commission paid % of total commission Commission paid % of total commission Year 1 $100 100% $70 70% Year 2 $0 Nill $6 6% Year 3 $0 Nill $6 6% Year 4 $0 Nill $6 6% Year 5 $0 Nill $6 6% Year 6 $0 Nill $6 6% Year 7 $0 Nill $0 Nill Under the existing practice (“ Before 1 January 2026 ”), with all commissions paid in the first year, intermediaries may have reduced incentive to provide ongoing service from year 2 onward, potentially leading to policies receiving less attention or being neglected. For the new practice (“ After 1 January 2026 ”), the spreading of commissions ensures that intermediaries remain motivated to carefully handle and service policies over subsequent years to secure the remaining payments, promoting better long-term customer care. The new practice applies to the total commission per policy, including basic pay, overrides (to managers), and bonuses tied to sales volume (unless exempted – see below). Exceptions (When Spreading Isn't Required) You can skip the 70/30 split if the below scenarios apply, but still required to follow GL16's fair treatment rules: Scenario Remarks Overriding commission (Agents only) Applies to: Commissions for producing agents (who introduce, arrange, and serve policies) and overriding commissions for agent managers (who oversee producing agents). Exception: Overriding commissions are exempt if calculated using objective non-financial performance metrics, such as policy persistency rates, product variety in portfolios, customer feedback, and agent retention rates, to ensure adherence to "treating customers fairly." Volume-Based bonus commission (Agents only) Applies to : Bonuses for licensed insurance agents contingent on meeting sales volume targets (e.g., minimum premium volume), where eligibility and amount are uncertain until targets are met. Exception : Exempt if the bonus incorporates objective non-financial metrics (e.g., persistency rates, product diversity, customer feedback, agent retention) alongside volume. Note for Brokers : Volume-based commissions are outright prohibited for licensed insurance brokers per a 2006 circular from the Office of the Commissioner of Insurance. Fixed salaries Exception : Fully exempt for fixed remuneration packages, which are contractually guaranteed regardless of policy arrangements, servicing, or premium volumes. Bank channels (bancassurance) Exception: Allowed departure for commissions in the bancassurance channel (e.g., banks as insurance agencies under the Banking Ordinance), provided they adhere to overriding principles in GL16. The IA and Hong Kong Monetary Authority (“ HKMA ”) will monitor and act if needed. Policy Holders Who Are Professional Investors Exception : Departure permitted for commissions on policies with policyholders qualifying as Professional Investors (per Securities and Futures Ordinance and Rules), subject to: Establishing effective controls to verify PI status during onboarding and KYC processes. Confirming the policyholder meets PI criteria. Ensuring commission structures continuously comply with GL16's overriding principles. SIGNIFICANCE: This Practice Note strengthens regulatory oversight of long-term insurance conduct, promoting sustainable practices that prioritize policyholder protection over short-term sales. By mandating commission spreading, it reduces risks of misconduct, enhances industry integrity, and supports fair treatment amid fluctuating policy benefits. Insurers are encouraged to consult the full document and FAQs for guidance; the IA may update it based on market developments. For inquiries, contact the IA at relevant channels. 2. Compulsory RO-CPD Requirement for Responsible Officers The IA has officially rolled out the compulsory Continuing Professional Development (“ CPD ”) requirement for Responsible Officers (“ ROs ”) (here refer as “ RO-CPD ”) of all licensed insurance broker companies. Effective from 1 August 2025 . Key Details of the Requirement RO must complete at least 2 RO-CPD hours focused specifically on management and control functions during each assessment period. The RO-CPD hours fall under the " Ethics or Regulations " category and count toward the existing 15-hour annual CPD requirement for ROs. RO-CPD Course Details, and how to attend The IA will organize the courses, delivered through the two key broker industry bodies: Professional Insurance Brokers Association (“ PIBA ”) The Hong Kong Confederation of Insurance Brokers (“ CIB ”) Further details on training sessions for the 2025/26 assessment period will be announced soon. ROs must attend at least one session per period through either body. Consequence of Non-Compliance Non-compliance should not be taken lightly. Failure to meet the RO-CPD without reasonable excuse may result in: Disciplinary Action : As detailed in the IA's "Penalty Framework for Non-compliance with CPD" (from the circular dated 23 July 2021 ). Impact on Fit and Proper: May question the individual's ongoing suitability to serve as an RO. Increased Scrutiny : IA could apply heightened regulatory oversight to the associated broker company. SIGNIFICANCE: Given the growing complexity of these duties, the IA believes it's essential for ROs to dedicate time to enhancing their skills in management and control functions. This builds on positive feedback from a pilot scheme launched in the 2024/25 assessment period, which was well-received by the industry and successfully raised awareness about RO responsibilities. 3. Anti-Scam Consumer Protection Charter 3.0 In a united stand against rising financial frauds and scams, the Hong Kong Monetary Authority (“ HKMA ”), Securities and Futures Commission (“ SFC ”), the IA, and Mandatory Provident Fund Schemes Authority (“ MPFA ”) have unveiled the Anti-Scam Consumer Protection Charter 3.0 . Effective from 9 July 2025 . Building upon the foundations laid by Charters 1.0 (2023) and Charter 2.0 (2024) , Charter 3.0 expands the fight against scams by forging partnerships with technology and telecommunications firms. This collaborative framework aims to disrupt fraud at its core through six key principles outlined in the annex. These focus areas include: Charter 3.0 Principles include: 1. Reporting Functions for Users Participating Institutions will allow users to file reports related to suspected financial frauds and scams, and will endeavor to address them in a reasonable manner, once found to be in violation of the Participating Institutions’ policies. 2. Reporting Channels for Financial Regulators Participating Institutions will provide a direct and efficient process for the Financial Regulators to report suspected financial frauds and scams, and to follow up on such reports. 3. Checking of Advertisers Participating Institutions will adopt a risk-based approach to facilitate verification, applying measures that are necessary and proportionate. 4. Internal Monitoring Processes Participating Institutions will put in place and update from time to time internal rules, policies, processes, and tools to monitor advertisements and content that promote financial products or services on their platforms, with a view to creating a safe online environment for users. 5. Enforcement of Terms of Service Participating Institutions will enforce their own terms of service by detecting and removing financial scam advertisement or content that violate their platform policies. 6. Collaboration on Public Awareness Participating Institutions will work together with the Financial Regulators and the financial industry on raising public awareness about frauds and scams and promoting cybersecurity. This will include Participating Institutions’ collaboration with the Financial Regulators, financial institutions, or other agencies where appropriate, to launch anti-deception promotional campaigns to educate the Hong Kong public. The launch event featured engaging discussions among executives from regulators, tech giants, and telecom providers on emerging scam trends and joint strategies to protect the public. SIGNIFICANCE: Julia Leung, Chief Executive Officer, SFC: "Charter 3.0 is a meaningful step forward, bringing in major technology and telecommunications companies to join the fight against online scams. It positions Hong Kong as a leader in safeguarding the financial world’s digital future, building a safer, more responsible online landscape." Clement Cheung, Chief Executive Officer, IA: "The Charter 3.0 represents collaborative efforts to forge a robust alliance against financial frauds. The IA will leverage this platform to strengthen public education and empower policyholders against sophisticated swindlers." With scams evolving rapidly in the digital age, Charter 3.0 emphasizes cross-sector collaboration to preempt threats. It aligns with global calls for action and reinforces Hong Kong's role as a secure financial hub. [End of ComplianceOne Insurance Newsletter – July 2025] For more details, please click on the title of the topic above. ================================= ~ Make It Right Today, Better Tomorrow ~ ================================= The Newsletter is for general information purpose only and is not intended to constitute legal or other professional advice. For enquiries, please email to support@complianceone.hk or WhatsApp us at (852) 95164607 . Unit 1104, 11/F, 299QRC, 287-299 Queen's Road Central, Sheung Wan, Hong Kong Tel: (852) 39550277 www.complianceone.hk

