The topics discussed in this monthly newsletter are as follows: ComplianceOne Newsletter – Jan 2025 The topics discussed in this monthly newsletter are as follows: REGULATORY UPDATES 1. SFC extends swift licensing process to new VATP applicants 2. Onshore RMB bonds accepted as margin collateral in OTC Clearing Hong Kong Limited 3. SFC expands listed structured fund offerings in Hong Kong MARKET NEWS 4. InvestHK brought a record-breaking number of new companies to Hong Kong in 2024 5. Enhancing sponsors’ expertise to drive GEM advancement 6. HashKey Exchange's Trading Volume Increased by 85% in 2024 7. Hong Kong joins LME global warehouse network ENFORCEMENT NEWS 8. Hang Seng Bank Limited is fined $66.4 million for misconduct in selling investment products 9. Associate Director of SFC charged by ICAC with conspiracy to pervert course of justice 10. The first solicitor convicted of breaching secrecy provision by the SFC 11. Enforcement action against FingerTango Inc. and its former directors by concerted effort of SFC and HKEX 12. MMT sanctions chauffeur and wife for insider dealing before a takeover announcement Regulatory Updates 1. SFC extends swift licensing process to new VATP applicants ON 16 January 2025, the SFC announced that all new virtual asset trading platform (“ VATP ”) applicants can now seek licences under its swift licensing process. This new licensing approach requires VATP applicants to implement their policies, procedures, systems and controls before conducting an external assessment on these measures. The SFC will become a party to the engagement to supervise the overall external assessment process. This extension is made in light of the effectiveness of the SFC’s direct engagement and communication with deemed-to-be-licensed VATP applicants on the regulatory standards during its risk-based on-site inspections of all such applicants. It should be noted that all VATP applicant submitting license applications after 18 December 2024 should refer to the new Circular (dated 16 January 2025) for the updated swift licensing process. Key takeaways of the revamped swift licensing process are as follows: the SFC continues to adopt its engagement and communication with the VATP applicants through the process as before; the new VATP applicant has to submit its licensing application bundle to the SFC for assessment through WINGS, and to engage an external assessor (“ EA ”) to perform an external assessment; after an initial assessment by the SFC of the key personnels of the applicant, and upon acceptance of the license application, the applicant will proceed to deploy its relevant systems and controls; while the applicant is ready for an external assessment, a tripartite agreemen t with the SFC and the EA should be entered; the SFC will scrutinize and be assured that the policies, procedure and system controls (“ P&P ”) of the applicants are suitably designed and implemented; in case of any findings or exceptions, these should be resolved during the external assessment process; upon completion of the external assessment and all other outstanding matters such as capital injection, the SFC will grant a licence to the VATP applicant if it is satisfied that the applicant is then fit and proper to be licensed. What to know about the revamped external assessment? it is expected that there will be substantial changes to P&P of the VATP applicant from its conventional operational routines; as such it would be important to conduct external assessment only after the VATP deploys its systems and controls and evaluate itself if it fully adapts its P&P to ensure that they can operate as intended/ designed; it is also important for the EA to assess if the P&P are suitably designed and implemented by the VATP applicant even though the P&P can operate as intended; the SFC requires opinion from the EA that VATP applicant’s P&P are suitably designed and implemented to comply with the Guidelines specified for VATPs; the SFC, the EA and the VATP applicant should agree on the terms and scope before commencing the assessment. SIGNIFICANCE: The SFC has just granted licences to four deemed-to-be-licensed VATPs in December last year under the newly introduced swift licensing process, the determination of the Commission to give a greenlight in the licensing process to the new applicants is quite obvious. Subject to the new circular in January 2025, new VATP applicants are only required to conduct one external assessment throughout the streamlined licensing application process. 2. Onshore RMB bonds accepted as margin collateral in OTC Clearing Hong Kong Limited Effective 13 January 2025, the OTC Clearing Hong Kong Limited (“ OTC Clear ”) started accepting the Ministry of Finance and Mainland policy banks onshore bonds held under Northbound Bond Connect (“ CGB ”s) by offshore investors as margin collateral for Northbound Swap Connect (“ NBSC ”) transactions. Under the arrangement, the SFC, the People’s Bank of China (“ PBoC ”) and the Hong Kong Monetary Authority (“ HKMA ”) reached a consensus that offshore investors can use CGBs as margin collateral for all other eligible derivative transactions cleared in OTC Clear. In the Circular posted by HKEX dated 16 December 2024, the new eligible collateral can be used to cover initial margin requirements of NBSC , providing greater flexibility to international investors and enhancing their capital efficiency. Ever since its launch in May 2023, the Swap Connect has evolved with smooth operations and steady growth in trading volume, adding vibrancy to the region’s financial markets. SIGNIFICANCE: As Mr Rico Leung, the SFC’s Executive Director of Supervision Markets, has said, “ Global institutional investors can benefit from further reduction in liquidity cost with more efficient use of their onshore RMB bonds as non-cash collateral when clearing with OTC Clear. ” He further added that the new measures strengthen HK’s position as a leading global offshore RMB hub and advancing development of its fixed income market. 3. SFC expands listed structured fund offerings in Hong Kong On 23 January 2025, the SFC sets out new regulatory requirements for product issuers, with a view to broadening the range of listed structured funds that may be offered to the public in Hong Kong, notably adding to their product mix Single Stock Leveraged and Inverse (L&I) Products and Defined Outcome Listed Structured Funds (“ P&F ”). There has been growing interest among the product issuers in launching the P&F in HK amid their appeal to investors. The P&F offer investors who are looking for trading and hedging tools for popular individual stocks listed overseas, as well as for seeking price discovery tools for overseas exposure during Asian trading hours. One distinctive feature of the P&F is that they provide investors with a more customised investment exposure than the prevailing conventional products. In balancing the potential benefits and risks associated with exposure to these complex and novel products, the SFC has in place enhanced regulatory framework with additional safeguards and measure for protecting HK investors. For example, with respect to Single Stock L&I Products, only those referencing a highly liquid mega-cap stock listed on a major overseas exchange is accepted by the SFC, and is subject to a maximum leverage factor of 2X to -2X only. SIGNIFICANCE: With the protective constraints on Single Stock L&I Products imposed by the SFC, it excludes overseas listed stocks which may be dually listed in Hong Kong and stocks listed on any Mainland exchange which are not overseas exchanges; while only a lower leverage factor is accepted aiming to reduce exposure to any single stock volatility. For details of additional requirements, reference can be made to the circular post the same day. Market News 4. InvestHK brought a record-breaking number of new companies to Hong Kong in 2024 On 20 January 2025, the Invest Hong Kong (“ InvestHK ”), a government department of Hong Kong Special Administrative Region (HKSAR) which aims to strengthen Hong Kong’s status as the leading international business location in Asia, announced that the department achieved a record-breaking year of foreign direct investment (“ FDI ”) in 2024, assisting 539 overseas and Mainland companies to set up their business in Hong Kong, which represents a 41% increase compared with 2023, further reflecting the appeal of HK as a leading business hub in the region. The strong FDI performance was driven by investment in diversified and high-valued industries which is estimated to bring to HK over HKD67.7 billion, a record high of near 10 % increase over 2023’ around 6,864 job opportunities are expected to be created during the first year of operation. Taking a look at the figures, the top five locations of origins of these new companies ranked in order are Mainland China, United States, France, The United Kingdom and Singapore; the results reflect full confidence in HK from these enterprises in selecting the city as their base to capture the unique opportunities brought by HK as a “super connector” and a “super value-adder” . Furthermore, more than 800 applications were received through the New Capital Investment Entrant Scheme (“ New CIES ”) by the end of 2024 since its launch last March, bringing around HKD24 billion of investments to the city. SIGNIFICANCE: As Ms Alpha Lau, Director-General of Investment Promotion, has said, “ It demonstrates HK's resilience and adaptability and businesses' strong confidence in the city as the preferred base to expand in the region. ” 5. Enhancing sponsors’ expertise to drive GEM advancement At the seminar “ Hong Kong Capital Market – The Future of GEM ” organised by theAssociation of Hong Kong Capital Market Practitioners, Dr Kelvin Wong, Chairman of the SFC, delivered a keynote speech entitled Enhancing Sponsors’ Value Proposition to Drive GEM Advancement . He emphasised the importance of GEM to small and medium enterprises (SMEs) and Hong Kong’s listing market development. He also discussed how the sponsors of initial public offerings (IPOs) should enhance their value proposition by leveraging their unique roles to strengthen the corporate governance and resilience of companies for their longer-term success. The key points of the speech are as follows: Importance of a robust GEM to SMEs and listing market the secondary board of GEM has served as a source of long-term capital for SMEs to pursue innovation, value creation and business growth, testifying hundreds of both local and Mainland SMEs. SMEs are the backbone of the HK economy and accounted for 98% of the total number of businesses, and employing around 44% of the workforce. GEM enhancements in 2024 there were three GEM lPOs in 2024 raising a total of HK$235 million with a total initial market capitalisation of HK$720 million at listing; under the new streamlined transfer mechanism, three GEM issuers’ applications to transfer to the Main Board had been received by the HKEX; the average sponsor fees increased to HK$6.8 million in 2024, up by 25% compared to 2020. Enhancing sponsors’ value proposition the roles of sponsors and corporate financial advisors are essential in helping their clients ensure regulatory compliance and navigate the complexities of the IPO journey, and in conducting due diligence on the listing applicant’s business to ensure fulfilment of the SFC’s stringent standards, their recommendations are conducive to the sustainable development of companies long after their IPO; sponsors should also critically assess the commercial viability of a company’s business model and ensure the disclosure of accurate and sufficient information to investors. Facilitating corporate sustainability and governance beyond the IPO sponsors can help shape a culture of good corporate governance by discussing the internal control inadequacies with the listing applicant’s board of directors and recommending remedies; finding of research indicates that strong value proposition of reputable sponsors can always bring smaller under-pricing at IPO and lower price volatility post IPO; sponsors can conduct a range of investor relation initiatives and ensuring continuous equity coverage by research analysts, exposing the newly listed companies to persistent scrutiny by public eye through which is then transformed into a driving force for the companies to improve their operations, accountability, disclosure standards, corporate governance, as well as shareholder returns post IPO. Importance of governance to long-term corporate success it must be emphasised corporate governance is crucial to the long-term success of corporates post IPO. Research findings also indicated a high correlation between corporate governance and a company’s profitability and sustainability, a competent board of directors, robust internal controls and management systems as well as effective risk management are indispensable elements for success. Sponsor failures and good practices since sponsor’s rigor of due diligence is pivotal in sustaining HK’s reputation as an international fund-raising hub, the SFC is committed to combating sponsor misconduct with zero tolerance; always alert that any weakening in investors’ confidence would increase difficulties and costs for companies to raise capital. 6. HashKey Exchange's trading volume increased by 85% in 2024 As investors’ interests in virtual assets remain keen, the HashKey Exchange, one of the licensed VATPs in Hong Kong, continues to records with robust growth with its trading volume exceeding HKD 600 billion last year, marking an 85% year-on-year increase. As commented by Mr. Xiao Feng, Chairman and CEO of the parent company HashKey Group, the company is expected to reach breakeven by 2025. Currently, HashKey Exchange offers four cryptocurrencies for retail investors: Bitcoin (BTC), Ethereum (ETH), Avalanche (AVAX), and Chainlink (LINK). Its Chief Risk Officer Mr. Ru Haiyang anticipates more cryptocurrencies will be made available to cope with increasing interests at retail level. The introduction of derivative contracts, options or leveraged trading are still under communication with the regulatory bodies. SIGNIFICANCE: As HaskKey Exchange remains bullish on Bitcoin, the most popular and actively traded crypto to retail investors, trading volume is expected to grow sustainably in 2025. 7. Hong Kong joins LME global warehouse network The London Metal Exchange (“ LME ”) has confirmed, on 20 January 2025, its approval of HK as an LME warehouse location, HK will now join the LME’s existing network of 32 locations over the USA, Europe and Asia. Matthew Chamberlain, LME CEO, said, “The addition of Hong Kong to our global warehousing network is an exciting development, providing warehouse facilities closer to the metals hubs of Mainland China than ever before. The driving factors for such approval are: (i) Hong Kong provides the natural hub for connectivity to the Chinese market which is the world’s largest consumer of metal; (ii) there are keen interests from warehouse, landlords and metal owners in seeing HK as a metal delivery point; (iii) China is a largest net consumption area which is in vicinity to HK; (iv) established local fiscal and regulatory system and access to good transport network are in place in HK. SIGNIFICANCE: At the initial stage, HK is permitted to store LME-registered aluminium alloy, primary aluminium, copper, lead, nickel, tin, and zinc, and it will become an active warehouse location three months after the approval of the first warehouse company. This approval marks another cornerstone in the development of metal trading industry in HK since the HKEX acquired the LME in 2012 for USD2.2 billion. Enforcement News 8. Hang Seng Bank Limited is fined $66.4 million for misconduct in selling investment products The SFC reprimanded and fined Hang Seng Bank Limited (“ HSB ”) $66.4 million for serious regulatory failures in relation to the bank’ s sale of collective investment schemes (“ CIS ”) and derivative products and overcharging its clients and making inadequate disclosure of monetary benefits to them during various periods over the course of nine years between February 2014 and May 2023. A snapshot of the findings: (1) Sales practices in relation to CIS 111 client accounts were found to have executed 100 or more CIS transactions during the material period from 1 June 2016 to 30 November 2017; 46 clients were solicited into conducting excessively frequent transactions which contradicted to their investment perspectives/ horizon; HSB’s internal controls were deficient in monitoring the sales of CIS by their relationship managers. (2) Sales and distribution of derivative products from 17 February 2014 to 19 December 2018, it was found that 388 clients with no knowledge of the nature and risk of derivative products had purchased derivative funds in 629 transactions; while some products were of higher risk levels than the client’s tolerance levels. (3) Overcharging and inadequate disclosure of monetary benefits retained monetary benefits from client transactions in breach of regulatory standards; charged higher transaction fees from clients; failed to adequately disclose trailer fee arrangements to clients; HSB received at least HKD22.4 million in excess benefits/ fees from these transactions from the clients. SIGNIFICANCE: The SFC is of the view that the misconduct of HSB was serious and systemic, and its failure to act with due care and diligence, further aggravated by the lack of proper monitoring of sales distributions and compliance with disclosure requirements, all amounted to the adverse influence on the best interests of its clients. 