Securities and Futures Commission (SFC) Circulars/Guidelines
The SFC published a Circular informing licensed corporations that the Government has designated certain categories of persons in the financial services sector to be exempted from the compulsory quarantine arrangements in Hong Kong under Cap. 599C and Cap. 599E (“Exemption Scheme”). Senior executives of licensed corporations or their overseas affiliates who are fully vaccinated and meet the eligibility criteria may apply for exemption from the compulsory quarantine arrangements when they return or travel to Hong Kong.
In short, this is not an automatic exemption. Applications must be made in advance and there are limited quotas. The SFC has sole discretion whether to approve or refuse an application.
Who are eligible to apply for exemption
1. senior executives travelling from and returning to Hong Kong, namely, senior executives of a licensed corporation with global or regional roles who are returning to Hong Kong after travelling to foreign places primarily for the purposes of managing the group entities for which they have responsibility (“returning executives”); and
2. senior executives visiting Hong Kong, namely, global or regional heads or senior executives of financial institutions that a licensed corporation is affiliated with, who are travelling to Hong Kong primarily for the purposes of managing the licensed corporation (“visiting executives”).
3. The quotas are limited to two entries for returning executives and two entries for visiting executives, respectively, per calendar month per licensed corporation.
4. Applications for exemption should be made by the sponsoring licensed corporation of the returning executives or the visiting executives, by completing the prescribed application form (see Appendix I to the Circular) and providing the requisite supporting documents set out in the Circular, including an itinerary of the proposed exempted executive for the entire duration of the trip (for a visiting executive) or throughout the entire medical surveillance period (for a returning executive) in Hong Kong, with information about his or her arrival, departure, accommodation or designated quarantine hotel, organisations and venues to be visited with the dates and times of the visits. Please also follow the application procedures set out in the Circular.
Requirements on exempted executives and their sponsoring licensed corporations
5. Each exempted executive is required to fully comply with the specific conditions for exemptions set out in the authorisation letter issued by the FSTB and is only allowed to leave his or her designated quarantine hotel or accommodation arranged by the sponsoring licensed corporation for approved activities set out in the itinerary. A set of sample conditions is set out in the Notes appended to the application form for reference. These conditions include the completion of a COVID-19 vaccination course; pre-departure, on arrival and post-arrival COVID-19 tests; point-to-point transportation; self-isolation and medical surveillance.
6. Each sponsoring licensed corporation is required to:
(a) keep an up-to-date record of the itinerary of each exempted executive for the entire duration of the trip (for a visiting executive) or throughout the entire medical surveillance period (for a returning executive) in Hong Kong. The itinerary maintained by the sponsoring licensed corporation should also include information about the contact details of the persons who had met or would meet with the exempted executive in Hong Kong. Any changes to the itinerary should be submitted to the SFC upon arrival in Hong Kong and at the time when the sponsoring licensed corporation submits the attestation form as required under item(d) below;
(b) ensure compliance with the guidelines for vehicles providing point-to-point transportation (see Appendix III to the Circular);
(c) ensure that, for exempted persons in self-isolation at an accommodation arranged by the sponsoring licensed corporation, the Department of Health’s infection control guidelines are adhered to;
(d) submit to the SFC an attestation form (in the form prescribed in Appendix II to the Circular) signed by a responsible officer or the manager-in-charge of compliance function of the sponsoring licensed corporation, every three working days or at the half-way point of the trip, whichever is earlier, and on the last day of the trip (for a visiting executive) or the medical surveillance period (for a returning executive); and
(e) report to the SFC as soon as possible if an exempted executive is confirmed or suspected to be infected with COVID-19 during his or her trip in Hong Kong and within 14 days after departing Hong Kong (for a visiting executive) or during the medical surveillance period (for a returning executive).
Consequence of violation
Any contravention with the exemption conditions would result in removal of the exemption status. In addition, if an exempted person who is subject to self-isolation in a designated quarantine hotel room is found to have breached the self-isolation requirement, the concerned exempted person’s exemption status will be removed immediately and he / she will be sent to the HKSAR Government’s Quarantine Centre for compulsory quarantine for 21 days. An exempted person who fails to observe any of the conditions commits an offence and, on conviction, will be liable to a fine of HK$5,000 and to imprisonment for 6 months.
The sponsoring licensed corporations are responsible for ensuring the accuracy and authenticity of the information submitted as part of the Exemption Scheme, and such responsibility ultimately rests with the senior management of each sponsoring licensed corporation.
Appendix III – Guideline for vehicles providing point-to-point transportation can be found here.