The topics discussed in this monthly newsletter are as follows: ComplianceOne Newsletter - April 2024 The topics discussed in this monthly newsletter are as follows: 1. China considers to limit investment of offshore Chinese municipal bonds by QDLP 2. Asia’s First Spot Virtual Assets ETFs are launched in Hong Kong 3. HKEX announces the development of ORION Derivatives Platform 4. Hong Kong Government extends the subsidiary scheme for OFC and REIT 5. The joint SFC-HKMA thematic review of the distribution of non-exchange traded investment products 6. Climate-Related Disclosure requirements extended to listed companies 7. OSL as the first to be granted the AMLO license MARKET NEWS 1. China considers to limit investment of offshore Chinese municipal bonds by QDLP On 24 Apr 2024, a report from Reuters revealed the incidence of Mainland China to curb the lavish issuances of offshore bonds through the mechanism of Qualified Domestic Limited Partnership (QDLP) from local municipal governments which were already burdened by the huge local debts. The loosely regulated quota-based QDLP had been launched since 2012, and it has recently come to the attention of the central government that the use of such mechanism for local government offshore debts issuances would attenuate the Beijing government’s efforts to tackle the local debt risks. The China Securities Regulatory Commission (CSRC) made queries to asset managers holding the QDLP licenses of their exposure to offshore debts of “local government financing vehicles (LGFVs, also known as 地方政府融資平台 or 城投平台 ), and how the QDLP quotas were used. It was noticed that the total local government bond issuances reached a new high in January 2024 compared to the highest volume in Nov 2022. SIGNIFICANCE: For reason that the process of obtaining QDLP licenses and raising QDLP funds were handled by around 10 local governments (some examples like Tianjin, Liaoning, Guangxi, Chaongqing etc.) rather than the central government which subsequently made the mechanism one of the loose and flexible investment channels to be taken advantage with. The LGFVs were originally introduced to raise funds for infrastructure projects which recently turned out to be over-invested and aggravated by the plummeting property markets. The Beijing government has pushed forward remedial measures to contain the debt risks, and to halt some ongoing state-owned infrastructures projects as imminent solutions. 2.Asia ’s First Spot Virtual Assets ETFs are launched in Hong Kong On 30 Apr 2024, HKEX was pleased to announce the listing of Asia’s first Spot Virtual Asset (VA) (namely, Bitcoins and Ethereums) ETFs, increasing the diversity of products tradeable in the Hong Kong’s markets and further manifesting Hong Kong as the leading ETF marketplace in the region nearby. A snapshot of the Spot VA ETFs is as below: The three ETF issuers are China Asset Management (Hong Kong) Limited , Harvest Global Investments Co., Ltd , and Bosera Asset Management (International) Co., Limited . Following the successful launch of the VA Futures ETF in late 2022, turnover of the total three VA Future ETFs increased a few folds from HKD$8.9 million to HKD$51.3 million in the first quarter of 2024. The parallel launches of spot VAs and VA futures ETFs enhance the liquidity in the ETFs markets and provide more flexibilities to accommodate investors with variegated risk profiles and investment horizons. SIGNIFICANCE: The accesses to spot VAs through exposures in ETF channels provide an alternative to traditional investors, both professional investors and retail investors who are still sceptical and conservative to the new crypto exchanges, by directly participating through the conventional HKEX they are familiar with. Yet, brokers providing accesses to retail clientele should still be mindful of providing sufficient risk disclosure and assessment of the clients' knowledge in the products in a compliant manner as a matter of suitability requirements. Some interesting product features of these Spot VA ETFs from their futures ETF counterparts are that in-kind subscriptions and in-kind redemptions are available which facilitate investors who have already invested in spot VAs to shift to their corresponding proxy, i.e. the ETFs. 3. HKEX announces the development of ORION Derivatives Platform On 18 April 2024, the HKEX announced the development of the Orion Derivatives Platform ( ODP ), offering enhanced trading, clearing and risk management capabilities. This new in-house developed platform is expected to be launched in 2028, which will help elevate the competitiveness of the HKEX in the global derivative marketplace. The HKEx is dedicated to building “future-ready” technology platforms and operations as its priority to advocate the market participants in delivering long-term, sustainable growth and development. The ODP platform will be built on a modular architecture, making it easier to introduce new products, enhance microstructure and add new capabilities to the market. ODP will offer enhanced trading and clearing capabilities to clients, including the potential of near 24-hour trading, additional order types, an industry-standard interface, as well as an enhanced testing and onboarding experience. The launch of ODP demonstrates HKEX’s ongoing strategic commitment to driving innovations in our financial markets through the development of best-in-class technology platforms. SIGNIFICANCE: As the new HKEX Chief Executive Officer, Bonnie Y Chan, has said: “ Developing an in-house platform that is adaptable, efficient, and scalable, and would give us a unique competitive advantage in the global derivatives space. The launch of ODP will strengthen HKEX’s capability to support the needs of global investors, and cement Hong Kong’s leading position as Asia’s risk management centre and an international financial centre .” 4. Hong Kong Government extends the subsidiary scheme for OFC and REIT On 26 Apr 2024, the SFC announced the details of the three-year extension of the Government’s grant scheme to subsidise the setting up of open-ended fund companies (OFCs) and real estate investment trusts (REITs) in Hong Kong. To further attract the set-up of OFCs to be incorporated in or re-domiciled to Hong Kong and the SFC-authorized REITs, the extended scheme covers up to 70% of eligible expenses, subject to a cap of HKD$1 million per publicly offered OFC, HKD$500,000 per privately offered OFC and $8 million per REIT. The grant scheme has been well-received since its inception in May 2021. and the extension by the Government for another three years will definitely help boost Hong Kong’s competitiveness and development as a preferred fund domicile for such a diversified industry regime. Up to end of Apr 2024, there were 86 public OFCs and 877 private OFCs registered under the SFC. The extended scheme will be available for applications from 10 May 2024 to 9 May 2027 on a first-come-first-served basis. Detailed eligibility criteria of the scheme are enclosed in SFC Eligibility criteria of the grant scheme for OFCs and REITs for OFCs opting for it. 5. The joint SFC-HKMA thematic review of the distribution of non-exchange traded investment products On 18 Apr 2024, a thematic review conducted by HKMA and SFC jointly had identified some issues on intermediaries’ practices in performing product due diligence (“PDD”) and suitability requirement (“SBR”); remedial measures by intermediaries are required to address the issues accordingly. Some key findings of the review are as follows: (1) The assignments of risk rating to investment products as part of PDD do not incorporate crucial factors like the leverage deployed, credit events relating to the product issuers, heightened market risks, adverse political environments and the like. (2) Intermediaries were exposed to the risks of making inappropriate recommendations to clients if the risk return profiles of the products were not adequately assessed and accurately reflected in the product risk ratings used for the suitability assessment. (3) Structured products were the most prevalent type of non-exchange traded investment products sold by intermediaries; the risks inherent in the format the products were structured could be unlimited or far beyond what the investors have expected to bear. (4) Some salespersons may not have the required knowledge to explain to the investors the characteristics and risks of the structured products; and it is imperative for the intermediaries to provide adequate training to the relevant staff. (5) Intermediaries are reminded to exercise due skill, care and diligence in selecting investment products for different risk categories of clients and reach an assessment of the products commensurate with the client’s profile. (6) All intermediaries are reminded of their obligations to: (i) give due consideration to all the relevant circumstances specific to a client; (ii) disclose all the relevant information to a client in order that informed investment decisions can be made. 6. Climate-Related Disclosure requirements extended to listed companies On 19 Apr 2024, The Stock Exchange of Hong Kong (SEHK) published its consultation conclusions on the enhancement of climate-related disclosure (“CRD”) requirements for listed companies in HK. The new CRD requirements, effective from 1 January 2025, is the first step to align local sustainability disclosure requirements with the IFRS Sustainability Disclosure Standards . To facilitate the launch, SEHK has also published an Implementation Guidance to assist listed companies to kick off the new regime which will be implemented on a balanced and phased approach. SIGNIFICANCE: As Ms Julia Leung, SFC’s Chief Executive Officer, has said: “ The new regime on climate-related disclosures will give listed companies in Hong Kong a head-start in speaking the common international language of the International Sustainability Standards Board (ISSB) to the investing public and capital markets. ” The vogue for green finance has been sweeping over financial markets across various regions, the SFC has played the pioneer role in formulating guidelines for licensed corporations engaged in funds management to comply with the Climate-Related Risk Disclosure Requirements by the end of Nov 2022. 