9. Associate Director of SFC charged by ICAC with conspiracy to pervert course of justice The ICAC announced on 9 January 2025 that Deng Yingxia (“ DENG ”), a then Associate Director of the SFC, was charged by the ICAC with conspiracy to pervert the course of public justice by allegedly providing advice to subjects of an SFC investigation into suspected market manipulation in relation to a listed company on how to conduct themselves in the probe, including destroying potential evidence. The ICAC investigation stemmed from a corruption complaint. After investigation, the ICAC arrested DENG in an operation jointly carried out with the SFC in April 2024. It was alleged that between July 15 and 27, 2022, DENG had conspired with a subject of a Market Manipulation Investigation (relating to China Gas Industry Investment Holdings Company Limited ( 01940.HK )), she met with that person and other subjects of the investigation, and advised them how to answer possible questions posed by the SFC as well as advising them to destroy potential evidence. SIGNIFICANCE: The SFC was committed to render full assistance to the ICAC during investigation of the case. The ICAC, which stands itself out as emblem of upholding the integrity of HK’s financial market, shares the same mission of the SFC; their concerted effort to combat misconduct in the case is a good example to testify to the public that HK remains as a hub of justice and integrity. 10. The first solicitor convicted of breaching secrecy provision by the SFC A Hong Kong practicing solicitor, Mr Tse Yin Fung (“ TSE ”), was convicted today at the Eastern Magistrates’ Courts for violating the secrecy provision under the Securities and Futures Ordinance (“ SFO ”) following a prosecution brought by the SFC, and was fined HKD25,000 together with the payment for investigation costs of the SFC. In the case, TSE, acting as the legal representative of an individual, received confidential information regarding a restriction notice that the SFC had disclosed to that individual, which was subject to the secrecy provision under the SFO. After receiving the confidential information, TSE disclosed the information to two other individuals on 9 February 2021. SIGNIFICANCE: This case marks the first occasion in which a Hong Kong practicing solicitor has been convicted of an offence for contravening the secrecy provision under the SFO. No matter what intention or reason TSE had, as a legal professional, he should maintain the highest standard of professional conduct amid conducting his entrusted duty for his client. 11. Enforcement action against FingerTango Inc. and its former directors by concerted efforts of SFC and HKEX On 16 January 2025, the SFC and the Stock Exchange of Hong Kong Limited (“ Exchange ”) have joined hands in an enforcement action that resulted in the Exchange’s disciplinary actions against a Mainboard-listed FingerTango Inc. (“ Finger ”) ( 06860.HK ) and its eight former directors for misconduct and breach of their duties towards the company and its subsidiaries. Meanwhile, the SFC also sought disqualification and compensation orders from the Court of First Instance (“ CFI ”) for the same alleged misconduct. Snapshot of the legal action: the investigation was concerned with the directors’ misconduct in relation to problematic investments and loans to external parties; at the time of listing, all then directors, including independent non-executive directors, resolved to adopt a policy that would allow certain investment decisions to bypass board approval ; since then, Finger used the proceeds from its IPO to: (i) invest HKD450 million in a fund without knowledge of the board; (ii) partially redeemed the fund and invested another HKD250 million in loan notes (“2019 Loan Notes”); which later turned to be default with a loss of HKD258.75 million; (iii) between May 2020 and March 2021, another 20 loan agreements were entered by Finger and its two subsidiaries with 15 borrowers, totalling HKD500 million (the “2020-21 Loans”), which turned out later with a loss of HKD424 million in default; in the light of the above findings, the SFC expanded the scope of misconduct to include the 2020-21 Loans, with focus on the former directors’ failure to carry out proper procedures and due diligence before entering into loan agreements; SFC is of the view that the losses resulting from the 2019 Loan Notes and 2020-21 Loans were attributable to breaches of the duties of the former directors of Finger, rendering them liable to the compensate the company and its subsidiaries for the incurred losses. SIGNIFICANCE: As SFC’s Executive Director of Enforcement, Mr Christopher Wilson, had commented that corporate directors have the obligations to oversee the activities of management and ensure adequate internal control policies and procedures operate effectively. A lax policy adopted by the directors cannot be considered as an excuse to alleviate their responsibilities. It also conveys the message to the directors and audit committees that they should be mindful of their duties to prevent loss or misuse of listed corporations’ assets. 12. MMT sanctions chauffeur and wife for insider dealing before a takeover announcement The Market Misconduct Tribunal (“ MMT ”) had ordered Ms Choi Ban Yee (“ CHOI ”), the wife of a chauffeur, Mr Sit Yuk Yin (“ SIT ”), who worked for the family of the chairman of Tian An China Investments Company Limited at the material time, to disgorge illicit profit gained from insider dealing in the shares of Asiasec Properties Limited, formerly known as Dan Form Holdings Company Limited (“ Dan Form ”) ( 00271.HK ), before a takeover involving the companies was announced. The MMT was satisfied that SIT was in possession of inside information about the takeover by 13 September 2016 before the announcement was made on 22 September 2016, and he procured his wife to trade the Dan Form shares for a profit of HKD106,968. As a result of the judgement, the MMT imposed against CHOI and SIT cold shoulder orders for 16 months, cease and desist orders and to pay the costs incurred by the government and the SFC. [End of ComplianceOne Newsletter –January 2025] For more details, please click on the title of the topic above. ================================= ~ Make It Right Today, Better Tomorrow ~ ================================= The Newsletter is for general information purpose only and is not intended to constitute legal or other professional advice. For enquiries, please email to support@complianceone.hk or WhatsApp us at (852) 95164607 . Unit 1104, 11/F, 299QRC, 287-299 Queen's Road Central, Sheung Wan, Hong Kong Tel: (852) 39550277 www.complianceone.hk

The topics discussed in this monthly newsletter are as follows: ComplianceOne Newsletter – May 2023 The topics discussed in this monthly newsletter are as follows: Virtual Asset Trading Platforms licensing regime has come into effect on 1st June, 2023 HashKey and Hundsun Ayers signed MOU for Strategic Cooperation in Virtual Asset Market  Reminder to Licensed Corporations regarding the (1) Revised Financial Return form, (2) Analysis of client assets and (3) Audit questionnaire  SFC commenced MMT proceedings against former bank employee over alleged insider dealing  SFC reprimanded and fined China on Securities Limited $6 million for failures as share placement agent MARKET NEWS 1. Virtual Asset Trading Platforms licensing regime has come into effect on 1st June, 2023 The SFC released the Consultation Conclusions on the Consultation Conclusions on the Proposed Regulatory Requirements for Virtual Asset Trading Platform Operators Licensed by the SFC . A significant majority of respondents agreed to the proposal to allow licensed trading platform operators to serve retail investors, given the conditions that a number of robust measures should be implemented by the SFC for protection of these retail investors, including the prerequisite of suitability in onboarding new clients, governance, enhanced token due diligence, admission criteria and disclosure obligation. As Ms Julia Leung, CEO of the SFC, said: “ providing clear regulatory expectations is the key to fostering responsible development ”, and she further reiterated the principle of “ same business, same risks, same rule s”, demonstrating the standpoint of the SFC to uphold investor protection and risks management as the key issues. Since the Guidelines for Virtual Asset Trading Platform Operators (the “VATP Guidelines”) has come into effective on 1 June 2023. The VATP Guidelines set out, among others, safe custody of assets, segregation of client assets, avoidance of conflicts of interest and cybersecurity standards and requirements expected of licensed trading platforms. And more additional guidance on the new regulatory requirements, licence application procedures, as well as information about the transitional arrangements had been posted on 31 May 2023 just before the new Guidelines are in effect. SIGNIFICANCE: Apart from the above VATP Guidelines, there is also another corresponding Guidelines on AML/CFT (For Licensed Corporations and SFC-licensed Virtual Asset Service Providers) (the “VASP Guidelines”) under the AMLO VASP regime for non-security virtual assets. With the deliberation to ensure business continuity of the licensed VATP under SFO regime amid any characteristic changes in defining a specific virtual asset, it is of the SFC’s view that VA trading platform providers should abide a “dual license arrangement” to be licensed in both the SFO VATP regime and AMLO VASP regime. Interested applicants can seek reference to the FAQ of VA licencing conditions regarding “ Competence requirements for individuals ” for details of the pragmatic approach SFC has adopted in RO eligibilities. There are also some key takeaways in the Consultation Conclusions: The SFC has removed the requirement to submit legal advice from VATP on admission of a new token (which would not amount to a security token) to be made available for trading to the retails; The coverage of the compensation arrangement has been lowered to a threshold of 50% for client virtual assets held in cold storage (subject to the condition that 98% of the client virtual assets are already held in cold storage), while tightening the condition to less than 2% should only be held in hot storage of which is more vulnerable to hacking risk; Despite the availability of accesses to retail investors, it should be noted that the onboarding requirements applicable to individual professional investors will be the same as those applicable to retail investors under the new regulatory regime; The licensed VATP should establish a token admission committee to enhance governance. It is the intention of the SFC that the committee should consist of members from senior management who are “ principally responsible for ” managing the key business line, compliance, risk management and information technology of whom are also the corresponding managers-in-charge (MICs) of the platform operator for reason of augmenting the accountability of senior management of the VATP; The disclosure obligations in the VATP Guidelines to require platform operators to take all reasonable steps to ensure the product specific information they disclose is not false, biased, misleading or deceptive. 2. HashKey and Hundsun Ayers signed MOU for Strategic Cooperation in Virtual Asset Market On 4 May 2023, Hash Blockchain Limited (“HashKey”) and Hundsun Ayers Technologies Limited (“Ayers”) jointly made an announcement of their decision of signing a Memorandum of Understanding (“MOU”) to explore strategic cooperation in the field of virtual assets and financial services. HashKey is the operator of HashKey PRO, as one of the two licensed VATPs under the SFO regime to operate a virtual asset trading platform under the Type 1 (Dealing in securities) and Type 7 (Providing automated trading service) license. Under the MOU, Ayers and HashKey will collaborate on various initiatives aimed at enhancing the respective product offerings and exploring new business opportunities. This strategic partnership aims to leverage the strengths of both parties to provide customers with innovative and cutting-edge solutions in the financial and virtual asset markets. SIGNIFICANCE: The fabulous encounter of HashKey and Ayers is definitely to make a catalyst in the economies of scale and transferability of technologies in the industry, given the pioneer status of being one of the first two licensed VATP of HashKey, with the partnership of Ayers, which is also one of the most popular broker supplied systems vendors in Hong Kong, would undoubtedly pose an absolute advantage on exploring, marketing new products, providing customised solutions to catch up with the ever-changing prevailing regulatory regime, and maximizing the market shares of the two stakeholders. 3. Reminder to Licensed Corporations regarding the (1) Revised Financial Return form, (2) Analysis of client assets and (3) Audit questionnaire On 25 May 2023, the SFC published revised versions of: (i) the financial return form which is required to be submitted by licensed corporations under section 56 of the Securities and Futures (Financial Resources) Rules; (ii) the analysis of client assets for associated entity which is required to be submitted by associated entities of an intermediary under section 3(3) of the Securities and Futures (Accounts and Audit) Rules; and (iii) the audit questionnaire completed by auditors of licensed corporations for submission to the SFC; all pertaining to the period ending on or after 1 December 2023 , (i) Financial return form - the electronic version of the revised financial return form should be used for submitting a return, superceding the existing version of the form; - mainly with the inclusion of virtual assets items in the excel forms. (ii) Analysis of client assets for associated entity - the revised version of analysis of client assets for associated entity should be used for submitting an analysis of client assets as at the end of the financial year for an associated entity of an intermediary; - the reason for this is that associated entity of the VATP is subject to the host of private key management and custody requirements under the VATP Guidelines with respect to client virtual assets . (iii) Audit questionnaire - mainly with the inclusion of virtual assets items in the questionnaire ENFORCEMENT NEWS 4. SFC commenced MMT proceedings against former bank employee over alleged insider dealing The SFC had commenced proceedings in the Market Misconduct Tribunal (MMT) against Mr Wu Kam Shing, a former executive deputy general manager of China CITIC Bank International Limited (CITIC Bank), for alleged insider dealing in the shares of Bloomage BioTechnology Corporation Limited (Bloomage). In possession of inside information about the privatisation, Wu purchased a total of 10,000 and 1,265,000 Bloomage shares via the securities accounts of himself and his spouse respectively between 22 May and 15 June 2017, and later sold 10,000 and 1,007,500 shares of Bloomage for a profit of about $3 million; while the remaining shares of Bloomage in Wu’s spouse securities account were cancelled pursuant to the privatisation. 5. SFC reprimanded and fined China On Securities Limited $6 million for failures as share placement agent The SFC had reprimanded and fined China On Securities Limited (China On) $6 million over its failures as the placing agent in a share placement between 25 November and 6 December 2019. On 25 November 2019, China On was appointed as the placing agent by the then majority shareholder (Vendor) of Hon Corporation Limited (Hon Corp) to procure placees to subscribe up to 45% for the shares of Hon Corp. The SFC’s investigation found that upon identifying six placees for the placement, China On failed to ensure that it acted within the scope of the Vendor’s authority and adequately safeguard the Vendor’s assets by: - entering into bought and sold notes relating to the shares on the Vendor’s behalf with the placees, but the transaction prices therein were inconsistent with the placing price agreed with the Vendor; - transferring the shares to the placees without first requiring payment of the purchase price or the certainty that they would be able to make payment of the placing price to the Vendor; and - executing a purported instruction by a third party for part of the shares to be transferred to one of the placees for free without verifying the instruction with the Vendor. SIGNIFICANCE: In the Statement of Disciplinary Action, it was stated as the view of the SFC that China On was grossly negligent, if not reckless, in its disregard of its fundamental duties to safeguard its client’s assets and ensure that it was acting under its client’s instructions and authorities. In particular, China On’s conduct constituted breaches of the following provisions: i) not properly safeguarding client assets; ii) failing to satisfy itself on reasonable grounds that the steps it took in effecting a transaction (of the bought and sold notes) for the Vendor were authorised; iii) to act with due skill, care and diligence in the best interest of the Vendor. For more details, please click on the title of the topic above. ================================= ~ Make It Right Today, Better Tomorrow ~ ================================= The Newsletter is for general information purpose only and is not intended to constitute legal or other professional advice. For enquiries, please email to support@complianceone.hk or call us at (852) 39550277 . Unit 1104, 11/F, 299QRC, 287-299 Queen's Road Central, Sheung Wan, Hong Kong Tel: (852) 39550277 www.complianceone.hk To unsubscribe, please simply reply with “ I don’t like to know more about Compliance ”.