The SFC published a circular informing licensed corporations (LCs) that the SFC will defer the introduction of initial margin (IM) requirements for non-centrally cleared over-the-counter (OTC) derivative transactions by one year to provide operational relief in light of the COVID-19 outbreak. The IM requirements for LCs which are contracting parties to non-centrally cleared OTC derivative transactions entered into with a covered entity were originally to be phased in starting from 1 September 2020.
In light of the Basel Committee on Banking Supervision and the International Organization of Securities Commissions’ announcement of the one-year extension of the deadlines for completing the final implementation phases of the IM requirements for non-centrally cleared OTC derivatives, the SFC has accordingly extended the phase-in schedule for the IM requirements by one year, summarized as follows:
- From 1 September 2021 to 31 August 2022, the exchange of IM by an LC is required in a one-year period where both the LC and the covered entity have an average aggregate notional amount (AANA) of non-centrally cleared OTC derivatives exceeding HK$375 billion on a group basis.
- On a permanent basis starting from 1 September 2022 and for each subsequent 12-month period, the exchange of IM by an LC is required in a one-year period where both the LC and the covered entity have an AANA of non-centrally cleared OTC derivatives exceeding HK$60 billion on a group basis.
For avoidance of doubt, the variation margin requirements will still become effective on 1 September 2020.
The SFC published a circular reminding licensed corporations (LCs) to assess their operational capabilities and implement appropriate measures to manage cybersecurity risks associated with remote office arrangements, in light of the increased use of such arrangements as a result of the COVID-19 outbreak. The SFC set out some examples of controls and procedures LCs may take in relation to various aspects of remote office arrangements:
Remote access to internal network and systems – LCs should consider the below measures (amongst others) to mitigate cybersecurity risks:
- Implement robust virtual private network (VPN) solutions, which provide strong encryption and two or more layers of protection, to protect the integrity of data transmitted between remote users’ devices and internal systems;
- Monitor, evaluate and implement security patches or hotfixes released by VPN software providers on a timely basis;
- Require the use of strong passwords and implement two-factor authentication for remote access logins by employees, agents and service providers, in particular when accessing privileged accounts and sensitive data repositories;
- Avoid granting standing or permanent access to external parties and only allow vendors to access specific systems during pre-determined timeframes;
- Implement different levels of remote access, such as by equipping computers and mobile devices supplied by LCs with greater capabilities than employee-owned devices;
- Implement security controls to prevent unauthorised installation of hardware and software on computers and devices provided to staff; and
- Implement robust network segmentation to segregate system servers and databases, based on criticality, to better protect more critical and sensitive data, such as clients’ personal data.
Use of video conferencing platforms – LCs should consider the below measures (amongst others) to mitigate the risk of unauthorized access and leakage of critical or sensitive data
- Assess the security features of videoconferencing platforms before use;
- Allow only authenticated and authorized users to join the videoconference, e.g. by checking their email addresses or making use of “waiting room” features;
- Invite participants via conferencing software or other legitimate channels, e.g. office emails, and refrain from sharing links to conferences via social media posts.
- Use a random meeting ID, rather than a personal meeting ID;
- Enable the password protection feature on the videoconferencing platform;
- Lock the conference meeting once all the participants have joined, as appropriate; and
- Use the latest version of the software with the most up-to-date security patches installed.
The SFC also reminded LCs to put in place other measures for enhancing operational capabilities and monitoring mechanisms for remote office activities, such as:
- Assess the adequacy of, and enhance, existing information technology infrastructures, software (such as remote computer devices, network bandwidth and software licenses) and hardware (such as notebook computers and mobile devices) for the purpose of supporting remote office arrangements.
Surveillance and incident handling:
- Implement monitoring and surveillance mechanisms to detect unauthorized access to internal networks and systems, such as reviewing the list of unauthorized access attempts and detecting the use of unapproved applications; and
- Develop and maintain an effective incident management and reporting mechanism.
- Provide adequate cybersecurity training to all internal system users and issue appropriate reminders and alerts to clients, e.g. advice on precautionary security measures, emerging cybersecurity threats and trends (such as phishing and ransomware) and use of secure Wi-Fi networks for accessing internal networks and videoconferencing platforms, on a regular basis.
The SFC published an announcement summarizing the measures it had taken actively in response to the significant impact of the COVID-19 pandemic on Hong Kong’s capital markets. The measures apply to brokers, asset managers and other market intermediaries supervised by the SFC as well as listed companies and the Stock Exchange of Hong Kong Limited (SEHK).
The overriding objective of the measures is to ensure that Hong Kong’s international financial markets will function efficiently, effectively and resiliently throughout this episode of extreme stress. In addition to addressing market volatility and major operational challenges associated with special work arrangements and other emergency measures, a significant part of the SFC’s efforts has been directed to much-needed regulatory relief for the market participants. Examples include giving specific guidance on how brokers can record client orders when out of office, deferral of regulatory timetables and allowing more flexibility on licensing matters, giving special guidance regarding the timely issuance of preliminary earnings results by listed companies, and intensified supervision on potential vulnerabilities caused by the exceptional market conditions, including investment fund liquidity, gold market volatility, redemption profiles, and fair treatment of investors.