7. OSL as the first to be granted the AMLO license OSL Digital Securities Limited (“OSL”) is the first service provider to be granted a license under the AML and CTF Ordinances (“AMLO”) by the SFC on 19 April 2024. Up to now, only OSL is the first to be granted two licenses under the new dual licensing regime with both the SFO license (for security tokens) and AMLO license (for non-security tokens) at the same time. SIGNIFICANCE: To facilitate and ensure a seamless regulatory transition, a “dual licensing regime” had been introduced where existing services providers had to submit an application during the transition period from 1 Jun 2023 to 31 May 2024 with deadline for application submission on 29 Feb 2024. Those applicants which could meet the regulatory requirements were deemed to be licensed to operate on or after 1 Jun 2024 until a final decision has been made by the SFC on their license applications. If the SFC considers that some existing service providers (the applicants) cannot meet the relevant requirements of the transitional arrangement, a “No-deeming notice” will be issued to these applicants, together with those services providers which did not submit any applications before the deadline, will have to cease operation by 31 May this year. For more details, please click on the title of the topic above. ================================= ~ Make It Right Today, Better Tomorrow ~ ================================= The Newsletter is for general information purpose only and is not intended to constitute legal or other professional advice. For enquiries, please email to support@complianceone.hk or WhatsApp us at (852) 95164607 . Unit 1104, 11/F, 299QRC, 287-299 Queen's Road Central, Sheung Wan, Hong Kong Tel: (852) 39550277 www.complianceone.hk

The topics discussed in this monthly newsletter are as follows: ComplianceOne Newsletter – Nov 2024 The topics discussed in this monthly newsletter are as follows: 1. SFC concludes consultation on market sounding guidelines 2. The first batch of 14 brokers joining Wealth Management Connect Pilot Scheme 3. SFC hosts AML/CFT Regtech Forum in November 4. Stay aware of the inherent risks in use of Generative AI Language Models 5. SFC bans former RO of Tarascon Capital for false trading of shares 6. SFC commences MMT proceedings against Ding Yi Feng for market manipulation 7. SFC sanctions Zuo Ping for breaches of the Takeovers Code 8. SFC suspends Yuanta’s former employee Wang Shian-tang for violation of employee dealing policy 9. China Forestry’s former chairman and CEO sanctioned for insider trading Market News 1. SFC concludes consultation on market sounding guidelines On 31 October 2024, the SFC published the conclusions of its consultation on the proposed guidelines for market soundings. The guidelines gazetted on 1 November 2024 and will become effective on 2 May 2025. Intermediaries will have a six-month transitional period to comply with the new guidelines, ensuring a smooth implementation process. The guidelines are designed to uphold market integrity by setting protocols for protecting confidential information during market soundings. Respondents generally supported the objectives, providing constructive feedback that led to refinements in the guidelines. To address their comments, the SFC has refined the scope of the guidelines, clarified some requirements, and incorporated respondents’ feedback in the guidelines as appropriate. The SFC has provided practice guidance and examples through frequently asked questions to aid intermediaries. As Ms Julia Leung, the SFC ‘s Chief Executive Officer has said, “ the guidelines tackle the misuse of confidential information during market soundings, and lead to an unfair market, these guidelines will enhance investor confidence in Hong Kong’s capital markets by clarifying regulatory expectations and deterring substandard conduct. “ SIGNIFICANCE: The new “ Guidelines for Market Soundings ” are well complied to provide Four Core Principles, namely, (i) handling of information, (ii) governance, (iii) policies and procedures, (iv) review and monitoring controls; with specific requirements for Disclosing Persons (a sell-side broker) and Recipient Persons (a buy-side firm). 2. The first batch of 14 brokers joining Wealth Management Connect Pilot Scheme On 1 November 2024, the SFC announced the 14 licensed corporations (“LC”s) eligible to participate in the Cross-boundary Wealth Management Connect Pilot Scheme (“WMC”) in the Guangdong-Hong Kong-Macao Greater Bay Area (“GBA”). This initiative aims to enhance connectivity between financial markets in the GBA and foster Hong Kong's wealth management business. The guidelines will be effective immediately . The 14 LCs include: China Galaxy International Securities (Hong Kong) Co., Limited, China Industrial Securities International Brokerage Limited, China International Capital Corporation Hong Kong Securities Limited, China Merchants Securities (HK) Co., Limited, China PA Securities (Hong Kong) Company Limited, China Securities (International) Brokerage Company Limited, CITIC Securities Brokerage (HK) Limited, GF Securities (Hong Kong) Brokerage Limited, Guosen Securities (HK) Brokerage Company, Limited, Guotai Junan Securities (Hong Kong) Limited, Huatai Financial Holdings (Hong Kong) Limited, SDICS International Securities (Hong Kong) Limited, Shenwan Hongyuan Securities (H.K.) Limited, and Zhongtai International Securities Limited. The above-mentioned LCs will work in partnership with their Mainland partner brokers, the list is to be confirmed by the relevant Mainland regulatory authority, namely, the China Securities Regulatory Commission. SIGNIFICANCE: As commented by Ms Julia Leung, the Chief Executive Officer of the SFC, that “T oday’ s announcement marks another significant milestone for the brokerage industry and the WMC scheme in terms of enhancing the connectivity of financial markets in the GBA and fostering Hong Kong’ s wealth management business. “ With respect to the WMC Scheme, a set of guidance (the three Annex ) for LCs have already been posted in January early this year which covered essentially the following items: eligible criteria for participating LCs; eligible criteria for investors; scope of eligible investment products; account opening arrangements; investor quota management; cross-boundary closed-loop fund flow arrangements; and promotion and sales arrangements. 3. SFC hosts AML/CFT Regtech Forum in November On 4 November 2024, Ms Julia Leung, the Chief Executive Officer of the SFC , made a speech in the “SFC Regtech Forum”, main points of the speech are as below. Regtech progress and compliance pain points as its driver (1) A “Report on the Adoption of Regtech for Anti-Money Laundering and Counter-Financing of Terrorism” has been published to highlight use cases as helpful guidelines. (2) Many firms have already adopted the Regtech solutions in their AML processes like name screening, customer due diligence and transactions monitoring. (3) Conventional AML approaches are losing efficacy as bad actors are using novel techniques to launder crime proceeds, the situation is aggravated with increasing number of customers and transaction data faced by the firms. (4) Firms are struggling with backlog of pending reviews due to high volume of false positive alerts from name screening and transaction monitoring. (5) False alerts from traditional rule-based solutions fail to cater for multiple dynamic parameters, providing misleading solutions and causing futile investigations and operational inefficiencies, especially when real red flags are missed. Regtech use cases burgeoning With the advent of Regtech and the application of automation, data analytics and AI, a huge mass of data can be processed swiftly to spot out for suspicious activities. Regtech can now be adopted in many stages throughout the AML process with the use cases conducted by the SFC ranked by the usage rates. (i) Client onboarding: mostly used to authenticate client’s identity and collect digitised customer data for subsequent AML processes. (ii) Name screening: with a usage rate of 92% of the firms with robot process automation (“RPA”) to extract relevant customer information and compare it against the system alerts. (iii) Transaction monitoring: with usage rate of 69% as another important process to detect unusual or suspicious transactions and activities. (iv) Third-party deposit identification and due diligence: with a lower usage rate of 34%, attributed to its late introduction of the relevant guidelines & requirements published in May 2019 and uniqueness of the securities sector. Responsible adoption is key Alike other AML controls, the responsibility are still rested on the licensed firms to regularly review all Regtech solutions including AI models, and protect the customers and transaction data with robust data protection and cybersecurity measures. SIGNIFICANCE: The adoption of technology helps alleviate the repetitive and onerous data processing and analyses routines, and streamline the AML and KYC processes which are particularly crucial amid the sophisticated use of novel technologies by bad actors to circumvent the traditional monitoring tools. 