The topics discussed in this monthly newsletter are as follows: ComplianceOne Newsletter - September 2023 The topics discussed in this monthly newsletter are as follows: 1. The JPEX Fraudulence 2. SFC amended the Codes on Takeovers and Mergers and Share Buybacks with effective from 29 September 2023 3. HKEX FINI to launch on 22 November 2023 with pricing of IPO shortened to T+2 4. SFC commenced a cybersecurity review of selected licensed corporations focusing on cybersecurity management 5. SFC fined Chee Tak Securities Limited $2 million and sanctioned its responsible officer for internal control deficiencies and a host of regulatory breaches 6. SFC revoked Axial Capital Management Limited’s licence for repeated failures to comply with the Securities and Futures (Financial Resources) Rules 7. LO Wai Ming, a former RO of Taiping Securities (HK) Co Limited, was banned by SFC for unauthorized trading of client accounts 8. SFC obtained interim injunction against former director of SMI Culture & Travel Group Holdings Limited (formerly 2366.HK ) MARKET NEWS 1. The JPEX fraudulence On 13 September 2023, the SFC released an astonishing warning statement of its awareness of a virtual asset trading platform (VATP) known as “JPEX” which has been actively promoting its products and services to the Hong Kong public through social media influencers and key opinion leaders (KOLs) as well as over-the-counter virtual asset money changers. The SFC made it clear in the statement that no entity in the JPEX group was licensed by the SFC or had applied to the SFC for a licence to operate a VATP in Hong Kong; and a number of suspicious features about the practices of JPEX had been observed: a) The declaration made by JPEX that it was “a licensed and recognised platform to facilitate the trading of digital asset and virtual currency” was not true. b) JPEX offered very high returns for some of its products. c) The SFC had received complaints from retail investors who were unable to withdraw virtual assets from their accounts maintained with JPEX. d) Some of the products offered by JPEX appeared to be involving virtual asset “deposits”, “savings” or “earnings” which are not allowed under the SFC’s regulatory regime for VATPs. e) JPEX publicised on its website and local advertorials that it had entered into a business cooperation with and received investment from a Hong Kong listed company which in fact had been terminated already. f) KOLs and OTC Shops had made false or misleading statements on social media to suggest that JPEX had applied for a VATP licence in Hong Kong. SIGNIFICANCE: The warning statement aroused the scepticism of many investors, and rendered a large tide of withdrawal requests; strange enough was the subsequent arrangement and feedback of JPEX to restrict the withdrawal amount to a maximum of USDT1000 per request with withdrawal fee of up to USDT999. Such unscrupulous responses to investors triggered a large number of reported cases of fraudulence to the HK Police and it unveiled the undertow that it was merely the “the tip of the iceberg”. More than 1,000 cases were reported at the first around, and with the amount of stake up to HKD1.5 billion! The SFC was rather proactive to respond this time when confronted with criticism from the public that NOT sufficient information was published to enhance the public awareness of the incidence of JPEX despite its high-profile, large-scale social media advertisement which swept over the entire city and conveyed a misleading image that it was a legitimate virtual assets trading platform. It should be noted that the legislations for governing the virtual asset regime and the AML Guidelines were only effected in June 2023 with the “Guideline on Anti-Money Laundering and Counter-Financing of Terrorism (For Licensed Corporations and SFC-licensed Virtual Asset Service Providers)” and “Guidelines for Virtual Asset Trading Platform Operators”, and only after which that the SFC is vested with the authority to regulate the virtual asset regime and to enforce the guidelines for protection of the general public. In light of recent public concerns about unregulated virtual asset trading platforms (VATPs), the SFC put forward a series of measures to reinforce information dissemination and investor education. Some remedial measure had been launched to provide the public with more information from its announcement on 25 September 2023 as a response to the vehement vogue for more transparent status of the licensing status of some ongoing VATPs which included: a) a “List of licensed VATPs”; b) a “List of closing-down VATPs” setting out the names of VATPs required by law to close down within a specified period; c) a “List of deemed licensed VATPs” consisting of the names of VATPs which are deemed to be licensed as of 1 June 2024; d) in light of public demand, a list of VATP applicants. The SFC also took an active role to collaborate with the Police and set up a dedicated channel to share information on suspicious activities of and breaches by VATPs as well as investigate the JPEX incident to bring the wrong-doers to justice. And there were also a couple of press conferences from the SFC and the Police to demonstrate to the public that the JPEX fraudulence ranked top priority on the list with their dedicated mission of the ultimate goal to protect the investors, especially in Hong Kong as an international financial centre, and the recent high-profile roadshow of the HIKSAR government to establish Hong Kong as a pioneer in licensing the virtual asset landscape over the rest of the world. A few days later on 29 September 2023, the SFC made another announcement with a series of “ Lists of virtual asset trading platforms ” to accommodate the vehement vogue for more information of VATP from the public. Besides, a dedicated list of suspicious VATPs was also published to help investors more easily identify suspicious VATPs doing business in Hong Kong and enhance awareness. At this stage, there are more than 2,000 reported cases from investors, and the amount of stake surged up to nearly HKD1.5 billion. It is just the beginning of the story with more than 20 suspects arrested for further investigation by the Police. Ironically, it may be a good opportunity for the HKSAR Government to demonstrate to the world its competence and tactics in settling and sorting out this JPEX scam which is analogous to the incidence of the FTX in the US. 2. SFC amended the Codes on Takeovers and Mergers and Share Buybacks with effect from 29 September 2023 On 21 September 2023, the SFC released the consultation conclusions on its proposed amendments to the Codes on Takeovers and Mergers and Share Buy-backs (the “Codes”) which would then be gazetted on 29 September 2023 and took effect immediately. All the proposals were adopted with minor modifications only. SIGNIFICANCE: It should be noted that the amendments mainly codify existing practices of the Takeovers Executive and clarify the Codes where necessary, including revising the definitions of important terms, streaming the process to enhance efficiency etc. Further be noted that consequential amendments will be made to a number of Practice Notes to the Codes and will be available on the SFC website when the revised Codes take effect. Market practitioners are encouraged to read and get themselves acquainted with the amendments. 3. HKEX FINI to launch on 22 November 2023 with pricing of IPO shortened to T+2 On 27 September 2023, the HKEX was pleased to confirm the launch date for FINI, Hong Kong’s new digitalised IPO settlement platform, on 22 November 2023. FINI is a major new initiative that will significantly shorten the time between the pricing of an IPO and the trading of shares from five business days (T+5) to two business days (T+2). FINI is a cloud-based platform , which will enable different stakeholders such as IPO sponsors, underwriters, legal advisers, banks, clearing participants, share registrars and regulators to collaborate and perform their respective roles in an IPO, digitally. A new public offer pre-funding model is also being introduced in FINI , helping to reduce the scale of locked-up funds in over-subscribed IPOs. SIGNIFICANCE: The launch of FINI is a milestone development in the evolution of the city’s capital markets; it will modernise and digitalise Hong Kong’s IPO settlement process, driving efficiency and supporting the long-term development of Hong Kong as a capital raising centre. 4. SFC commenced a cybersecurity review of selected licensed corporations focusing on cybersecurity management A circular was released on 15 September 2023 saying that the SFC would commence a cybersecurity review of selected licensed corporations (LCs) with a focus on assessing their cybersecurity management and compliance as well as the resilience of their information systems against cybersecurity threats. Cybersecurity has long been a major focus of the SFC’s supervision of LCs which offer internet trading to their clients, and are required to comply with the requirements set out in the Guidelines for Reducing and Mitigating Hacking Risks Associated with Internet Trading (Cybersecurity Guidelines), the cybersecurity frequently asked questions (FAQs) and the expected standards set out in the “Report on the 2019-20 thematic cybersecurity review of internet brokers”. The cybersecurity incidents reported to the SFC by some LCs in recent years and the SFC’s inspection findings show a number of security loopholes and deficiencies, including the use of end-of-life software as well as inadequate controls over remote access and phishing attacks which hackers may easily exploit to infiltrate LCs’ information systems. SIGNIFICANCE: It is a common scenario and arrangement for many LCs to employ third-party technology vendors to supply and support business application systems, posing additional risks in hosting their systems and data in the cloud environment where the responsible officer (“RO”) or the senior management team may not be so conversant in cybersecurity risks. In the light of this and to better assess the industry’s preparedness for and resilience to cyber risks, the SFC would commence a cybersecurity review in September 2023. A snapshot of the key takeaways are as follows: a) the SFC would conduct a survey of selected LCs of different sizes and business types, including securities and futures brokers, leveraged foreign exchange traders, global financial institutions and firms which provide online product distribution platforms; b) the SFC would meet with selected LCs to better understand their cybersecurity governance and controls; and c) the SFC would perform on-site inspections of some of the selected LCs for a deep dive review of their information technology and related management controls and an assessment of their compliance with the Cybersecurity Guidelines and other expected standards. Cybersecurity risk management has become a serious issue deserving imminent attention from senior management of many LCs especially with the upcoming reported cases of phishing attacks which pose unprecedented and irrevocable risk of data leakage. ENFORCEMENT NEWS 5. SFC fined Chee Tak Securities Limited $2 million and sanctioned its responsible officer for internal control deficiencies and a host of regulatory breaches On 18 September 2023, the SFC had fined Chee Tak Securities Limited (CTSL) $2 million for internal control deficiencies and a host of regulatory breaches; and also suspended the license of its responsible officer Kevin Chiu Koon Yu (CHIU) for 10 months. The disciplinary actions followed the SFC’s investigation which found that, between 1 July 2018 and 5 March 2020, CTSL failed to: (i) have in place an order recording policy and observe the order recording requirements; (ii) implement effective internal controls to monitor cross trades between staff members and clients and to ensure fair treatment of clients; (iii) establish and maintain an adequate and effective monitoring system to detect and assess suspicious transactions in client accounts; (iv) set up systems and controls to identify and assess third-party deposits into client accounts; (v) require or obtain written third-party authorisation for the operation of client accounts; and (vi) institute internal controls to monitor employee dealings. SIGNIFICANCE: The failures of CTSL constituted breaches of the Code of Conduct, the Internal Control Guidelines and the Circular to licensed corporations and associated entities – Third-party deposits and payments; and the SFC had considered that CTSL’s failures were attributable to the failures of CHIU in discharging his duties as its responsible officer and a member of its senior management which called into question his fitness and properness. CHIU had been accredited to CTSL since Nov 2004 for nineteen years, and was still not competent to discharge his duties as a RO properly, it unveils the hidden picture that some ROs may not have properly updated themselves with the prevailing guidelines, or are not aware of them during their tenures in the capacity for years. 6. SFC revoked Axial Capital Management Limited’s licence for repeated failures to comply with the Securities and Futures (Financial Resources) Rules On 11 September 2023, the SFC had revoked the licence of Axial Capital Management Limited (Axial) for repeated failures to comply with the Securities and Futures (Financial Resources) Rules (FRR), the SFO and the Code of Conduct. Meanwhile, the responsible officer, Mr Eugene CHUNG, whose license would also be suspended for five years to September 2028. The investigation of the SFC found that Axial failed to maintain its required liquid capital of $100,000 for a consecutive period of 19 months starting from 28 March 2019, and Axial only notified the SFC 18 months later! In addition, Axial also failed to submit the semi-annual FRR returns and the audited financial statements from 2019 to 2022, despite repeated reminders from the SFC to do so. SIGNIFICANCE: The SFC's view that Axial’s failures were attributable to the failure of CHUNG in discharging his duty as the firm’s senior management and RO is something " a fact beyond controversy "; the crucial point in this case here is its prolonged period of time and repeated patterns of omissions which a competent licensed person is NOT supposed to overlook! 7. LO Wai Ming, a former RO of Taiping Securities (HK) Co Limited, was banned by SFC for unauthorized trading of client accounts. On 18 September 2023, the SFC had prohibited Mr LO Wai Ming (LO), a former responsible officer of Taiping Securities (HK) Co Limited (TSCL), from re-entering the industry for seven months from 16 September 2023 to 15 April 2024. The disciplinary action followed an SFC investigation which found that between 2 January 2018 and 28 September 2018, LO had, unbeknownst to TSCL, logged into two clients’ internet trading accounts and placed orders for them. As a result, trades in the clients’ accounts were effectively disguised as if they have been placed by the clients themselves . SIGNIFICANCE: It was obvious that LO intended to circumvent TSCL’s internal policies by concealing the fact that he was trading on behalf of the two clients, and avoided the conflict of interest to be monitored under the regular routines. Such dishonest deeds and intention to play around with the loopholes should definitely be reprimanded in the eyes of the SFC. 8. SFC obtained interim injunction against former director of SMI Culture & Travel Group Holdings Limited (formerly 2366.HK) On 25 September 2023, the SFC had obtained an interim injunction order at the Court of First Instance (CFI) against Ms Leung Anita Fung Yee Maria (LEUNG), former chief executive officer and executive director of SMI Culture & Travel Group Holdings Limited (SMI Culture & Travel Group), to preserve assets for satisfying a compensation order that the court might impose at the conclusion of legal proceedings brought by the SFC. The application for an interim injunction order to prohibit LEUNG from disposing assets in Hong Kong and elsewhere mainly for reason of indication that there was a real risk of dissipation of assets by LEUNG. The SFC alleged that at the material times between 2010 and 2012, LEUNG, Wong Yu Hong (WONG) and/or Tsiang Hoi Fong implemented a fraudulent scheme under the guise of numerous non-genuine sale and purchase agreements in relation to TV licence rights with a total consideration of HKD327.75 million, while the unjust profits gained by LEUNG or Wong was in the range of HKD35.2 million to HKD74.27 million, being the sums transferred to LEUNG and/or companies owned by LEUNG or WONG. A further step of legal action, the SFC was also seeking disqualification orders, and a compensation order for losses suffered by SMI Culture & Travel Group or alternatively an order to account for any profits gained by the respondents as a result of the alleged fraudulent scheme. For more details, please click on the title of the topic above. ================================= ~ Make It Right Today, Better Tomorrow ~ ================================= The Newsletter is for general information purpose only and is not intended to constitute legal or other professional advice. For enquiries, please email to support@complianceone.hk or WhatsApp us at (852) 95164607 . Unit 1104, 11/F, 299QRC, 287-299 Queen's Road Central, Sheung Wan, Hong Kong Tel: (852) 39550277 www.complianceone.hk To unsubscribe, please click “ unsubscribe ”.