The SFC would maintain close contact with all clearing houses in Hong Kong to ensure that their margining policies are appropriately calibrated to the risks they faced. The SFC would also closely monitor derivatives markets and short selling data to ensure that activity in these areas does not pose any financial stability or systemic risks.
The SFC would pursue a flexible approach with a view to ensuring that Hong Kong’s markets remain open and continue to function properly, while safeguarding market integrity and investor protection.
The SFC published a circular reminding issuers of SFC authorized paper gold schemes (PGS) of their obligations in light of the market volatility caused by the COVID-19 outbreak. The SFC reminded PGS issuers to:
- exercise due skill, care and diligence in the operations of the PGS;
- closely monitor the dealings by investors under the PGS;
- ensure that units of PGS are fairly and accurately valued in good faith and in the best interests of investors in accordance with the constitutive and offering documents of the PGS as well as applicable laws and regulations;
- ensure the continuous provision of material information and services to investors (including pricing and dealings of the units of PGS) in accordance with the constitutive and offering documents of the PGS; and
- keep investors informed in a timely manner and immediately report to the Investment Products Division of the SFC (IPD/SFC) any untoward circumstances relating to their PGS (including any decision to suspend subscription and/or redemption) and potential impact on the PGS.
Furthermore, for decisions to suspend dealings of the PGS, the SFC reminded PGS issuers that:
- such decisions should be made in the best interests of investors in accordance with the constitutive and offering documents of the PGS and applicable laws and regulations;
- they should inform IPD/SFC immediately upon any decision to suspend and they should notify investors in a timely manner;
- they should regularly review any prolonged suspension of dealings and take any necessary steps to resume normal operations as soon as practicable;
- they should notify IPD/SFC as well as investors immediately upon any decision to uplift suspension/resume dealing; and
- the offering documents of the PGS should contain information necessary for investors to make an informed judgement about the PGS. This includes information on suspension of dealing of units of PGS, for example, the circumstances under which dealings can be suspended and how investors are notified as a result.
The SFC also reminded PGS issuers to give IPD/SFC early alerts of any material issues affecting their PGS, and to consult the SFC if in doubt.
The SFC published a circular reminding management companies of exchange traded funds (ETFs) of their responsibility to manage ETFs in the best interests of investors. The circular was prompted by a recent incident where the sole market maker of an ETF temporarily suspended its market making functions for the ETF as some of its traders were under mandatory quarantine due to the COVID-19 outbreak. The SFC is concerned as to the sufficiency of risk management measures of management companies and market makers of ETFs as a whole. Accordingly, the SFC:
- Reminded ETF management companies of the duty to closely monitor the operations and activities (including secondary market trading and liquidity) of the ETF and to ensure the trading of SFC-authorized ETFs is conducted in a fair and orderly manner, including to:
- conduct due diligence on and regular monitoring of market makers and be reasonably satisfied that they remain competent and properly resourced to duly discharge the market making functions (including having appropriate business contingency plans in place);
- closely monitor the secondary market trading and liquidity of the ETFs under their management, including the market making activities and performance of the market makers of their ETFs;
- maintain a close dialogue with each market maker and make appropriate arrangements to ensure that such market maker will inform the management company immediately if it experiences or foresees that it will experience any operational difficulties or disruptions that may affect the proper discharge of its market making functions;
- properly manage the risk of reliance on a single market maker to provide secondary market liquidity for an ETF. This may include procuring more than one market maker for an ETF or securing appropriate arrangement for an alternative market maker to readily step in with short notice in the event of cessation, disruption or suspension of market making activities of the last market maker;
- be fully aware of and comply with the administrative arrangements and other requirements associated with the listing of ETFs on The Stock Exchange of Hong Kong Limited (SEHK), including the procedures of the publication of announcements or notices on the SEHK’s website such as the publication windows cut-off times;
- in the event of cessation, disruption or suspension of market making activities or upon notice of such an event happening:
- report to the SFC immediately the cessation, disruption or suspension;
- assess whether the cessation, disruption or suspension of market making activities for units/shares (traded in any counter) of an ETF under its management could adversely affect the interests of investors;
- keep investors informed as required under 8.6(q) of the Code on Unit Trusts and Mutual Funds; and
- give the SFC early alerts of any untoward circumstances relating to the ETFs under its management, including any issues which may adversely affect the operations and secondary market trading and liquidity of its ETFs (including receipt of any resignation notice of the last market maker).