4. Stay aware of the inherent risks in use of Generative AI Language Models On 12 November 2024, the SFC published a circular concerning the use of generative Artificial Intelligence language models (“AI LMs”). There the SFC notes that firms are using the AI LMs in all facets of their services provided including response to client enquiries via public chatbots, generating research reports, identifying investment signals etc. The SFC also pointed out that the use of AI LMs may amplify existing risks and pose additional risks on top of those from traditional AI. The key takeaways are: Risk in relation to AI LMs AI LMs’ output can be inaccurate, biased, unreliable and inconsistent. For instance: (i) AI LMs are prone to hallucinations risk, (ii) bias may exist in data used to train the AI LMs, (iii) there may be heightened risk of cyberattacks and leakage of confidential information, (iv) over-reliance on certain limited number of external service providers. In the light of the increased risks, LCs are advised to make reference to the Appendix which provided a list of non-exhaustive risk factors to be aware of in the process of adopting any AI LMs. Scope of this circular This circular is applicable regardless of whether the AI LM is developed or provided by the LC itself, its group company, an external service provider (Third Party Provider) or comes from an open source. Risk-Based approach An LC may implement the requirements in this circular, including the Core Principles, in a risk-based manner commensurate with the level of risk incurred by the application of the AI LM . It should be noted that an AI LM used by LCs for providing investment recommendations, advice or research to investors or clients are considered as high-risk use cases by the SFC. The FOUR Core Principles are: (1) Senior Management Responsibilities (2) AI Model Risk Management (3) Cybersecurity and Data Risk Management (4) Third Party Provider Risk Management Notification Requirements For LCs which intend to adopt AI LMs in high-risk use cases, they are reminded to comply with the notification requirements under the Securities and Futures (Licensing and Registration) (Information) Rules (Information Rules). SIGNIFICANCE: This circular, together with the Appendix, provide the LCs with a set of fully comprehensive guidance in relation to the use of AI LMs in the provision of their services. LC are strongly advised to seek reference and get acquainted with the requirements before adopting the AI LMs which may be a double-edged instrument if no used properly. Enforcement News 5. SFC bans former RO of Tarascon Capital for false trading of shares On 6 November 2024, the SFC announced that Mr Jonathan Dominic lu Wai Ching (“Iu”) has been prohibited from re-entering the industry for 15 years. Key Findings: Iu, a former responsible officer of Tarascon Capital Management (Hong Kong) Limited, engaged in false trading of shares. lu used the brokerage accounts of a hedge fund and his mother, gaining $5.6 million for his mother’s account. SFC determined that Iu is not fit and proper to be licensed due to his serious and dishonest conduct over two months, violating client trust. This action serves as a deterrent to prevent similar future misconduct. SIGNIFICANCE: This ban highlights the SFC's dedication to maintaining market integrity and enforcing ethical standards. By imposing severe consequences on Iu, SFC aims to deter other practitioners from engaging in dishonest behaviour and emphasizes the importance of trust and compliance in the financial industry. 6. SFC commences MMT proceedings against Ding Yi Feng for market manipulation SFC commenced proceedings in the Market Misconduct Tribunal (“MMT”) against Mr Sui Guangyi (“SUI”), former chairman and non-executive director of Ding Yi Feng Holdings Group International Limited (“Ding Yi Feng”), two corporate entities and 28 other suspects for alleged manipulation of the shares of Smartac International Holdings Limited ( 00395.HK ). The SFC alleged that between 31 October 2018 and 11March 2019, SUI and other suspects manipulated the trading of Smartac shares to push up the price and turnover, creating a false and misleading appearance of active trading. The increase in share price contributed to an investment gain by Ding Yi Feng, which held a 21.68% of the share in its gross assets as of 31 December 2018. The SFC had issued restriction notices to freeze securities accounts linked to the suspected market manipulation of Smartac shares which still remain in force. SIGNIFICANCE: This action by the SFC emphasizes its commitment to combating market misconduct and maintaining market integrity. The proceedings against Mr. Sui and others are a clear signal that the SFC will take stringent measures against manipulative trading practices. Cooperation between the SFC and the China Securities Regulatory Commission underscores the importance of regulatory collaboration in addressing cross-border market manipulation. 7. SFC sanctions Zuo Ping for breaches of the Takeovers Code On 15 November 2024, the SFC publicly censured and imposed a six-year cold shoulder order against Ms ZUO Ping (“ZUO”) for breaching the mandatory general offer obligation under the Takeovers Code. ZUO made a number of acquisitions and disposals of shares in CBK Holdings Limited ( 08428.HK ) on the market between 2 November 2023 and 20 November 2023, and her interest in CBK increased from 0% to 30.22% of CBK’s issued capital on 20 November 2023, triggering a mandatory general offer obligation under Rule 26.1 of the Takeovers Code. Yet ZUO did not make any general offer then. Zuo acknowledged her breach of the Takeovers Code, and agreed to the disciplinary action. SIGNIFICANCE: The SFC emphasizes the importance of adhering to the Codes on Takeovers and Mergers, advising parties to seek professional advice when in doubt. The order denies Zuo access to the Hong Kong securities market from 15 November 2024 to 14 November 2030. 8. SFC suspends Yuanta’s former employee Wang Shian-tang for violation of employee dealing policy The SFC suspended the licence of Mr Wang Shian-tang (“WANG”), a former licensed representative of Yuanta Securities (Hong Kong) Limited (“Yuanta”) for 26 months from 20 November 2024 to 19 January 2027. In the investigation, it was found that WANG entered into a private profit-sharing agreement with a client on discretionary trading services without Yuanta’s knowledge or consent; and WANG would be entitled to 10% of any annual profits made for the client. It was also found that WANG maintained another account with an outside broker for conducting 10 warrant trades with a total transaction value of HKD350,000; yet these were not disclosed to Yuanta which violated the employee dealing policy of the company, depriving the company to monitor his personal dealings. SIGNIFICANCE: With the false and disingenuous representations to the SFC regarding his personal account and trades, the SFC considered WANG had displayed dishonest behaviour that undermined the interests of his then employer and its clients, as well as the integrity of the market. 9. China Forestry’s former chairman and CEO sanctioned for insider trading The Market Misconduct Tribunal (MMT) ordered Mr Li Han Chun (“LI”), the former chief executive officer (CEO) of China Forestry Holdings Company Limited ( 00930.HK ), and his investment vehicle, Top Wisdom Overseas Holdings Limited (Top Wisdom), to disgorge $353,430,000 which represents the loss they avoided by insider dealing of China Forestry’s shares. The MMT also imposed the following orders against LI and Mr Li Kwok Cheong (“LIKC”), the former chairman of China Forestry, for disclosing false or misleading information in China Forestry’s IPO prospectus, annual results announcement, and annual report for the year ended 31 December 2009, inducing transactions in the company’s shares: Disqualification orders for five years Cold shoulder order for five years Cease and desist orders Please see the SFC’s press releases dated 7 August 2024 and 28 June 2018 . And LI, LIKC and Top Wisdom had to pay the costs and expenses incurred by the Government and the SFC as well. SIGNIFICANCE: This case underscores the importance of transparency and integrity in the financial markets, with severe penalties for insider dealing and disseminating false information to maintain market trust and investor confidence. 