The topics discussed in this monthly newsletter are as follows: ComplianceOne Newsletter - December 2023 The topics discussed in this monthly newsletter are as follows: 1. SFC issued key regulatory work and market data in quarterly report 2. SFC would consider authorising spot virtual asset ETF funds for public offering 3. HKMA proposes to implement regulatory regime for stablecoin issuers to secure protection to the public 4. SFC fined Ruifeng Securities Limited $5.2 million and suspended its responsible officer for fund management and account opening failures 5. SFC banned Amy Chow Bik Sum for life for conviction of bribery offence 6. SFC fined Central Wealth Securities Investment Limited $1 million for breach of Financial Resources Rules 7. SFC suspended Hau Bing Leung for 15 months for unauthorized third-party operated securities account MARKET NEWS 1.SFC issued key regulatory work and market data in quarterly report On 7 Dec 2023, the SFC published its latest Quarterly Report to provide operational and financial highlights for the quarter from July to September 2023. Encouraging achievements are as follows. (1) On asset management, exchange-traded funds (“ETFs”) were a bright spot with robust net inflow of HKD16.2 billion, while their average daily turnover (“ADT”) recorded with a healthy growth of 12% to HKD14.8 billion. (2) Besides ETF figures, the number of open-ended fund companies (“OFCs”) was also recorded with an encouraging growth of 87% year-over-year to 187. Hong Kong-domiciled funds recorded net inflows ($11.7 billion) for another quarter. (3) For the listing market, the SFC processed 39 new listing applications in the quarter, including four from pre-profit biotech companies. (4) For licensed activities, the SFC witnessed growth in the number of licence applications received, up 13% from the quarter before and 6% from a year ago. It also granted 33 corporate licences during the quarter, mainly for asset management (Type 9) and advising on securities (Type 4). (5) On the VA front, the SFC stepped up information dissemination on virtual asset trading platforms (“VATPs”) by publishing several VATP lists online, including a list of applicants. SIGNIFICANCE: Though fraught with negative comments that the status of Hong Kong as an international financial centre was fading away, the figures and achievements stated above demonstrate to the world how resilient Hong Kong can be from the previous economic drawback due to COVID-19 epidemic! 2. SFC would consider authorising spot virtual asset ETF funds for public offering A circular dated 22 Dec 2023 set out the requirements under which the SFC would consider authorising investment funds with exposure to virtual assets (“VA”) of more than 10% of their net asset value (“NAV”) for public offerings in Hong Kong ( SFC-authorised VA Funds ) under sections 104 and 105 of the Securities and Futures Ordinance (“SFO”). In the light of rapid evolvement of the VA landscape and the increasing demand for investment products providing exposure to VA, and VA-related ETFs offered in major overseas markets, where accesses to both retail and professional investors are available; the SFC has introduced regimes that allow the offering of certain VA products to the Hong Kong public with appropriate investor protection safeguards. The SFC put forward requirements for SFC-authorized funds with regard to two categories: (i) funds investing directly in the same spot VA tokens tradable on the SFC-licensed VATPs (i.e., direct exposure ); and (ii) funds acquiring indirect investment exposure to such VA (i.e., indirect exposure ) through futures traded on conventional regulated futures exchanges. A snapshot of the requirements on SFC-authorized VA Funds Pre-requisites to start with are that the Funds should meet the applicable requirements in the Overarching Principles Section and the Code on Unit Trusts and Mutual Funds (“UT Code”) in the SFC Handbook for Unit Trusts and Mutual Funds, Investment-Linked Assurance Schemes and Unlisted Structured Investment Products. Additional requirements are applicable to the followings (please refer to original for details): (a) Management companies : good compliance record with competent staff knowledgeable in VA product. (b) Eligible underlying VA : accessible on SFC-licensed VATPs. (c) Investment Strategy : (i) funds with direct or indirect exposure in eligible VA tokens; (iii) only for those traded on conventional regulated futures exchanges; (iii) no leverage in exposure to VA at the fund level (d) Transactions and direct acquisitions of spot VA : (i) transactions and acquisitions of spot VA by SFC-authorised VA Funds should be conducted through SFC-licensed VATPs, or authorized financial institutions where subscriptions can be in form of “in-cash” or “in-kind” types; (ii) both in-kind and in-cash subscription and redemption are allowed for SFC-authorised spot VA ETFs. (e) Custody : (i) the custodian function of the VA Fund should only be delegated to SFC-licensed VATPs or any authorised financial institutions ("AIs”); (ii) VA holdings owned by clients should be segregated, and stored most in cold wallet for safety purpose; (iii) the private keys should be securely stored. (f) Valuation : an indexing approach based on VA trade volume across major VA trading platforms should be adopted. (g) Service Providers : it is necessary to ensure all service providers are competent. (h) Disclosure and Investor education : the offering documents, including the product key facts statements (“KFS”), of SFC-authorised VA Funds should disclose the investment limits and key risks related to the funds’ VA exposures. (i) Distribution : refer to the relevant requirements for intermediaries and distribution of SFC-authorised VA Funds as set out in the Joint Circular (dated 22 Dec 2023 SIGNIFICANCE: Hong Kong maybe the first pioneer in allowing the public offering of spot VA ETF , and it further consolidates the status of Hong Kong being the international financial centre for licensing regime of digital assets. The HKEX should also ensure the infrastructures should be adaptable and aligned to keep pace with the rapid and ever-evolving VA landscape in order to maintain the competitiveness and attractiveness of Hong Kong as an international financial centre as well. 3. HKMA proposes to implement regulatory regime for stablecoin issuers to secure protection to the public In an announcement on 27 Dec 2023, the Financial Services and the Treasury Bureau (“FSTB”) and the HKMA jointly issued a public Consultation Paper on the legislative proposal for implementing the regulatory regime for stablecoin issuers in Hong Kong. An executive summary for your glance as below. Virtual assets and stablecoins Virtual assets (“VA”), often referred to as crypto-assets, are digital representations of value that are cryptographically secured, typically through the use of distributed ledger technology (“DLT”), like blockchain. Given the intrinsic high price volatility which suffocate the growth of VA, the emergence of stablecoins seems to offer a solution to tackle the problem. Stablecoins can be visualized as a VAs which aim to maintain a stable value with reference to certain asset such as fiat currencies. It can be envisaged as exchanging fiat currency with a stablecoin issuer in return or stablecoins of equivalent value, or vice versa. These tokens with stable value on blockchain could help mitigate the abovementioned issues of high volatilities, which could in turn improve the overall efficiency of “on-chain” transactions. Potential use cases and risks of stablecoins With the use of DLT, payment and settlement via stablecoins could become more efficient and transparent, and when used in conjunction with smart contracts, stablecoins could also function as “programmable money” and be used to execute complex transactions. The VA market is still far from maturity and will likely continue to evolve, and stablecoins could become the interface between traditional finance and the VA markets. Yet, from the users’ perspective, they could suffer financial losses and disruption in their supposedly smooth daily payment routines if stablecoin issuers fail to maintain adequate reserve assets to uphold the stable value of the stablecoin, especially in redeeming back to fiat currencies. Formulation of a regulatory regime In the light of the potential risk of stablecoins, under our proposed regime, an issuer of stablecoins would be required to obtain a licence from the HKMA if it issues a stablecoin that references the value of one or more fiat currencies (“ fiat-referenced stablecoin ”) in Hong Kong. The licensee would be required to put in place an effective stabilisation mechanism, such as maintaining a pool of high-quality and highly-liquid reserve assets; and would also need to comply with relevant governance, risk management and AML/CFT measure. In particular, only stablecoins issued by licensed issuers could be offered to retail investors. In an ever-changing and evolving market, there is always a dilemma of safeguarding financial stability and embracing innovation. With this in mind, the HKMA plans to roll out a “sandbox” to facilitate the communication of our supervisory expectations with entities that are interested in issuing stablecoins in Hong Kong. SIGNIFICANCE: According to the Consultation Paper, we have the key takeaways: (1) The consultation period will expire on 29 February 2024. (2) There is a transitional period arrangement. It is proposed that the commencement date will be effective one-month upon gazettal of the proposed new ordinance. The pre-existing fiat-referenced stablecoin (“ FRS ”) issuers currently conducting FRS issuance activities may continue to operate under a non-contravention period of 6 months, on condition that they have submitted an application to the HKMA within 3 months of the commencement of the regime; or otherwise, the FRS issuers will have to close down its business by the end of the 4th month. (3) Making a reference from international practices, it is proposed that the minimum paid-up share capital will be either HKD25,000,000 or a fixed percentage at 2% of the par value of FRS in circulation, whichever is higher will be applied. ENFORCEMENT NEWS 4. SFC fined Ruifeng Securities Limited $5.2 million and suspended its responsible officer for fund management and account opening failures On 4 December 2023, the SFC reprimanded and fined Ruifeng Securities Limited (“RSL”) HK$5.2 million over failures relating to its fund management activities and account opening procedures. It was found that RSL invested about 90 per cent of the fund’s US$94.5 million net asset value into financial instruments which was identified as having various downside factors in their own analysis and such material information was not disclosed in the fund. It was also found that RSL had failed to adopt acceptable account opening procedures for verifying the identities of clients who opened their accounts on a non-face-to-face basis through RSL’s mobile application between 26 November 2018 and 31 July 2020. As a result of this investigation, the SFC also suspended the licence of Mr Fang Zhi for 10 months from 1 December 2023 to 30 September 2024 for failing to discharge his duties as a responsible officer of RSL in charge of its fund management activities. 5. SFC banned Amy Chow Bik Sum for life for conviction of bribery offence It was announced on 13 December 2023 that the SFC had banned Ms Amy Chow Bik Sum, a former assistant customer service manager of OCBC Wing Hang Bank Limited (“OCBC”), from re-entering the industry for life following her conviction of bribery offence. The Kwun Tong Magistrates’ Court found that on 15 July 2021, Chow, who handled residential mortgage applications at OCBC, offered an employee of OCBC Wing Hang Credit Limited (“OCBC Credit”) a rebate of referral fees from an external party as a reward for referring OCBC Credit’s clients to that party, who would in turn arrange mortgage refinancing from other banks or financial institutions. The SFC considers that Chow is not a fit and proper person to be licensed or registered to carry on regulated activities as a result of her criminal conviction . 6. SFC fined Central Wealth Securities Investment Limited $1 million for breach of Financial Resources Rules On 18 December 2023, the SFC reprimanded and fined Central Wealth Securities Investment Limited (“CWSIL”) $1 million for failures in complying with the Securities and Futures (Financial Resources) Rules (“FRR”). It was found that CWSIL made various accounting and calculation errors in the financial returns submitted to the SFC under the FRR which resulted in overstating its liquid capital between April 2019 and December 2020 (Relevant Period) which was otherwise records of deficits after eliminating the errors. CWSIL’s failure to ensure accuracy in the FRR was mainly attributable to its failure to appoint qualified and competent persons to prepare and review the FRRs, coupled with the fact that its responsible officers were not familiar with the FRR requirements as well. SIGNIFICANCE: The assurance of a qualified and competent staff to conduct the financial returns was a prerequisite to ensure compliance with the FRR under the SFC. With the rapid development and fast-changing regulatory regime in the financial industry, particularly in the recent and buoyant environment with the virtual assets and non-conventional businesses under the regime of regular regulated activities, a precise and accurate financial return prepared by competent staff is of high priority for senior staff with respect to risks management which is the pillar for sustainability of a licensed corporation. 7. SFC suspended Hau Bing Leung for 15 months for unauthorized third-party operated securities account On 27 December 2023, the SFC had suspended the license of Mr Hau Bing Leung (“HAU”), former account executive of Chee Tak Securities Limited (“CTSL”), for 15 months from 22 December 2023 to 21 March 2025. It was found in the investigation that between 1 July 2018 and 5 March 2020, Hau had allowed a third party to operate the securities account of a client at CTSL without obtaining the client’s written authorisation. Having been verbally authorized by the client, the third party and HAU also even carried out personal trades in the client’s securities account; even worse was that HAU prevented CTSL from monitoring the operation of that client’s account and his personal dealings. SIGNIFICANCE: The incidence revealed the deficiency in risk control and trades monitoring, and subsequently exposed the client to potential loss from unauthorized trading and CTSL to potential liability in case of disputes arising from trades in the account concerned. For more details, please click on the title of the topic above. ================================= ~ Make It Right Today, Better Tomorrow ~ ================================= The Newsletter is for general information purpose only and is not intended to constitute legal or other professional advice. For enquiries, please email to support@complianceone.hk or WhatsApp us at (852) 95164607 . Unit 1104, 11/F, 299QRC, 287-299 Queen's Road Central, Sheung Wan, Hong Kong Tel: (852) 39550277 www.complianceone.hk To unsubscribe, please click “ unsubscribe ”.