- Reminded market makers of ETFs to ensure compliance with applicable laws, rules, regulations and conduct requirements administered or issued by the SFC (including the Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission) and the applicable rules of SEHK when conducting their business activities (including the Securities Market Maker Regulations), including in particular to:
- establish and maintain appropriate internal controls and risk management measures, including an effective business continuity plan commensurate with their size and scale of business, to protect their key business functions of market making. The plan should identify likely scenarios involving disruptions, appropriate backup facilities or alternative arrangements, as well as adequate personnel for the continuity of market making activities;
- invoke contingency measures in a timely fashion in anticipation of potential operational disruptions to maintain the key business functions; and
- alert the management company of the ETFs, the SFC and the SEHK immediately if they experience or foresee that they will experience any operational difficulties or disruptions that may affect the proper discharge of their market making functions for ETFs.
Joint Statement in relation to General Meetings in light of the Prevention and Control of Disease (Prohibition on Group Gathering) Regulation
The SFC and the Hong Kong Stock Exchange (SEHK) published a joint statement regarding the impact of the recently introduced Prevention and Control of Disease (Prohibition on Group Gathering) Regulation (Cap. 599G) on corporate annual general meetings (AGM), extraordinary general meetings (EGM) and special general meetings (SGM). The SFC and SEHK clarified that AGMs fall under an exemption in Cap. 599G, while EGMs and SGMs can also fall under the same exemption under certain circumstances. The SFC and SEHK also set out some guidelines for listed issuers to consider when deciding on the timing of their meetings.
1 April 2020
FAQ – Licensing related matters in light of the COVID-19 pandemic
The SFC published an FAQ on concerns and issues faced by intermediaries and licence applicants relating to licensing related matters. The FAQ covers issues such as working from home, and arrangements relating to extension of timeline for filing audited accounts or extension of timeline for completing annual CPT requirements.
31 March 2020
Circular to intermediaries – Extended deadlines for implementation of regulatory expectations and reminder of order recording requirements under COVID-19 pandemic
The SFC published a circular on the extension of implementation deadlines for a number of upcoming regulatory expectations by six months, including expectations on the use of external electronic data storage, new measures to protect client assets (client asset acknowledgement letters), and data standards for life cycles. The SFC also reminded intermediaries of their need to continue to comply with the order recording requirements under paragraph 3.9 of the Code of Conduct for Persons Licensed by or Registered with the SFC.
31 March 2020
Please also see Legal Update here.
Circular to intermediaries – Reminder of important obligations to ensure suitability and timely dissemination of information to clients
The SFC published a circular reminding licensed and registered persons of their obligations under the Code of Conduct for Persons Licensed by or Registered with the SFC. In particular, the SFC emphasized the need to observe the suitability obligations when they make a solicitation or recommendation and the obligation to disseminate information in a timely manner when they hold an investment product directly or indirectly on behalf of clients, as well as the need to act in the best interests of their clients.
27 March 2020
Please also see Legal Update here.
Circular to management companies and trustees and custodians of SFC-authorized funds
The SFC published a circular reminding managers, trustees, and custodians of SFC-authorized funds of their obligations to properly manage the liquidity of their funds and ensure fair treatment of investors in the wake of the market volatility caused by the COVID-19 outbreak. The SFC has stepped up its monitoring of authorized funds in light of the current market conditions.
27 March 2020
Please also see Legal Update here.
Further Guidance on the Joint Statement in relation to Results Announcements in light of the COVID-19 Pandemic
The SFC and the Hong Kong Stock Exchange (SEHK) provided further guidance on the joint statement of 4 February 2020 regarding the release of results by listed companies. The SFC and SEHK provided clarifications on a number of issues, such as guidance for issuers who are unable to publish a preliminary results announcement in accordance with the Listing Rules by 31 March 2020 and guidance for both GEM and Main Board issuers on the publication of annual reports by the respective 31 March 2020 and 30 April 2020 deadlines.
16 March 2020
Joint Statement in relation to Results Announcements in light of Travel Restrictions related to the Severe Respiratory Disease associated with a Novel Infectious Agent
The SFC and the Hong Kong Stock Exchange (SEHK) issued a joint statement to listed issuers and auditors regarding the impact of the COVID-19 outbreak on the ability of listed issuers to meet reporting requirements under the Listing Rules, namely announcement of their financial information and results by the 31 March 2020 deadline. The SFC and SEHK noted that travel and other restrictions caused by the outbreak may cause disruption to the reporting and audit processes of listed issuers, and encouraged them to consult the SEHK and provide details of the circumstances which would prevent them from meeting the requirements. The SEHK will then provide further guidance in conjunction with the SFC.
4 February 2020
Please also see the FAQ on the joint statement here.