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The topics discussed in this monthly newsletter for insurance are as follows: ComplianceOne Newsletter – September 2025 The topics discussed in this monthly newsletter are as follows: REGULATORY UPDATES NASDAQ is pioneering in launching tokenization of stocks SFC consults on extending investor identification regime to exchange-traded derivatives in Hong Kong MARKET NEWS Hong Kong’s securities industry saw continued earnings growth and record transactions in first half of 2025 Only a limited number of licenses will be granted by the HKMA amid 77 applications received for Stablecoin Issuers SFC and Dubai Financial Services Authority bolster ties in supervising cross-border investment management SFC and HKMA unveil roadmap to advance Hong Kong’s vision to be global fixed income and currency hub ENFORCEMENT NEWS SFC Bans Former UBS Advisor Suen Kin-wing for Life Over Money Laundering and Contempt Convictions SFC Bans Former Citigroup Executive Richard Charles Heyes for 5 Years Over Serious Misconducts SFC Reprimands and Fines Instinet Pacific Limited $8 Million for Cross Trade Reporting Failures SFC Upholds Fine on RaffAello Capital for Sponsor Failures in Paprika Listing SFC Reprimands and Fines Roofer Securities $2.1 Million for Client Money Mishandling SFC Secures Disqualification Orders Against Five More Former Directors of Superb Summit Due to misappropriate assets SFC Suspends Former Agg. Asset Management RO Chow Tsz Lam for 12 Months Over Fund Mismanagement SFC Pursues Disqualification Orders Against Former Directors of Century Energy International Holdings Limited Regulatory Updates 1. NASDAQ is pioneering in launching tokenization of stocks In less than two years, the tokenized securities market experienced almost “explosive” growth with on-chain stocks surging from less than 5 million dollars starting from 2024 to 0.42 billion, a more than 80 times increase in two years. The driving wave is originated from the collective entry and accelerated layout of enterprises; both crypto-native companies and traditional financial giants are striving to tap the advantage of being the first-mover in the emerging circuit of tokenized stocks. These moves not only set off a race between crypto and traditional finance, but also a potential “revolution” against the traditional exchange model. Nasdaq, being the world’s second-largest exchange, took the initiative to incorporate tokenized stocks attempting to push itself to be the pioneer in the Wall Street. Some key takeaways we need to know about the moves by NASDAQ: Tokenized stocks are not new stuff, they are new “packaging” for the traditional equity, namely, to connect blockchain’s bookkeeping and settlement capabilities on top of existing financial infrastructure. The appeal of tokenization is that it touched several “core pain points” in the capital market and provide quick solution with: (i) settlement efficiency, (ii) transaction time and accessibility, (iii) programmability of assets. With the completion of the Depository Trust Company (“DTC”) upgrade, and the on-chain settlement function early in Q3 next year, there will already be parallel run of cryptocurrency stocks and traditional stocks this year. SIGNIFICANCE: NASDAQ has officially submitted an application for tokenized Stocks trading with the SEC, a “core attempt” by Wall Street in the digitalization process. The core of this proposal is that tokenized stocks should enjoy exactly the same rights and protections as their underlying securities , transaction matching is still carried out in the existing order book, and DTC is responsible for minting equivalent tokens on the chain. As the CEO of NASDAQ has said, “ Blockchain technology offers unprecedented possibilities for shortening settlement cycles, modernizing proxy voting, and automating corporate actions .” To put in simple words, NASDAQ is not trying to do away with the old order, but rather to upgrade the underlying structure of the market with minimal impact and to ensure that the core principles of investor protection and market transparency remain intact . 2. SFC consults on extending investor identification regime to exchange-traded derivatives in Hong Kong The SFC launched a consultation on 22 September 2025 on the proposed investor identification regime for the exchange-traded derivatives market (“ HKIDR-DM ”) which is expected to further consolidate and reinforce the integrity and sustainable development of Hong Kong’s exchange-traded derivatives markets, while a tentative schedule for implementation is in the first quarter of 2028. The proposed HKIDR-DM was established and based on the successful implementation of the similar regime for the securities markets, i.e. the HKIDR-S (the Hong Kong investor identification regime for securities markets). The scope of the HKIDR-DM comprises of order submissions for futures contracts, options contracts and stock options traded on the trading system of the Hong Kong Futures Exchange Limited (“ HKFE ”). Key takeaways are: the regime will apply to Relevant Regulated Intermediaries (“ RRIs ”), i.e., licensed corporations (“ LCs ”) under the SFC and registered institutions (“ RIs ”) under the HKMA that trade (as principal or agent) futures and options contracts; the requirements under the proposed HKIDR-DM are analogous to those currently set out in the HKIDR-S. RRIs will be required to assign a unique “Broker-to-Client Assigned Number” (“ BCAN ”) to Relevant Clients (it basically refers to the immediate client of a RRI who maintains a trading account with the RRI) placing or intending to place orders in the futures market; RRIs must collect and submit up-to-date client identification data (“ CIDs ”) alongside the BCAN in a file (“ BCAN-CID Mapping File ”) to a central data repository maintained by Hong Kong Exchanges and Clearing Limited (HKEX), the same arrangements as the securities side; SIGNIFICANCE: As Mr. Rico Leung, the SFC’s Executive Director of Supervision of Markets has said, “t o keep up with Hong Kong’s fast-growing derivatives market and align with global best practices, the proposed extension of our investor identification regime represents a major stride in detecting irregularities and protecting investors whilst minimizing operational burden on the industry ”; and he further added that, “ our enhanced cross-market surveillance capabilities will help reinforce market integrity and investors’ confidence – both essential in solidifying Hong Kong’s sustainable development as an international financial center. ” Market News 3. Hong Kong’s securities industry saw continued earnings growth and record transactions in first half of 2025 The latest financial review of the industry issued by the SFC demonstrates a robust growth in the earnings of the securities sector with key promising figures as below: a steady growth momentum with a 14% profit increase to HKD28.9 billion amid record high securities transaction value in the first six months of 2025; a total value of transactions of all securities dealers and securities margin financiers reached a record HKD99.2 trillion in the first half of 2025, a recorded increase of 22% from Q2 of 2024 and 57% (year-over-year); the net profits of all the SEHK participants were up 34% during the previous 6 months to HKD15.6 billion. The main driving forces are attributed to the steady growth of trading commission, reduction in overheads and interest expenses; within the revenue side, the net securities income was up 23% to HKD13.6 billion and income from advising on corporate finance was up 33% to HKD2 billion! One point deserves attention is that the net profits of Category C brokers, which cater for general public and small retail investors, doubled to HKD2.5 billion, implying a holistic recovery of the brokerage business rather than being concentrated on the top category brokers. SIGNIFICANCE: As Dr Eric Yip, the SFC’s Executive Director of Intermediaries, said, “ once again, the solid performance of our licensed corporations showcases the strength and agility of our financial industry in a fast-changing business landscape , underscoring their key role in driving Hong Kong’s continued success as a top international financial centre. ” 4. HKMA to grant limited stablecoin licenses amid 77 stablecoin application Main themes of the press are that: the 77 applicants originated from a range of sectors comprising of banking, technology firms, asset manager, e-commerce platforms, payment companies and Web3 startups; only a limited number of stablecoin licenses will be issued in the initial stage; only applicants meeting strict compliance requirements will be granted approvals. Key takeaways readers should know : the Hong Kong Monetary Authority ("HKMA") would not publish the list of entities showing interests or submitting applications; and reiterated that communications with the applicants did not indicate any hints of regulatory approval; the meetings were only meant to help applicants evaluate the necessity and maturity of their issuance plans before making a formal submission; with the stablecoin licensing regime came into effect on 1 August 2025, it serves as a regulatory reference point to develop the virtual asset framework. As only a limited number of licenses will be granted, some applicants either postpone applications, partner with existing licensees or adopt alternative structures to meet the strict compliance thresholds. These adaptive adjustments amid the screening process help shape the evolving regulatory regime of the nascent stablecoin ecosystem. 