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

The topics discussed in this monthly newsletter are as follows: ComplianceOne Newsletter - June 2024 The topics discussed in this monthly newsletter are as follows: 1. HKEX to implement severe weather trading in securities and derivatives markets 2. SFC marks its 35-year history as the guardian of Hong Kong financial markets 3. SFC’s deficit nearly tripled to 298 million ending in March 2024 4. SFC enforcement report shows 175 completed cases in 2023-2024 5. SFC suspends PICC’s former licensed representative for seven months for failures in managing a private fund 6. WONG Ming Chung was convicted for providing investment advice on Telegram without a licence 7. SFC disciplined WU Chao for circumventing personal dealings MARKET NEWS 1. HKEX to implement severe weather trading in securities and derivatives markets Hong Kong Exchanges and Clearing Limited (HKEX) announced on 18 June 2024 that the Severe Weather Trading (SWT) will commence on 23 September 2024 in both securities and derivatives markets, the consultation conclusions received from market participants showed strong support for the implementation. The SWT covers Stock Connect, derivatives holiday trading, and after-hours trading, during severe weather events; and to ensure safety, remote working and the use of online services are strongly encouraged. Some adjustments are also required to ensure the market’s operational resilience as certain services may not be available during SWT day. As HKEX Chief Executive Officer, Bonnie Y Chan, had said: “ This is an important step that will make Hong Kong's markets always available to regional and international investors during trading hours, whatever the weather, and underscores HKEX’s commitment to supporting the resilience and competitiveness of Hong Kong as a world-class financial centre. ” Besides, the Hong Kong Association of Banks and the Hong Kong Interbank Clearing Limited have confirmed that, during SWT days, banking services, such as electronic money transfer channels, will be available from designated banks and settlement banks of relevant clearing houses of HKEX to facilitate the operations and settlement process. To allow small-and-medium-sized brokers adequate preparation time, HKEX plans to offer special arrangements to eligible participants requiring assistance, for example by temporarily fulfilling margin payment or settlement obligations for these participants on a SWT day. The above special arrangements will be in place from the SWT effective date until the end of 2024. SIGNIFICANCE: During the SWT day, HKEX's trading, clearing, settlement and market data systems will be fully accessible via remote networks; and HKEX has made enhancements to its infrastructure and operational arrangements to reduce the need for physical access among participants, and will arrange testing sessions before the launch of SWT to ensure readiness of market participants. Severe Weather Trading is no doubt a bold step of the HKEX to achieve a seamless trading environment uninterrupted by any unfavourable weather conditions, thus providing more opportunities and protections to investors to manage their risks and exposures along with the global market conditions. 2. SFC marks its 35-year history as the guardian of Hong Kong financial markets SFC issued an Annual Report on 19 June 2024 which highlighted various initiatives to promote the resilience and sustainable growth of Hong Kong’ s capital markets as well as laying out the roadmap to prepare the capital markets for future opportunities and challenges. As SFC’s CEO Ms Julia Leung has said: “ To remain a world-class regulator and lead Hong Kong’ s capital markets to new heights in decades to come, the SFC must strengthen its dual role as protector and enabler , by staying agile and vigilant as well as harnessing new opportunities from sustainability and new technologies, without compromising investor protection. ” Also, cherishing to enhance the super-connector role of Hong Kong has been one of the top initiatives, the SFC has been endeavouring to collaborate with the China Securities Regulatory Commission (CSRC) to deepen the mutual market access. The flagship Stock Connect scheme has recorded a 20-fold advance in average daily trading since 2014; together with the ETF Connect, the Swap Connect, which strengthen the role of HK as an offshore risk management hub. To lead financial market transformation via technology, the SFC has pioneered in launching the VA licensing regime to facilitate the trading of VAs and its VA-related spot ETFs accessible to retail investors. More details in other areas are delineated in the Annual Report 2023-24 for public interests. 3. SFC’s deficit nearly tripled to 298 million ending in March 2024 With reference to the Annual Report posted on 19 June 2024, the SFC recorded a deficit of HK$298 million for the year ending in March 2024 as over the past three years, staff costs were up 8% and total expenses up 5% (page 142); the recorded loss in the previous fiscal year was HK$101 million. The total income for the year was HK$1835 million, down 6% from HK$1942 million last year, owing to decrease in securities market turnover with resulting levy income went down 19% from last year to $1,390 million. Apart from the above, the SFC still has to complete the transaction for acquiring nine office floors as its permanent office, and HK$2.3 billion form the property acquisition reserve has been utilized. As of 31 March 2024, the reserves still stood at $7.6 billion, of which $1.2 billion has been set aside to support the acquisition of three additional floors and future principal bank loan repayments. SIGNIFICANCE: Despite of the above financial figures, the SFC remains as the robust regulatory body in Hong Kong with irreplaceable role as regulator and facilitator in maintaining the integrity and governing regime of this international financial centre. 4. SFC enforcement report shows 175 completed cases in 2023-2024 In the Annual Report 2023-2024 of the SFC, 183 investigation cases had been launched with 175 cases completed, and 24 cases were brought to criminal proceedings. A landmark of investigation cases in 2023 was the highly organized, large scale and sophisticated market manipulation case with several individuals involved and charged with various criminal offences at the High Court in May last year. Moreover, following the investigation by the SFC, cases of two suspects of the key members of a "ramp-and-dump" syndicate were transferred to the District Court. As Mr Tim Lui, Chairman of the SFC, had stated the SFC had gained valuable experiences and achieved remarkable results in the past years, and would continue to ensure the integrity, stability and resilience of the financial markets in Hong Kong amid the emerging challenges over the world. ENFORCEMENT NEWS 5. SFC suspends PICC’s former licensed representative for seven months for failures in managing a private fund On 20 June 2024, the SFC has suspended Mr Shum Wai Nap, former licensed representative of PICC Asset Management (Hong Kong) Company Limited (PICC), for seven months from 20 June 2024 to 19 January 2025 for fund management failures. The investigation found that Shum was the investment manager of a Cayman-incorporated fund (the “Fund”) under PICC between May 2018 to April 2020, and he failed to: (i) properly manage the Fund in line with its investment objectives and restrictions; and (ii) properly manage the risks of the Fund with PICC’s policies. Taking a thorough scrutiny of the Statement of Disciplinary Action of what Shum had done, it serves as a negative example to illustrate how funds should be properly managed ! (1) Failure to adhere to the Fund’s investment strategy, objectives and investment restrictions: the memorandum of the Fund was capital preservation with steady capital appreciation in a diversified portfolio; SHUM only held 1 to 3 stocks with highly concentrated positions, including a Stock X which was NOT in the approved stock pool under the internal policies of PICC’s Investment Committee with respect to the investment mandate. (2) Failure to mitigate the risks associated with the Fund’s holding of an unsuitable stock: Shum continued with several requests to add the Stock X to the stock pool despite repeated rejections from the Investment Committee with “SELL” only restriction to him, and Shum declined to follow. (3) Failure to manage liquidity risks: under the guideline of illiquid assets (ie, assets that required more than 30 days to sell), holding of illiquid assets should not exceed 20% of a Fund’s portfolio; under Shum’s management, the ratios were as high as 80.7 % and 91.69%! (4) Failure to manage concentration risks: according to PICC’s policies, holding of a single stock should not exceed 20% of the Fund’s total NAV; and the holding of Stock X and others under Shum far exceeded 20%. (5) Failure to comply with PICC’s stop loss procedure: there is a guideline for stop-loss of more than 50% of a particular single stock; and Shum did not follow the instructions to execute forced sales of the Stock X within three trading days as required. SIGNIFICANCE: Shum’s repeated failure to properly manage the Fund and his deliberate intention NOT to comply with PICC’s risk management policies was in breach of General Principle 2 (diligence) of the Code of Conduct which requires a licensed person to act with due skill, care and diligence, in the best interests of his clients and the integrity of the market in conducting business activities. The mal-practices of Shum are typical incidences a licensed corporation in asset management should endeavour to avoid as remedial measures to mitigate potential regulatory breaches! 6. WONG Ming Chung was convicted for providing investment advice on Telegram without a licence On 20 June 2024, the Eastern Magistrates’ Court today convicted Mr WONG Ming Chung (WONG) for providing investment advice on a subscription-based chat group on Telegram he hosted without a licence in a prosecution brought by the SFC. WONG pleaded guilty to the charge and was fined HKD10,000 together with the SFC’s investigation costs. The investigation found that between 2 January 2018 and 21 May 2019, WONG hosted a chat group on Telegram named “ FRANKY - 即市直播谷 ” which was opened to members of the public on a subscription by payment basis. SIGNIFICANCE: Despite that WONG was licensed under the SFC to conduct with Type 1 (dealing in securities) and Type 4 (advising in securities) regulated activities, the CRUX of the conviction was that the Telegram group was not operated on behalf of the licensed corporation WONG was accredited to, but for his own remunerations. 7. SFC disciplined WU Chao for circumventing personal dealings On 26 June 2024, the SFC prohibited Mr WU Chao (“WU”), a former responsible officer, manager-in-charge (MIC) and chief operations officer of DA International Financial Service Limited (DA), from re-entering the industry for three years and seven months from 26 June 2024 to 25 January 2028. The investigation found that between February and April in 2022, WU concealed from DA his beneficial interest in and direct control over a securities margin account held by a third party at DA without obtaining DA’s prior approval. WU’s conduct circumvented DA’s employee dealing policy from being monitored under personal trading activities. In all, the unauthorised transactions conducted in the account at the material time totalled $7.3 million. WU also abused his right as a member of DA’s senior management to make 33 unauthorised adjustments to the margin loan limits of the account and the margin financing ratios to facilitate his trading activities. The SFC considers that WU’s conduct was dishonest and it called into question his fitness and properness to be a licensed person. SIGNIFICANCE: No matter how comprehensive and stringent are the prevailing rules and guidelines, there are always loopholes to be abused, in particular by anyone who is in authority to circumvent and override the existing regulatory framework for his own advantages.” 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

財經事務及庫務局 (“財庫局”) 及證券及期貨事務監察委員會 (“證監會”) 聯合發佈了一份公眾諮詢檔，旨在收集對規管香港虛擬資產交易服務的立法建議的回饋意見。The Financial Services and the Treasury Bureau (“FSTB”) and the Securities and Futures Commission (“SFC”) have jointly released a public consultation document to gather feedback on a legislative proposal to regulate virtual asset (“VA”) dealing services in Hong Kong. 有關規管虛擬資產交易的立法建議公眾諮詢 [30 June 2025] I. 背景 財經事務及庫務局 (“ 財庫局 ”) 及證券及期貨事務監察委員會 (“ 證監會 ”) 聯合發佈了一份公眾諮詢檔，旨在收集對規管香港虛擬資產交易服務的立法建議的回饋意見。此前，政府於2024年2月至4月就虛擬資產場外交易 (“ OTC ”) 服務進行了諮詢 [1] 。根據利益相關者的意見，諮詢範圍已擴大至涵蓋更廣泛的虛擬資產交易活動，按照「相同活動、相同風險、相同規管」原則下建立虛擬資產規管框架。 目前的提案以2024年場外交易市場諮詢為基礎，旨在透過引入虛擬資產交易服務牌照制度來解決這些差距。該提案體現了香港在2022年10月和2025年6月的政策聲明中概述的更廣闊的願景，即在降低風險的同時，建立一個全面的數位資產生態系統。 公眾意見徵詢截止日期為2025年8月29日，屆時將向立法會提交法案。 II. 擬議發牌制度 1) 誰需要獲得牌照 ? 任何人士在業務過程中提供虛擬資產交易服務，當中涉及訂立或要約訂立協議，或誘使或企圖誘使另一人訂立或要約訂立協定，目的是取得、處置、認購或包銷虛擬資產；或協定的目的或佯稱目的是使任何一方從虛擬資產的收益或參照虛擬資產價值的波動獲得利潤。 此制度將涵蓋所有虛擬資產交易服務，無論該等服務是通過實體店鋪及/或其他平臺提供。 就銀行和儲值支付工具 (“ SVF ”) 而言，經諮詢香港金融管理局 (“ 金管局 ”) 後，需要向證監會註冊，以在香港提供任何虛擬資產的交易服務。 2) 業務類型和業務模式： i. 簡單交易 : 以一種虛擬資產轉換另一種虛擬資產，或以虛擬資產轉換金錢 (或以金錢轉換虛擬資產) 。 ii. 較為複雜的虛擬資產交易活動 :經紀活動、大宗交易活動和顧問[2]或資產經理[3]從事的其他相關活動。 3) 豁免： i. 獲金管局發牌及(ii)在一級市場上要約提供或贖回其發行的穩定幣的穩定幣發行人將會被豁免。 ii. 個人與個人(peer-to-peer)之間不牽涉中介人的虛擬資產交易 III. 擬公司架構及規管要求 1) 公司架構 i. 公司架構 ：申請人(銀行除外)必須是(i)在香港成立或根據《公司條例》在香港註冊，並有固定營業地點的公司。 ii. 處所 ：合適處所儲存簿冊及記錄。 iii. 適當人選測試 ：包括申請人(或其董事、大股東或最終擁有人)，評估其犯罪記錄、財務穩定性和合規記錄。 iv. 負責人員 (RO) ：至少兩名經證監會批准的RO，具備監管知識和行業經驗。 2) 規管要求 i. 財政資源 ： 最低實繳資本：500萬港元。 流動資本：300萬港元(視業務模式而定)。 超額流動資本須足以支付12個月的營運開支。 ii. 散戶投資者可交易的虛擬資產 : 僅限於高流動性代幣和金管局發牌的穩定幣，與VATP標準一致。 iii. 其他服務 ： 顧問、資產管理、質押等，需根據量身定制的規管獲得單獨批准。 iv. 打擊洗錢及恐怖分子資金籌集 (“ AML/CFT ”)合規 ： 包括客戶盡職調查 (CDD)、記錄保存和使用區塊鏈分析工具進行交易監控。 v. 客戶資產保護 ： 持牌人應妥善保障其客戶資產，並採取額外措施，包括妥善分隔客戶資產，並由香港持牌虛擬資產託管人保管。 vi. 投資者保障 ： 評估客戶虛擬資產知識、提供培訓、風險分析、設定風險限額、確保適合性及管理利益衝突。 vii. 風險管理 ： 制定適當並與其業務規模和複雜程度相稱的風險管理政策和程序，以處理其活動可產生的洗錢及恐怖分子資金籌集和其他風險。 viii. 資料通知及財務披露 ： 提交經審計的帳目、錢包地址和業務詳情 IV. 運營方面 1) 非獲證監會發牌的VATP： 正在考慮允許通過受海外監管的VATP或流動性提供者進行交易，但需採取加強盡職調查和風險披露等保障措施（有待進一步諮詢）。 2) 託管： 客戶虛擬資產必須由證監會發牌的虛擬資產託管人持有，與2025年6月27日啟動的虛擬資產託管人諮詢相一致 [4] 。 3) 監控： 持牌人須採用適當的科技方案(例如區塊鏈分析工具)，以便追蹤虛擬資產的來源和去向。 V. 發牌及過渡安排 1) 牌照持續期限： 無期限，有效直至被撤銷（例如因不當行為）。 2) 無過渡安排： 原有的虛擬資產交易服務提供者必須在制度生效日期前申請牌照，沒有自動過渡批准。 3) 加快發牌程序： 適用於獲證監會發牌的VATP，及正在提供虛擬資產交易服務的持牌法團(視乎情況)。 4) 費用： 參照《證券及期貨條例》下的第1類受規管活動，例如持牌法團的申請費和年費為4,740港元。 VI. 監管權力及紀律處分 1) 監管權力 監管機構 授權權力 證券及期貨事務監察委員會 (“ 證監會 ”, “ SFC” ) 制定標準、施加條件、進行檢查、調查違規行為並採取紀律措施。 香港金融管理局 (“ 金管局 ”, “ HKMA” ) 監管銀行和SVF，擁有類似證監會的監管權力。 2) 紀律處分 違規行為 紀律處分 i. 無牌經營 可罰款 500萬港元 及 監禁7年 。 ii. 無牌行銷 可罰款 5萬港元 及 監禁6個月 。 iii. 違反AML/CFT規定 可罰款 100萬港元 及 監禁2年 。 iv. 欺詐行為 可罰款 1,000萬港元 及 監禁10年 。 v. 失實陳述 可罰款 100萬港元 及 監禁7年 。 vi. 不當行為 暫停或撤銷牌照、譴責或罰款高達 1,000萬港元 。 VII. 徵詢與下一步 公眾可以於2025年8月29日前通過以下方法提交意見： 電郵 ： vadealing-consult@fstb.gov.hk ;或 郵寄至 ：香港中環添馬添美道政府總部24樓財經事務及庫務局財經事務科第五組 政府將分析回饋後敲定最終方案。 VIII. 資料參考: 有關規管虛擬資產交易的立法建議 - 公眾諮詢 英文版: https://www.fstb.gov.hk/fsb/en/publication/consult/doc/VADEALING_consultation_paper_en.pdf 中文版: https://www.fstb.gov.hk/fsb/tc/publication/consult/doc/VADEALING_consultation_paper_tc.pdf [1] https://www.fstb.gov.hk/fsb/tc/publication/consult/doc/VAOTC_consultation_paper_tc.pdf [2] 顧問可從事的活動包括提供意見，以及接受買賣虛擬資產的指示等。 [3] 資產經理可從事的活動包括為其本身的客戶管理虛擬資產組合時，向交易商發出交易指示等。 [4] https://www.fstb.gov.hk/fsb/tc/publication/consult/doc/VACUSTODY_consultation_paper_tc.pdf Summary on Public Consultation on Legislative Proposal to Regulate Dealing in Virtual Assets I. Introduction The Financial Services and the Treasury Bureau (“ FSTB ”) and the Securities and Futures Commission (“ SFC ”) have jointly released a public consultation document to gather feedback on a legislative proposal to regulate virtual asset (“ VA ”) dealing services in Hong Kong. This follows an earlier consultation [1] from February to April 2024 focused on over-the-counter (“ OTC ”) VA trading services. Based on stakeholder input, the scope has been expanded to encompass a broader range of VA dealing activities, aligning with Hong Kong’s commitment to a robust digital asset regulatory framework under the "same activity, same risks, same regulation" principle. The current proposal builds on the 2024 OTC consultation and aims to address these gaps by introducing a licensing regime for VA dealing services. It reflects Hong Kong’s broader vision, outlined in policy statements from October 2022 and June 2025, to foster a comprehensive digital asset ecosystem while mitigating risks. Public comments are invited until 29 August 2025, with a bill to be introduced to the Legislative Council thereafter. II. Proposed Licensing Regime 1) Who Needs to Be Licensed? Any person, by way of business, making or offering to make an agreement with another person, or inducing or attempting to induce another person to enter into or to offer to enter into an agreement in respect of the following would require a license granted by or registration with the SFC. This regime will cover all VA dealing services irrespective of whether the services are provided through a physical outlet and/or other platforms. In respect of (i) banks and (ii) stored value facilities (“ SVFs ”), they need to be registered with the SFC (in consultation with the Hong Kong Monetary Authority (“ HKMA ”)) for providing services of dealing in any VAs in Hong Kong. 2) Business Types and Business Models: i. Simple Dealing Services: VA-to-VA or VA-to-fiat conversions (e.g. exchanging Bitcoin for Ethereum or HKD). ii. Complex Dealing Services: Brokerage, block trading, and activities by advisors[2] or asset managers[3]. 3) Exemption: i. stablecoin issuers who (i) are licensed by the HKMA and (ii) conduct offering or redemption of the stablecoins they issue in the primary market. ii. peer-to-peer trading of VAs between individuals where no intermediary is involved. III. Regulatory Requirements 1) Eligibility i. Corporate Structure: Applicants (except banks) must be locally incorporated or registered in Hong Kong under the Companies Ordinance, with a permanent place of business. ii. Premises: Suitable facilities for record-keeping. iii. Fit-and-Proper Test: Applies to applicants, substantial shareholders, and key personnel, assessing criminal history, financial stability, and compliance records. iii. Responsible Officers (“ RO ”): At least two SFC-approved ROs with regulatory knowledge and industry experience. 2) Key Obligations i. Financial Resources: Minimum paid-up capital: HK$5 million. Minimum liquid capital: HK$3 million (varies by business model). Excess liquid capital to cover 12 months of operating expenses. ii. Allowed VAs for Retail Investors: Limited to highly liquid tokens and HKMA-licensed stablecoins, mirroring VATP standards. iii. Other Services: Advisory, asset management, staking, etc. require separate approvals under tailored regulations. iv. AML/CFT Compliance: Includes customer due diligence (“CDD”), record-keeping, and transaction monitoring with blockchain analytic tools. v. Client Asset Protection: Segregation of assets and safekeeping with licensed VA custodians in Hong Kong. vi. Investor Safeguards: Assessing client VA knowledge, providing training, risk profiling, setting exposure limits, ensuring suitability, and managing conflicts of interest. vii. Risk Management: Policies to address ML/TF and operational risks. viii. Reporting: Submission of audited accounts, wallet addresses, and business details. IV. Operational Aspects 1) Non-SFC-Licensed VATPs: An option is under consideration to allow dealing via overseas-regulated VATPs or liquidity providers, with safeguards like enhanced due diligence and risk disclosures (subject to further consultation). 2) Custody: Client VAs must be held with SFC-licensed or registered VA custodians in Hong Kong, aligning with a separate VA custodian consultation launched on 27 June 2025 [4] . 3) Monitoring: Licensees must track VA origins and destinations using advanced technological solutions. V. Licensing and Transitional Arrangements 1) License Type: Open-ended, valid until revoked (e.g. for misconduct). 2) No Deeming Arrangement: Existing providers must apply for a license by the regime’s commencement date, with no automatic transitional approval. 3) Expedited Process: Available for SFC-licensed VATPs and regulated entities already offering VA dealing services. 4) Fees: Benchmarked to Type 1 regulated activity under the Securities and Futures Ordinance (“ SFO ”), e.g. HK$4,740 application fee and annual fee for licensed corporations. VI. Powers and Sanctions 1) Regulatory Powers Regulator(s) Authorised Power Securities and Futures Commission ( SFC ) Sets standards, imposes conditions, conducts inspections, investigates non-compliance, and applies disciplinary measures. Hong Kong Monetary Authority ( HKMA ) Frontline regulator for banks and SVFs, with similar supervisory powers. 2) Sanctions Violation(s) Sanction(s) i. Unlicensed Operations HK$5 million fine and 7 years imprisonment. ii. Unlicensed Marketing HK$50,000 fine and 6 months imprisonment. iii. AML/CFT Breaches HK$1 million fine and 2 years imprisonment. iv. Fraudulent Behavior HK$10 million fine and 10 years imprisonment. v. Misrepresentation HK$1 million fine and 7 years imprisonment. vi. Misconduct License suspension/revocation, reprimands, or penalties up to HKD$10 million . VII. Next Steps The Public can submit the comment on or before 29 August 2025: Via email: vadealing-consult@fstb.gov.hk ; or Post: Division 5, Financial Services Branch, Financial Services and the Treasury Bureau, 24/F, Central Government Offices, Tim Mei Avenue, Tamar Central, Hong Kong. The final proposals to be determined after analyzing feedback from the Public. VIII. Reference Materials Full Consultation Paper: English: https://www.fstb.gov.hk/fsb/en/publication/consult/doc/VADEALING_consultation_paper_en.pdf Chinese: https://www.fstb.gov.hk/fsb/tc/publication/consult/doc/VADEALING_consultation_paper_tc.pdf [1] https://www.fstb.gov.hk/fsb/en/publication/consult/doc/VAOTC_consultation_paper_en.pdf [2] An advisor may, among others, provide advice and also take an order to purchase or sell VAs. [3] Asset managers may, among others, place trade orders to dealers in the course of managing their own clients’ portfolios of VAs. [4] https://apps.sfc.hk/edistributionWeb/api/consultation/openFile?lang=EN&refNo=25CP7 天匯合規顧問有限公司 ComplianceOne Consulting Limited 2025年6月30日

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

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

The topics discussed in this monthly newsletter are as follows: ComplianceOne Newsletter – October 2024 The topics discussed in this monthly newsletter are as follows: 1. Dr Kelvin Wong appointed as new SFC Chairman 2. New Public Fund Depositaries Regime effective from 2 October 2024 3. New Listing Application Process in Hong Kong is streamlined 4. SFC launches a new Fund Authorization Simple Track (“FASTrack”) to bolster Hong Kong market appeal 5. e-IP application/ submission system on WINGS to be fully adopted in November 6. SFC concludes consultation on Enhanced REIT and Market Conduct regimes 7. SFC sets out vision to foster Fintech ecosystem in Hong Kong 8. Common Red-flags of suspicious transactions from using Customer Supplied System (CSS) observed in SFC investigations [1] 9. Tycoon Dickson Poon is alleged to be involved in Insider Dealing 10. SFC disqualifies former CFO of Fujian Nuoqi 11. SFC suspends former employee of Julius Baer for several regulatory breaches 12. First jail sentence for Unlicensed Activity with compensation order The topic involves multiple enforcement news. Market News 1. Dr Kelvin Wong appointed as new SFC Chairman On 14 Oct 2024, the SFC made a welcome announcement on appointment of new Chairman Mr Kelvin WONG Tin-yau effective 20 October 2024 who will succeed the existing Chairman Mr Tim LUI. A snapshot summary of the welcome speeches from various key figures regarding the appointment. Mr Tim LUI said: “ Kelvin has a wealth of knowledge and experience in the development and regulation of capital markets, in particular, being Chairman of the Accounting and Financial Reporting Council, which the SFC works closely with to uphold the quality and maintain the integrity of Hong Kong’s capital markets and its reputation as an international financial centre. ” And Mr LUI also added that as Kelvin been a Non-Executive Director of the SFC and Chairman of the then Investor Education Centre, Kelvin is well-versed in the policy objectives, its strategic priorities and its operation of the Commission. Mr WONG himself said: “ I am honoured to be appointed as Chairman of the SFC, a leading global securities regulator. I look forward to working cohesively with the Board, CEO Julia, and the management team, many of whom I closely partnered with in my previous role as a Non-Executive Director .” Ms Julia LEUNG, the SFC’s Chief Executive Officer, said: “ I would like to extend a warm welcome to Kelvin and express my deep gratitude to Tim for his exemplary leadership and invaluable guidance in steering the SFC through the many difficult challenges while continuing our mission in pursuing market integrity, transparency and resilience. We now have a set of very clear strategic priorities which would enable the SFC to continue its firm commitment in safeguarding the integrity of our markets and continuing to foster market development .” SIGNIFICANCE: As reflected in the speeches above that given the prior co-working experiences of Mr WONG with the Commission and its high-ranked officials, together with his vast experiences and familiarity with the policies and core missions from previous role as Non-Executive Director of the Commission, it can be expected of a smooth, consistent transition, and continuation of the mission and vision of the Commission in preserving the market integrity in Hong Kong as an international financial centre. 2. New Public Fund Depositaries Regime effective from 2 October 2024 The SFC has updated its codes and guidelines to implement the new Type 13 regulated activity (“RA 13”) regime for public fund depositaries, which will be effective from 2 October 2024 . To ease the transition, the SFC will grant RA 13 licences or registrations to 19 depositaries under major banking or insurance groups in Hong Kong and over 300 staff members on the launch date. Under the new regime, depositaries of SFC-authorised collective investment schemes (“CISs”) must be licensed or registered with the SFC to conduct RA 13 activities. They must also comply with conduct and regulatory requirements similar to those for other regulated activities. SIGNIFICANCE: " Integrating CIS depositaries under the RA 13 regime is crucial to the SFC's strategy to enhance public fund regulation, align with international practices, and boost investor protection ." said Ms Julia Leung, CEO of the SFC. 3. New Listing Application Process in Hong Kong is streamlined On 18 October 2024, the SFC and the Stock Exchange of Hong Kong Limited (the “ Exchange” ) jointly announced the launch of an enhanced timeframe for the New Listing application process (“ Enhanced Application Timeframe” ) to further elevate Hong Kong’s attractiveness as the leading international listing venue in the region. Over the years, the SFC and the Exchange have been endeavouring to enhance the application process for New Listing applications; and the Exchange has already published a Guide for New Listing Applicants in preparing the listing. Key Highlights: Current Regulatory Framework - Under the current structure for reviewing applications, the SFC plays the roles as statutory regulator in administering the Securities and Futures (Stock Market Listing) Rules (“ SMLR” ) and the Securities and Futures Ordinance ( SFO ); the Exchange as a frontline regulator in administering the listing rules and suitability of the listing; while the Listing Committee decides if the application is approved or rejected. Enhanced Application Timeframe - The Enhanced Application Timeframe will provide greater clarity and certainty to the timeline for reviewing New Listing applications by the SFC and the Exchange. Applications that fully meet the requirements - Where an applicant and its sponsor submit a New Listing application that meet all applicable requirements and guidance under the SFO, the SMLR and/or the Listing Rules (“ Applications Fully Meeting Requirements” ), the SFC and the Exchange will individually assess if there are any regulatory concerns (“ Regulators’ Assessment” ) after a maximum of two rounds of comments; and the time taken will be no more than 40 business days , and 60 business days to satisfactorily address regulator’s comments. Upon confirmation of no material regulatory concern, the Exchange will finalise the disclosure in the listing document, which then forwarded to the Listing Committee Hearing. The entire application process expected to take around 6 months . Accelerated Timeframe for Eligible A-share Listed Companies - If an existing A-share listed company meets the following criteria when submitting a New Listing application: (a) have a minimum market capitalisation of HKD10 billion ; and (b) it can confirm, with support of legal advisor’s opinion, that it has complied with all laws and regulations, throughout the two full financial years immediately before listing application, then the A-share listed company is eligible for an accelerated timeframe for the New Listing application process (“ Accelerated Timeframe” ). Under the Accelerated Timeframe, if an eligible A-share listed company submits an Application Fully Meeting Requirements , the Regulators’ Assessment will be completed after one round of regulatory comments; and each regulator will take no more than 30 business days to complete the Regulators’ Assessment (saving 10 business days than before). If material regulatory concerns arise, longer process may require, involving a more intensive and detailed assessment. SIGNIFICANCE: The SFC and HKEX believe this initiative will support Hong Kong’s listing journey by enhancing transparency and efficiency, to further elevate Hong Kong’s attractiveness as the leading international listing venue in the region. Please refer to the above summarized table in the Appendix for your reference. 