5. SFC and Dubai Financial Services Authority bolster ties in supervising cross-border investment management The SFC and the Dubai Financial Services Authority (“ DFSA ”), the independent regulator of the Dubai International Financial Centre (“ DIFC ”), today signed a Memorandum of Understanding (MoU) to deepen cooperation on the regulatory oversight and supervision of collective investment scheme managers in each other’s markets to ensure compliance, governance, and cross-border regulatory alignment. Key takeaways of the MOU: underscoring the significance of cross-border regulatory collaboration and Hong Kong’s growing ties with the Belt and Road jurisdictions; establishing a collaborative framework for consultation, cooperation and the exchange of information in order to enhance the regulators’ supervision and oversight of regulated entities which engage in cross-border investment management or advisory activities; signifying the efforts of joint collaboration of the high-level meetings between the SFC and the DFSA over the years. SIGNIFICANCE: As comments from SFC and DFSA officials, the MOU is a consequence of strengthened SFC-DFSA partnership which underscores the shared commitment to mutual benefits of HK and DIFC as internation financial hubs, and efforts towards regulatory excellence, supervision and cross-border innovation between the two jurisdictions. 6. SFC and HKMA unveil roadmap to advance Hong Kong’s vision to be global fixed income and currency hub The SFC and the HKMA jointly announced Hong Kong’s Roadmap for the Development of Fixed Income and Currency (“ FIC ”) Markets (the “ Roadmap ”) on 25 September 2025 to position the city strategically as a global FIC hub by fostering demand, liquidity and innovation. An overview of the Roadmap is outlined as below with FOUR pillars and TEN initiatives: Reinforcing Foundations Pillar 1: Boosting issuance in primary market Initiative 1: Lead by example through government bond issuance Initiative 2: : Promote Hong Kong’s strengths to issuers and investors in target markets Initiative 3: Expand investor base including family offices, funds and corporate treasury centres Pillar 2: Enhancing liquidity in secondary market Initiative 4: Finalize implementation of over-the-counter FIC derivatives regime Initiative 5: Facilitate development of a repo central counterparty Breaking New Ground Pillar 3: Expand offshore RMB business Initiative 6: Broaden offshore RMB usage Initiative 7: Enhance Connect schemes to increase offshore RMB liquidity and RMB-related product offerings Pillar 4: Next-generation infrastructure Initiative 8: Future-proof FIC financial market infrastructure Initiative 9: Support development of next-generation electronic trading platforms Initiative 10: Facilitate market innovation and implementation of use cases for tokenized FIC products SIGNIFICANCE: The Roadmap will guide the policy making and implementation of the SFC and the HKMA in coming years to support the sustainable and diversified growth of Hong Kong’s capital markets. Comments from key officials highlight the significance of the Roadmap: Dr. Kelvin Wong, Chairman of the SFC: “ The Roadmap is poised to guide our marketevolution that will benefit issuers, investors and intermediaries alike for years to come ”. Mr. Eddie Yue, Chief Executive of the HKMA: “ The Roadmap comprehensively set out our work focuses in the near future . We look forward to implementing the initiatives in collaboration with industry stakeholders. ” Ms. Julia Leung, Chief Executive Officer of the SFC: “ The Roadmap reflects our close collaboration and shared commitment with the HKMA, industry partners and other stakeholders to enhance Hong Kong’ s vital role in bridging Mainland and international capital markets .” Enforcement News 7. SFC Bans Former UBS Advisor Suen Kin-wing for Life Over Money Laundering and Contempt Convictions On 2 September 2025, the SFC has imposed a lifetime ban on Mr. SUEN Kin-wing (“ SUEN ”), a former Associate Director at UBS AG (“ UBS ”), preventing him from re-entering the industry. This action follows SUEN's criminal convictions for money laundering and contempt of court, highlighting serious breaches of trust and regulatory standards. Background of the Case SUEN, who served as a Client Advisor at UBS from January 2014 to June 2018, was responsible for Type 1 and Type 4 regulated activities. The issues stemmed from his dealings with two Mainland Chinese clients who held a joint account at UBS. Facing challenges in transferring RMB funds from Mainland China to Hong Kong, the clients entered into an arrangement with SUEN to facilitate cross-border transfers. Under this setup, the clients deposited over RMB132 million into Mainland bank accounts designated by SUEN between November 2016 and February 2018. SUEN provided what appeared to be legitimate transaction confirmations and bank statements showing the funds had reached the joint account. However, the clients later discovered that a substantial portion of the money was missing. Investigations revealed that over HK$134 million had been diverted into two Hong Kong bank accounts controlled by SUEN. The Court determined these funds were proceeds of crime, as SUEN had defrauded or stolen them from his clients. He used the misappropriated money to fund a luxurious lifestyle, including purchases of high-end vehicles and properties in the UK and Mainland China. Legal Outcomes Charge(s) Remarks Case No. Money Laundering Conviction On June 21, 2024, the Court of First Instance sentenced SUEN to 10 years' imprisonment after he pleaded guilty to two counts of dealing with property known or believed to represent proceeds of an indictable offense. HCCC 77/2021 Contempt of Court In July 2018, the clients secured a worldwide freezing injunction against SUEN to recover the stolen funds, prohibiting him from disposing of assets up to HK$130 million. Despite this, SUEN transferred his interests in several UK properties to a British Virgin Islands (BVI) company he owned, violating the order. On 20 December 2023, he was sentenced to six months' imprisonment for contempt. HCMP 633/2019 SIGNIFICANCE: Given the severity of SUEN's actions, which demonstrated a profound lack of honesty and professionalism, the SFC has deemed him unfit and improper to hold any regulated position in the future. SUEN is currently neither registered with the Hong Kong Monetary Authority (“ HKMA ”) nor licensed by the SFC. This case serves as a stark reminder of the consequences of financial misconduct and the SFC's zero-tolerance policy toward activities that undermine market confidence. Industry professionals are encouraged to review internal controls and compliance measures to prevent similar incidents. 8. SFC Bans Former Citigroup Executive Richard Charles Heyes for 5 Years Over Serious Misconducts In a significant move underscoring the importance of senior management accountability, the SFC has imposed a five-year industry ban on Richard Charles Heyes (“ Heyes ”), a former key figure at Citigroup Global Markets Asia Limited (“ CGMAL ”). Effective from 15 September 2025 to 14 September 2030, the ban prevents Heyes from re-entering the financial industry in any licensed capacity. Heyes, who served as a RO, Manager-In-Charge (“ MIC ”) of Key Business Line, board member, and Head of Pan-Asia Equities at CGMAL, has been held accountable for serious regulatory breaches and internal control lapses at the firm. These issues stem from a decade-long period (i.e. 2008–2018) where CGMAL's Cash Equities business disseminated mislabelled Indications of Interest (“ IOIs ”) and made misrepresentations to institutional clients during facilitation trades. Key Details of the SFC's Findings: The SFC's investigation highlighted Heyes' failure to fulfill his supervisory and managerial duties, which directly contributed to CGMAL's violations. Specifically: 1. Mislabelled IOIs Heyes overlooked practices at the Equities Sales Trading Desk where IOIs were falsely labelled to elicit client inquiries. Despite a 2014 SFC review flagging concerns with CGMAL's IOI processes, Heyes did not implement adequate controls. Additionally, between 2017 and 2018, he received reports of client complaints about IOI accuracy but took no action to investigate or halt the misconduct. 2. Misrepresentations in Facilitation Trades In 2014, Heyes attended an SFC roundtable that SFC emphasized the need for explicit client consent and pre-trade disclosures for facilitation trades. However, he failed to ensure CGMAL had proper guidelines or monitoring in place. Emails forwarded to him revealed traders disguising facilitation trades as agency trades to boost market share, but these went unaddressed. These lapses allowed a culture prioritizing revenue over client interests and ethical standards to persist within CGMAL. The SFC emphasized that Heyes' neglect enabled the firm's internal control failures to continue unchecked for over ten years. Factors Influencing the Sanction In determining the five-year ban, the SFC considered: The severity of Heyes' neglect, which enabled prolonged regulatory breaches. His extensive industry experience, which should have ensured higher standards as an RO, MIC, board member, and senior manager. The need to send a strong deterrent message to the industry. Mitigating factors, including Heyes' cooperation with the SFC, withdrawal of his appeal to the Securities and Futures Appeals Tribunal, and his otherwise clean disciplinary record. This action follows prior SFC sanctions against CGMAL itself for the same underlying issues. For more details of the case, please refer to the Statement of Disciplinary Action . SIGNIFICANCE: Christopher Wilson, SFC's Executive Director of Enforcement, stated: "Senior management of a licensed corporation bears primary responsibility for ensuring the firm’s maintenance of appropriate standards of conduct and adherence to proper procedures. By exerting significant pressure on the trading desks to grow CGMAL’s market share while failing to be vigilant for telltale signs that his subordinates were achieving this by dishonest means, Heyes neglected and failed to properly discharge his managerial responsibility." Wilson added that the SFC will actively use the MIC regime to hold senior executives accountable, aiming to foster cultural and behavioral changes among intermediaries. This case serves as a stark reminder for financial institutions in Hong Kong and beyond: Senior leaders must prioritize robust compliance frameworks, vigilant oversight, and ethical practices. With regulators increasingly focusing on individual accountability, firms should review their internal controls, training programs, and escalation procedures to prevent similar failures. 