4. SFC launches a new Fund Authorization Simple Track (“FASTrack”) to bolster Hong Kong market appeal On 21 October 2024, the SFC announced the launch of the Fund Authorization Simple Track (“FASTrack”) on 4 November 2024. Under the FASTrack, SFC aims to grant fund authorisations within 15 business days after receiving complete and quality submissions from applicants. The new approach will cover simple funds from jurisdictions which have mutual recognition of funds (“MRF”) arrangements with the SFC. The SFC has issued a pamphlet detailing the new features and a circular explaining the new authorisation process. Introductory Note (1) The SFC currently processes new fund applications under a two-stream approach where applications are classified as standard (with average processing time of 1.5 months) or non-standard (of 2.5 month) which are in line with SFC targets. (2) The SFC has entered into mutual recognition of funds arrangements with jurisdictions outside Hong Kong (“MRF Jurisdictions”) which comprise of regulatory regimes providing comparable investor protection for retail investment funds similar to Hong Kong; and there is room to further expedite the authorization process. (3) A new FASTrack has been launched for simple funds domiciled and regulated in MRF Jurisdictions applying for authorization. (4) The FASTrack aims to grant fund authorizations within 15 business days from applications so as to promote efficiency and maintain competitiveness of Hong Kong. Eligible funds under FASTrack (1) A simple fund from an MRF Jurisdiction will be processed under FASTrack ( “FASTrack Fund” ) if the following criteria are satisfied: (i) Type of funds: either (i) an equity, bond or mixed fund; (ii) an exchange-traded fund or unlisted fund tracking an index or a plain vanilla index; or (iii) a feeder fund; and the funds is NOT a derivative fund. (ii) The management company of the fund is located in an MRF Jurisdiction; (iii) The investment delegate is either (a) located in an MRF Jurisdiction; or (b) is an affiliate of the management company or is currently managing other SFC-authorised funds. (2) FASTrack Funds are not expected to contain novel features, have material issues or bear wider policy implications. Processing time and performance pledges (1) FASTrack Funds are intended to cover simple funds which are already subject to home regulators’ supervision, and the SFC aims to grant authorization within 15 business days upon receipt of complete and quality submissions from the applicants. (2) Under the expected timeframe for FASTrack, the SFC will either: take up or refuse to take up an application within 5 business days upon receiving it; or grant authorization within 10 business days from the take-up date. (3) Post-vetting will be conducted by SFC to ensure the applicable authorization conditions are complied with. Implementation (1) FASTrack will take effect on 4 November 2024 ( Effective Date ) with a six-month pilot period ending on 4 May 2025. (2) Applications meeting the above criteria received on or after the Effective Date will be processed under FASTrack; or otherwise with the previous two-stream approach. (3) Relevant Information Checklist and FAQ have been updated to smoothen the launch. (4) The SFC will monitor the FASTrack during the pilot period ending on 4 May 2025. Obligations of applicants (1) Applicants must discharge their responsibility and ensure that their SFC-authorised funds comply with prevailing regulatory requirements. The SFC will take action against any non-compliance cases. SIGNIFICANCE: Ms. Christina Choi, SFC’s Executive Director of Investment Products, noted that FASTrack will provide clarity and certainty for fund launches in Hong Kong, enhancing the city’s competitiveness as a premier asset management hub. 5. e-IP application/ submission system on WINGS to be fully adopted in November On 24 October 2024, the SFC announced an extension of the parallel run period of its new online application/submission system for investment products, e-IP, by one month to 29 November 2024. Following the circular dated 8 July 2024, the SFC had launched the e-IP on its WINGS portal on 29 July 2024 to streamline and enhance the efficiency of processing new product applications, post-authorization/ registration submission to Investment Product Division (“IPD”). An initial three-month period of parallel run was in schedule while applications and submission were also accepted via the existing channels whereas the SFC has been monitoring the e-IP and gathering feedbacks from industry participants. Since new features and more advanced settings were introduced, and to facilitate these enhancements, the SFC decides to extend the parallel run period by one month to 29 November 2024. SIGNIFICANCE: Starting 30 November 2024 after the parallel run period, applications and submissions of investment products administered by IPD must be submitted via e-IP. And the current submission from IPD via the IP E-submission system will be integrated into the e-IP, including reporting of net asset values, large redemptions and suspensions of dealing. 6. SFC concludes consultation on Enhanced REIT and Market Conduct regimes On 8 Oct 2024, the SFC released consultation conclusions on proposals for a statutory scheme of arrangement and compulsory acquisition mechanism for real estate investment trusts (“REITs”) and the enhanced market conduct regime for listed collective investment schemes (“CIS”) under the Cap. 571 (“SFO”). The REIT Scheme Proposal allows REITs to conduct privatisation and corporate restructuring in an orderly manner with investor safeguards akin to those under the Companies Ordinance. The Listed CIS Proposal aims to extend SFO market misconduct rules, including insider dealing and market manipulation, to listed CIS, enhancing market integrity. SIGNIFICANCE: The proposals received general support. Ms Christina Choi, SFC’s Executive Director of Investment Products, emphasized that these measures will provide transparency, consistency, and greater investor protection. The legislative process is underway to implement these proposals. 7. SFC sets out vision to foster Fintech ecosystem in Hong Kong In the Fintech Week 2024, the SFC announced its vision for fostering a healthy and robust fintech ecosystem in Hong Kong by outlining several major areas of its initiatives to balance market development and investor protection. In a speech delivered by Dr Eric Yip, the SFC’s Executive Director of Intermediaries, he elaborated the details of the initiatives to further develop and scale up the Hong Kong’s virtual asset market. Key Initiatives: Swift Licensing for VATPs: The SFC is implementing a swift licence approval process for handling deemed-to-be-licensed VATP applicants, and expects the first batch of formal licences to be granted to deemed-to-be-licensed VATP applicants by the end of this year. Consultative Panel: To support licensed VATPs’ development of sustainable business models, a consultative panel will be launched in early 2025 for all licensed VATPs with their representative and also other stakeholders, feedbacks will be collected for SFC’s forthcoming white paper on the virtual asset industry. Regulatory Development: The SFC is working with the HKSAR Government and other regulatory bodies to develop proposals for regulating the provision of virtual asset trading services, and the provision of virtual asset custody services. Tokenisation and Project Ensemble: The SFC is a core member of the Architecture Community of Hong Kong Monetary Authority’s Project Ensemble, co-leading tokenisation initiatives for the asset management industry; the Project Ensemble plays a crucial role in establishing the necessary infrastructure for Hong Kong’s tokenisation ecosystem. SIGNIFICANCE: SFC demonstrates its commitment in moulding itself as a pioneer in the virtual assets regime, and navigating Hong Kong toward the destination. Dr Eric Yip emphasized the SFC's commitment to balancing market development with investor protection through proactive monitoring and collaboration with other agencies. Enforcement News 8. Common Red-flags of suspicious transactions from using Customer Supplied System (CSS) observed in SFC investigations During the previous month of OCT 2024, a couple of SFC investigations were found to be related to AML/CTF breaches arising from the use of Customer Supplied System (“CSS”) by the clients instead of the official Broker Supplied System (“BSS”) provided by the futures brokers. Three brokers, namely, CSC Futures (HK) Limited (" CSC "), Xinhu International Futures (Hong Kong) Co., Limited (" Xinhu ") and Zheshang International Financial Holdings Co., Limited (" ZIF "), were reprimanded and fined by the SFC, and there are similar red-flags to be alerted from the three cases taking a look at the Statement of Disciplinary Action. In retrospect of the previous quarters, there were occasional investigation cases related to use of CSS, the following observations from the case studies above are as below. Summary of the COMMON red-flags of clients using CSS: (1) The Relevant Periods covered the investigations by the SFC were similar ranging from 2016 to 2019. (2) The CSS used by the clients was the same trading software of Xinguanjia (“XGJ” or “信管家” ) which allowed the clients (the users) to create sub-accounts for the authorized users in XGJ under the clients’ own accounts maintained with the futures brokers. (3) The brokers failed to conduct proper due diligence on the CSS , namely the XGJ, used by their clients instead of the official BSS provided by the brokers. (4) The brokers failed to conduct proper due diligence on the CSS authorized users whom operated under the sub-accounts within the XGJ system. (5) The internal monitoring system and control policy were not sufficient to effectively detect suspicious transactions with the findings of large number of self-matched trades executed by the same client account (with sub-accounts behind). As a result, the broker failed to ensure compliance with the AML/CTF Ordinance, the AML Guidelines and Code of Conduct required by the SFC. (6) The large size and number of deposits made by the client accounts (with suspicious transactions) were incommensurate with the declared financial status of the clients with regard to the information provided upon account openings. (7) The follow-up enquiries conducted by the brokers were not sufficient to address the observations of abnormal large deposits made by the client accounts concerned SIGNIFICANCE: The use of CSS has long been a loophole which allows client users to create sub-accounts to hide the authentic identities of the order originators and to circumvent the ongoing monitoring by the brokers. Brokers should be alert and adopt a conservative approach when granting the use of CSS to their clients if the brokers themselves do not have effective monitoring devices for detecting suspicious transactions, and the due diligence procedures are not so effective in assessing the compliance risk behind the veil of CSS. 9. Tycoon Dickson Poon is alleged to be involved in Insider Dealing The SFC had commenced proceedings in the Market Misconduct Tribunal (MMT) against chairman of Dickson Concepts (International) Limited (“ Dickson Concepts ”), Mr Dickson Poon, and Equity Advantage Limited (“ Equity ”) for alleged insider dealing in the shares of Dickson Concepts on 15 October. The SFC also alleges that Dickson Poon and his son, Pearson Poon, caused a seven-week delay in disclosing inside information about Paypal’s acquisition of Honey Science Corporation, which significantly benefited the Company. On 20 November 2019, Paypal Holdings, Inc. (“ Paypal ”) announced on its website that it had agreed to acquire Honey Science Corporation (“ Honey ”) for approximately US$4 billion (proposed acquisition). At the material time, Dickson Concepts held 24,834,600 shares of Honey, yet the holdings were only recorded as “Unlisted equity securities” under “Other Financial Assets” without any reference to Honey. On 9 January 2020, Dickson Concepts issued an announcement disclosing to the public, among other things, that Paypal and Honey had completed the proposed acquisition on 3 January 2020, thus resulting in a gain of approximately HK$928,744,921 over Dickson Concepts’ net book value , triggering the stock price of Dickson Concepts an increase of 33.3%! Findings of SFC revealed that: (1) Dickson Poon was in possession of the inside information about the proposed acquisition, and purchased a total of 2,756,500 shares of Dickson Concepts via the securities account of Equity between 28 November and 19 December 2019 before public disclosure. (2) Dickson Concepts failed to disclose inside information about the proposed acquisition as soon as reasonably practicable, Dickson Poon and Pearson Poon caused Dickson Concepts’ breach of the disclosure of insider information requirements. (3) Dickson Poon and Pearson Poon, who were members of senior management of Dickson Concepts, became aware of the inside information about the proposed acquisition; and failed to take steps to cause the Board of Dickson Concepts to disclose the inside information to the public as soon as reasonably practicable and Dickson Concepts only issued the announcement seven weeks later on 9 January 2020. SIGNIFICANCE: It is an illustrative exemplification of insider information where the individual possessing the information can take advantage of it for making lucrative remuneration. The SFC alleges that Dickson Poon and Pearson Poon, senior management of the Company, became aware of the inside information on 21 November 2019 but failed to ensure timely disclosure. The announcement was issued seven weeks later on 9 January 2020. And the SFC’s proceedings highlight the importance of timely and accurate disclosure to maintain market integrity. Dickson Poon has denied the allegation. 