9. SFC Reprimands and Fines Instinet Pacific Limited $8 Million for Cross Trade Reporting Failures The SFC has issued a reprimand and imposed an $8 million fine on Instinet Pacific Limited (Instinet) for non-compliance with reporting requirements for direct business transactions, commonly known as cross trades, to The Stock Exchange of Hong Kong Limited (“ SEHK ”). Key Details of the Case The SFC's investigation uncovered that from December 2012 to March 2018, Instinet failed to report 8,817 pairs of cross trades totalling approximately $25.9 billion in value between its clients and an affiliated company. This breach violated the Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission. During this period, Instinet lacked any internal policies, procedures, or monitoring mechanisms for reporting cross trades to the SEHK, and it conducted no reviews of its trade reporting processes. Scope of the Breach: The unreported trades spanned over five years and involved significant transaction volumes, highlighting systemic deficiencies in Instinet's compliance framework. Code and Rule Violations: The failures contravened the SFC's Code of Conduct and Rules of the Exchange, which mandates proper cross trades reporting. In deciding the disciplinary sanction, the SFC has taken into account all relevant circumstances, including the duration of Instinet’s failure, the number of unreported cross trades and the sum involved, and Instinet’s initiative to cease the relevant trade flows and cooperation with the SFC in resolving the SFC’s concerns. For more details of the case, please refer to the Statement of Disciplinary Action . SIGNIFICANCE: This enforcement action reinforces the SFC's commitment to upholding market transparency through strict adherence to reporting obligations. Financial institutions must prioritize robust internal controls, regular reviews, and comprehensive policies to monitor trade reporting. Failures in these areas can lead to significant penalties and reputational damage. Firms are encouraged to audit their compliance systems, particularly for cross trades and affiliated transactions, to align with SEHK and SFC standards. 10. SFC Upholds Fine on RaffAello Capital for Sponsor Failures in Paprika Listing In a recent decision, the Securities and Futures Appeals Tribunal (“ SFAT ”) has affirmed the SFC reprimand and $4 million fine against RaffAello Capital Limited (“ RaffAello ”) for shortcomings in its role as sponsor for Paprika Holdings Limited's Paprika listing application. This case underscores the critical importance of rigorous due diligence in Hong Kong's capital markets, highlighting lapses that could undermine investor confidence. Background on the Case RaffAello, a licensed corporate finance advisor, sponsored Paprika's application for listing on the Growth Enterprise Market (“ GEM ”) of the Stock Exchange of Hong Kong Limited ("SEHK"), submitted in June 2017 but withdrawn in April 2018. Paprika, a handbag and accessories retailer, relied heavily on retail sales, accounting for about 90% of its revenue in the two financial years ending March 2017, with over 80% from physical stores. The SFC's investigation revealed that RaffAello failed to conduct reasonable due diligence and lacked professional scepticism when reviewing Paprika's provided information. Key issues centered on suspicious retail transactions and questionable relationships with key business partners. Key Findings Failings in Retail Sales Due Diligence During a sample walkthrough of retail store transactions from 19 February to 13 March 2016, RaffAello uncovered several red flags: Approximately 230 consecutive cash transactions across stores, involving 1,431 handbags, made up 90% of cash sales and 42% of total sales on those dates. Many occurred within 1-10 minutes. Around 240 bulk credit card purchases of 1,860 handbags by individuals, including owners of Paprika's wholesaler and suppliers, accounting for 83% of credit card sales and 45% of total sales. Invoices marked "POS Test" (point-of-sale system testing) were included in sales records. Despite inquiries, RaffAello largely accepted explanations from Paprika and involved parties without deeper scrutiny. The SFC noted overlooked indicators suggesting potential fabrication to inflate sales figures. Inadequate Scrutiny of Key Partners RaffAello also fell short in verifying the independence of Paprika's largest wholesaler, Novi eBusiness Limited (“ Novi ”) (responsible for over 90% of a 96% wholesale revenue surge from 2016 to 2017), and its fifth-largest supplier, API Trading Company Limited (“ API ”) (part of suppliers accounting for 53.4% of 2017 purchase costs). Red flags included: Bovi and API both were former subsidiaries of a company linked to a 15% Paprika shareholder. Acquisitions facilitated by Paprika's founder, Chairman, and CEO, Mr. Samuel Leung ("Leung"). Novi's owner partnered with Mainland Chinese firms tied to Leung's authorized payment recipients. Owners of both entities made repeated bulk purchases from Paprika stores. Additionally, RaffAello did not sufficiently probe API's business substance, especially after discovering it acted as an intermediary for a pre-existing supplier (i.e. Lung Yiu), with supplies jumping from $41,000 in 2016 to $3.18 million in 2017. SIGNIFICANCE: The SFC initially proposed a $13 million fine but reduced it to $4 million due to RaffAello's financial constraints, a decision the SFAT upheld to avoid liquidation and harm to clients. Chaired by Mr. Michael Hartmann, GBS, the Tribunal emphasized sponsors' duties under the Code of Conduct: when red flags arise, additional due diligence is mandatory, including detailed documentation and consultations (e.g., with reporting accountants) rather than assumptions. The Tribunal noted: "If issues of concern are identified, it is not sufficient for the sponsor simply to investigate the matter, make a bald note of that fact... a coherent note should be made of what has been discovered and what has been resolved." Over-reliance on management's representations was deemed unreasonable. Related actions include a two-year industry ban for Mr. Tsang Kwong Fai , RaffAello's responsible officer overseeing the application. This ruling serves as a stark reminder for sponsors to apply professional scepticism and thorough investigations. It reinforces SFC's commitment to maintaining listing integrity, potentially influencing future due diligence practices in Hong Kong's vibrant IPO market. 11. SFC Reprimands and Fines Roofer Securities $2.1 Million for Client Money Mishandling The SFC has issued a reprimand and imposed a $2.1 million fine on Roofer Securities Limited ("Roofer") for violations related to the improper handling of client funds. This action highlights the SFC's ongoing commitment to enforcing strict segregation rules to protect investor assets in Hong Kong's financial markets. Case Overview The investigation, initiated following a referral from the Hong Kong Exchanges and Clearing Limited (“ HKEX ”), uncovered 12 incidents between 8 February 2021, and 7 July 2022, where Roofer failed to maintain adequate funds in its segregated client account. In one notable instance, the shortfall reached $15.5 million. These breaches stemmed from several operational lapses: Using client account funds to cover margin calls (actual or anticipated) from HKEX which is not paid in accordance with a written direction or standing authority form the client and/or used to meet the client’s settlement or margin requirement. Failure in client money segregation due to inadequate management of daily online bank transfer limits. Human errors by staff. The SFC determined that these failures violated the Securities and Futures (Client Money) Rules and the Code of Conduct for Persons Licensed by or Registered with the SFC. Mitigating Factors and Sanctions In determining the penalty, the SFC considered various factors, including: No clients suffered financial losses due to the incidents. Roofer promptly rectified the under-segregation in each case and implemented remedial measures, such as strengthening internal controls and processes. The firm's full cooperation with the SFC during the investigation. Roofer's clean prior disciplinary record. For more details of the case, please refer to the Statement of Disciplinary Action . SIGNIFICANCE: This case serves as a reminder to licensed corporations of the critical need for robust internal systems to ensure client money segregation. Failures in this area can erode market trust and expose firms to significant regulatory penalties. The SFC's balanced approach factoring in remediation and cooperation, demonstrates its focus on proportionate enforcement while upholding high standards. 