10. SFC disqualifies former CFO of Fujian Nuoqi The SFC has obtained a disqualification order against Mr. Au Yeung Ho Yin, the former CFO and executive director of Fujian Nuoqi Co., Ltd. (Stock Code: 1353) (“Nuoqi”), for failing to discharge his duties. Au Yeung is disqualified from holding directorial or managerial positions in any Hong Kong corporation for three years . Au Yeung admitted failing to oversee accounting functions and ensure proper governance. The SFC's investigation revealed that around RMB225 million was withdrawn from the Company’s bank accounts without proper approval . Justice Peter Ng of the Court of First Instance stated that Au Yeung breached his duties as CFO by failing to investigate unauthorized transfers totalling RMB225 million and not alerting fellow directors. He also falsely claimed in Nuoqi's 2013 annual report that unused IPO proceeds were deposited in Hong Kong banks, while RMB160 million was actually transferred to a Mainland bank and used outside the specified scope in the listing prospectus. SIGNIFICANCE: Mr. Christopher Wilson, the SFC’s Executive Director of Enforcement, emphasized that investors rely heavily on chief financial officers of listed companies to safeguard business assets through their oversight of financial functions and reporting. This case clearly shows CFOs have a duty to investigate suspicious transactions and promptly report them to the board. CFOs must ensure all financial report disclosures are accurate and complete, as investors depend on these reports to evaluate the financial health of listed companies. 11. SFC suspends former employee of Julius Baer for several regulatory breaches On 18 October 2024, the SFC announced the suspension of Mr. Singh Amit Kishan, a former employee of Bank Julius Baer & Co. Ltd. (“ Julius Baer ”), for seven months due to regulatory breaches. Key Findings: Singh falsely claimed he had a face-to-face meeting with a client as part of the required account opening procedure. Singh advised a client to make 14 transactions that appeared unsolicited, breaching company policies. Eleven transactions involved products not permitted for solicitation, while the others lacked pre-trade approval. SIGNIFICANCE: As a result, Singh circumvented the Company’s procedures on account opening, know-your-client (“KYC”), and product suitability, preventing proper compliance monitoring. In deciding the sanction, the SFC considered the lack of evidence suggesting the client information was materially deficient and Singh’s otherwise clean disciplinary record. 12. First jail sentence for Unlicensed Activity with compensation order On 30 Oct 2024, the Eastern Magistrates’ Court has sentenced Ms. LAI Ka Yi (“ LAI ”) to two weeks’ imprisonment and ordered her to pay $98,000 as a compensation to a victim of her unlicensed activity after she was convicted of holding herself out as carrying on a business in dealing in securities without a licence from the SFF. It is also the first time the Court imposed an immediate imprisonment for an unlicensed activity offence under section 114 of the SFO ( Restriction on carrying on business in regulated activities ). Between April and 10 May 2018, Lai who was then a university student, held herself out to the victim, who she knew personally, as carrying on a business in dealing in securities. Lai enticed the victim to transfer to her bank account funds for her to invest in securities on the victim’s behalf. In the end, the victim was unable to withdraw the investment from Lai except receiving from her $2,000 in purported earnings. SIGNIFICANCE: The SFC urges the public to verify the licensing status of firms and individuals on its Public Register of Licensed Persons and Registered Institutions. According to public information, LAI was licensed and accredited to Convoy Asset Management Limited to carry on Type 1 (dealing in securities) regulated activity from 30 December 2015 to 11 January 2016, for thirteen days only. And the incidence happened between April and 10 May 2018, a relatively short episode which was two years after expiry of her previous SFC license, while the only victim was a friend of LAI personally. This marks the first time an immediate jail sentence and compensation order have been imposed for such an offence under section 114 of the Cap. 571 Securities and Futures Ordinance (“SFO”). For more details, please click on the title of the topic above. ================================= ~ Make It Right Today, Better Tomorrow ~ ================================= The Newsletter is for general information purpose only and is not intended to constitute legal or other professional advice. For enquiries, please email to support@complianceone.hk or WhatsApp us at (852) 95164607 . Unit 1104, 11/F, 299QRC, 287-299 Queen's Road Central, Sheung Wan, Hong Kong Tel: (852) 39550277 www.complianceone.hk

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

The topics discussed in this monthly newsletter are as follows: ComplianceOne Newsletter - March 2024 The topics discussed in this monthly newsletter are as follows: 1. Reminder to submit audited accounts and BRMQ 2023. 2. Hong Kong sees surge in investment fund net inflows: SFC Quarterly Report 3. Circular to licensed corporations and management companies of SFC-authorized funds-Shortening of the US securities transaction settlement cycle to T+1 4. Insurance Authority signs Memorandum of Understanding with the Hong Kong Police Force to strengthen collaboration MARKET NEWS 1.Reminder to submit audited accounts and BRMQ 2023 We would like to remind you, our valued clients, that pursuant to section 156(1) of the Securities and Futures Ordinance (Cap. 571, laws of Hong Kong), licensed corporations and associated entities of intermediaries (the “Companies”) are required to submit their audited accounts and the BRMQ within 4 months after the end of each financial year to Securities and Futures Commission. The submission deadline for those Companies with financial year end on 31 December 2023 is 30 April 2024. Please prepare sufficient time to fill in the new version of BRMQ2023 which necessitates more preliminary readiness for completion. SIGNIFICANCE: Having noted that the SFC had published a circular dated 23 Dec 2022 as a reminder to the licensed corporations and their associated entities that a revised BRMQ would be adopted. The reminder explicitly stated " LCs and AEs are urged to review and familiarise themselves with the revised questionnaires, which are included in Annex 1 and Annex 2 to this circular, start gathering the newly required data and information and make system enhancements where necessary. " Therefore, the LCs should take a pragmatic and serious attitude to this revised BRMQ, and spare more time than before in order to prepare and consolidate the relevant documentations in fulfilling the stated requirements. 2. Hong Kong sees surge in investment fund net inflows: SFC Quarterly Report On 8 March 2024, the SFC published its latest Quarterly Report to provide operational and financial highlights for the quarter ending 31 December 2023. Key summaries of the Report are as follows: (1) For the asset management regime: there recorded a 92.9% increase year-on-year (YOY) in 2023 with inflows of funds up to HKD87.1 billion into Hong Kong. As at 31 December, the assets under management of the 914 Hong Kong-domiciled funds increased 4.9% YoY as well. (2) For Mainland-Hong Kong Stock Connect: the average daily northbound trading rose 8% YoY in 2023 whilst average daily southbound trading remained steady. Shares traded in both Mainland and Hong Kong stock markets showed increases in 2023 with both northbound and southbound trading recorded with net buys last year, amounting to RMB43.7 billion and RMB292.9 billion. (3) For listing market: the SFC approved rules amendments for GEM listing reforms by introducing a new route for GEM listing and a streamlined mechanism for Main Borad transfer. A total number of 270 listing applications were processed for 2023, with average processing time reduced by 11% YoY to 108 business days. (4) For the SFC license regime: licence applications received rose 16% YoY for the whole year. Of the 56 licensed corporation applications approved by the SFC in the last quarter 2023, Type 9 (asset management) and Type 4 (advising on securities) regulated activities accounted for 88% and 66% (because a licensed corporation may have multiple SFC licenses). And six VATPs applications were received during the quarter. (5) For combating fraudulent activities, the SFC has also established a joint working group with the Hong Kong Police SIGNIFICANCE: Despite the deemed atmosphere from successive news of closures of licensed corporations, findings of the quarter reports though suggest the pessimism pervading through the year is a bit exaggerated. As mentioned in the previous Newsletters, it is not hard to notice that the HKSAR government, the regulatory bodies and the financial institutions all collaborated to preserve the status of Hong Kong as an international financial centre, particularly in its devotion to stay ahead in the development of virtual assets regimes while other competitors are still hesitant. 3. Shortening of the US securities transaction settlement cycle to T+1 A circular was published on 27 March 2024 that effective from 28 May 2024, the standard settlement cycle for transactions in US securities will be shortened from two business days after the trade date (T+2) to one business day after trading (T+1) (the Transition). Since the timeline for completing post-trade settlement process will be compressed, the SFC is of the view that the impact of the Transition may be particular significant for market participants in Hong Kong due to time zone differences. The SFC has notes of reminder to the following entities: Licensed corporations (LCs): (1) Be aware of the cross-currency transaction: since the standard settlement cycle for foreign-exchange transactions remains at T+2, the LCs should be aware of the potential liquidity mismatches and settlement failure from such difference in settlement cycles; (2) To ensure the availability of staff to complete the post-trade settlement processes within the shortened timeframe; (3) To proactively communicating with the clients who are potentially affected by the Transition in order to raise their awareness and facilitate their preparation for a smooth transition. Management companies of the SFC-authorised funds (Funds): (1) The Funds should pay attention to such transition if they have considerable exposures to US securities; (2) Carefully assess the impact of the Transition including any potential mismatches in settlement cycles relating to the arrangement of subscription money from non-US markets to purchase US securities; (3) Making appropriate arrangement such as expanding pre-funding facilities and allocating additional staff to handle the compressed settlement timeline; (4) Give early alerts to investors about any intended changes arising from the Transition which may have material influence on the Funds and investors, and to take remedial actions accordingly. SIGNIFICANCE: The amendment was proposed in February 2023 in the Securities and Exchange Commission (SEC) in US under “ Amendment to Rule 15c6-1 " where it stated that standard settlement cycle for most broker-dealer transactions be shortened from T+2 to T+1, and would be effective on 28 May 2024; obviously it takes more than two years for the brokers to equip themselves in business operation and settlement process in order to ensure a seamless transition. Given the scale of the US stocks markets, brokers in Hong Kong should take this Transition seriously to assure themselves of a seamless and secured transition as well particularly in the eyes of other competitors in the vicinity in SEA. 4.Insurance Authority signs Memorandum of Understanding with the Hong Kong Police Force to strengthen collaboration The Insurance Authority (IA) and the Hong Kong Police Force (HKPF) entered into a Memorandum of Understanding (MoU) on 27 March 2024, setting out the framework between the IA and the HKPF to cooperate and provide guidance on matters such as case referrals, joint investigations, mutual investigative assistance and the exchange of information. During the ceremony, the signing of the MoU between the IA and HKPF have affirmed the joint commitment from both organizations to ensuring the insurance market is underpinned with integrity and trust so that it can continue to make contribution to maintaining Hong Kong’s position as a vital international financial centre. The Assistant Commissioner of Police (Crime), Ms Chung Wing-man, expressed in the ceremony the enthusiasm about the milestone collaboration, stating that the power of the alliance extended far beyond the immediate benefits to the two organisations. It will strengthen the resilience of the regulatory framework and hence, the protection of members of the public. SIGNIFICANCE: It is worth noted that the HKPF and the SFC had already entered into a MoU on 25 August 2017 to formalise and further strengthen co-operation in combating financial crime; and another MoU on 16 September 2022 between HKPF and the Financial Reporting Council (FRC) with the aim of enabling full collaboration and co-operation in combating commercial crimes ad illicit activities in relation to financial reporting and audit quality in Hong Kong. The HKPF has demonstrated to the public of its strong determination to ensure collaboration with other regulatory organizations to establish a full-fledged coverage network to combating financial crimes in order to safeguard the status of Hong Kong as a safe international financial centre. 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