12. SFC Secures Disqualification Orders Against Five More Former Directors of Superb Summit Due to misappropriate assets The SFC has successfully obtained disqualification orders from the Court of First Instance against an additional five former directors of Superb Summit International Group Limited (“ Superb Summit ”), bringing the total number of disqualified directors to 10. This latest action emphasizes the SFC's rigorous enforcement of director duties in cases involving misleading acquisitions and non-existent assets. This follows earlier disqualifications in June 2025 against five other former directors: Mr. Lee Chi Kong (10 years), Mr. Wong Yun Kuen (7 years), and Messrs. Lam Ping Kei, Wong Choi Fung, and Yeung Kwong Lun (5 years each). The SFC's investigations and proceedings against additional former directors and officers of Superb Summit continue. Director(s) involved: Director(s) Disqualifications Mr. Chan Chi Yuen (“ CHAN ”) 4 Years Mr. Law Wai Fai (“ LAW ”); and Mr. Cheng Man (“ CHENG ”) 3.5 Years each Mr. Qiu Jizhi (“ QIU ”) 3 Years Mr. Li Jun (“ LI ”) 2.5 Years Details of the Breaches Superb Summit, listed on the Main Board of The Stock Exchange of Hong Kong Limited from September 2001 until its delisting in June 2020, engaged in two problematic acquisitions: 2007 Acquisition : LAW, LI, QIU, AND CHAN failed to adequately review key documents or critically assess the methodologies and assumptions used by professionals during due diligence on the target company's alleged forestry assets. 2009 Acquisition : LAW, CHENG, AND CHAN neglected to properly verify the ownership of the claimed forestry assets. They also approved a company announcement containing false or misleading information about these non-existent assets. The SFC initiated proceedings under section 214 of the Securities and Futures Ordinance in December 2020. The disqualifications were resolved via the Carecraft procedure, where the court approved orders based on agreed facts and proposed sanctions. Overview of the Disqualifications The affected individuals include three former executive directors, LAW, LI and CHENG and two former independent non-executive directors, QIU and CHAN. The orders, effective immediately, prohibit them from serving as directors or participating in the management of any corporation in Hong Kong or elsewhere for periods ranging from two and a half to four years. Additionally, the former directors have been ordered to cover the SFC's costs in the proceedings. These sanctions follow their admissions of breaching duties and negligence related to Superb Summit's acquisitions in 2007 and 2009, which involved purported forestry assets that proved to be fictitious. **For the detail of judgment and the prior disqualifications, please refer to: - the Judiciary’s website (Case No. HCMP 2305/2020 ); or - the SFC’s press release dated 11 July 2025 ,.** SIGNIFICANCE: These orders reinforce the SFC's stance on accountability for directors, particularly in due diligence and disclosure processes. They highlight the severe consequences of negligence in approving transactions with misleading elements, serving as a cautionary tale for boards in Hong Kong's listed companies to uphold rigorous standards to protect investors and maintain market integrity. 13. SFC Suspends Former Agg. Asset Management RO Chow Tsz Lam for 12 Months Over Fund Mismanagement The SFC has suspended Mr. CHOW Tsz Lam (“ CHOW ”), a former RO and manager-in-charge at the now-dissolved Agg. Asset Management Limited (“ Agg ”), for 12 months effective from 2 September 2025, to 1 September 2026. This disciplinary measure addresses failures in fund management practices that exposed investors to undue risks and conflicts of interest. Investigation Findings The SFC's probe revealed that Agg, acting as investment manager for a Cayman-incorporated fund, allocated up to 100% of the fund's assets into debentures issued by entities controlled by Mr. NG Ka Shun (“ NG ”), Agg's sole shareholder, director, and fellow RO. This approach neglected to mitigate conflicts of interest and adequately manage associated risks (concentration risks and credit risks). Furthermore, Agg directed the fund into two debentures seemingly designed to artificially inflate the fund's net asset value. CHOW, as an RO and senior management member, was found to have fallen short in ensuring Agg operated in the best interests of the fund and its investors, while adhering to regulatory standards. Although primary responsibility lay with NG (who made the investment decisions), CHOW's oversight lapses contributed to these breaches. For more details of the case, please refer to the Statement of Disciplinary Action . SIGNIFICANCE: This case underscores the SFC's emphasis on robust conflict management and risk oversight in asset management, particularly where personal interests intersect with firm operations. It serves as a reminder for ROs and senior executives to prioritize investor protection and regulatory compliance, with self-reporting potentially mitigating penalties. The SFC previously issued a lifetime ban and $1.7 million fine to NG for window-dressing Agg's financial resources and mismanaging two funds (see SFC press release dated 23 December 2024 ). Agg itself faced a restriction notice in April 2020 prohibiting regulated activities, leading to its dissolution in July 2024 and deemed license revocation. 14. SFC Pursues Disqualification Orders Against Former Directors of Century Energy International Holdings Limited The SFC has initiated legal proceedings to seek court orders disqualifying four former directors of Century Energy International Holdings Limited ("CEIHL", formerly known as China Oil Gangran Energy Group Holdings Limited). The action targets individuals accused of misconduct that led to substantial financial losses for CEIHL. Background on CEIHL CEIHL, listed on the Growth Enterprise Market of the SEHK since 18 May 2011, was primarily involved in trading refined oil and methyl tert-butyl ether, as well as manufacturing and selling power and data cords. CEIHL's troubles stem from the loss of control over four major operating subsidiaries in Mainland China, which accounted for over 80% of its total revenue for the year ended 31 March 2018, and more than 40% of its total assets as of that date. These subsidiaries were deconsolidated from CEIHL's accounts effective 1 January 2019, resulting in a staggering loss of $184 million for the fiscal year ended 31 March 2019. Allegations of Misconduct The SFC alleges that these former directors failed to adequately supervise the Mainland subsidiaries and did not act in the best interests of the company. This prolonged lack of oversight contributed to the deconsolidation of the subsidiaries and the ensuing financial losses. Furthermore, Mr. Ho, Ms. Yang, and Mr. Lau are accused of being responsible for the publication of a 2014 circular that contained inaccurate or misleading information about one of the operating subsidiaries. Under section 214 of the SFO , the Court of First Instance may impose disqualification orders preventing individuals from serving as directors or being involved in the management of any corporation for up to 15 years if they are found responsible for conduct involving defalcation, fraud, misfeasance, or other misconduct toward the company or its members. The SFC's proceedings name the following accused directors: Mr. Gregory Ho Chun Kit (“HO”) Former executive director. Mr. Zheng Jian Peng (“ZHENG”) Former executive director, chief financial officer, and company secretary. Ms. Eugenia Yang (“YANG”) Former independent non-executive director. Mr. Vincent Lau Sung Tat (“LAU”) Former independent non-executive director. The SFC alleges that these former directors failed to adequately supervise the Mainland subsidiaries and did not act in the best interests of CEIHL. This prolonged lack of oversight contributed to the deconsolidation of the subsidiaries and the ensuing financial losses. Furthermore, HO, YANG, and LAU are accused of being responsible for the publication of a 2014 circular that contained inaccurate or misleading information about one of the operating subsidiaries. Under section 214 of the SFO , the Court of First Instance may impose disqualification orders preventing individuals from serving as directors or being involved in the management of any corporation for up to 15 years if they are found responsible for conduct involving defalcation, fraud, misfeasance, or other misconduct toward the company or its members. SIGNIFICANCE: This case highlights the SFC's commitment to enforcing corporate governance standards and holding directors accountable for oversight failures in Hong Kong-listed companies. Investors in Hong Kong-listed companies should note the potential risks associated with operations in cross-border subsidiaries and the importance of robust internal controls. 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