2023 SFC Regulatory Update Newsletter
In 2023, the Securities and Futures Commission (“SFC”) has continued to demonstrate proactive regulatory oversight in fulfilling its mandates as an industry regulator. This Newsletter outlines key regulatory updates issued by the SFC, encompassing Consultation Papers, Consultation Conclusions, Circulars, and other relevant notices issued thus far in the year.
Some of the key highlights include:
- Hong Kong Investor Identification Regime;
- Virtual Asset Service Provider Licensing Regime;
- Introduction of the Type 13 License;
- Consensus on Block Trading under Stock Connect;
- ESG and Carbon Neutrality;
- Enforcement-related Provisions under the Securities and Futures Ordinance (“SFO”); and
- Market Sounding Guidelines.
PDF version: 2023 SFC Regulatory Update Newsletter
January
Submission of BCAN-CID mapping file for the Hong Kong investor identification regime.
In preparation for the launch of the investor identification regime in March, the SFC issued a circular providing further guidance to intermediaries on the submission of mapping files, and reminders to comply with relevant and applicable data privacy laws and obligations.
February
The SFC and the CSRC enter into an MoU on regulatory cooperation.
The SFC and China Securities Regulatory Commission (“CSRC”) signed a memorandum of understanding clarifying arrangements and procedures for mutual cooperation on cross-boundary share issuance and listing, enforcement, supervision of intermediaries and exchange of information to enhance regulatory cooperation across the border.
The SFC consults on proposals to regulate virtual asset trading platforms.
The SFC launched a consultation on the proposed requirements for operators of virtual asset trading platforms. Under a new licensing regime to take effect on 1st June 2023, all centralised virtual asset trading platforms carrying on business in Hong Kong or actively marketing to Hong Kong investors will need to be licensed by the SFC.
March
Investor identification regime to take effect on 20 March 2023.
Under the Hong Kong Investor Identification Regime (“HKIDR”), licensed corporations and registered institutions are required to tag assigned numbers to securities orders to be executed on the Stock Exchange of Hong Kong (‘’SEHK”) and off-exchange trades reportable to SEHK.
The SFC issues quarterly report.
The SFC issued its Quarterly Report covering key developments in the industry from October to December 2022.
The SFC issues guidance in light of new Mainland rules for overseas listings.
The SFC published Frequently Asked Questions (“FAQ”) to guide market practitioners on the application of the Codes on Takeovers and Mergers and Share Buy-backs under the new rules. This may be relevant for Type 6 licensed corporations who are sponsors.
Joint consultation on changes to the OTC derivative Clearing Rules.
The SFC and the Hong Kong Monetary Authority (“HKMA”) issued a joint consultation introducing a regulatory regime for OTC derivatives. The regime creates obligations for the introduction of reporting, clearing, trading and record keeping in respect of OTC derivative transactions in Hong Kong.
The SFC publishes quick reference guides for licensing requirements.
The SFC introduced in a series covering different arrangements, the guides address frequently-asked questions about the SFC licensing and associated requirements such as overseas industry experience, qualifications and exemptions from examination requirements.
The SFC concludes consultation on introduction of new regulated activity for depositaries of public funds.
The SFC concluded its consultations to introduce a Type 13 regulated activity (“RA13”). This new regime will regulate depositaries who are trustees and custodians of SFC-authorised collective investment schemes. This regime is set to be introduced on 2nd October 2024.
The SFC consults on proposed subsidiary legislation for implementing an uncertificated securities market in Hong Kong.
The oncoming rules will cover the operational and technical procedures where securities are held in an electronic, uncertificated form. In addition, the rules will also establish regulations for share registrars, governing how they operate and manage share records, and encompasses changes to other subsidiary legislation.
April
The SFC welcomes Stock Exchange consultation on climate-related reporting requirements for listed companies.
The SFC announced support for the consultation issued by SEHK on proposed climate-related reporting requirements for listed companies in Hong Kong. The consultation was hailed as a major step towards aligning Hong Kong with global baseline standards for climate-related reporting.
The SFC announces carbon neutrality commitment.
The SFC announced its commitment to become a carbon-neutral organisation, aiming to achieve carbon neutrality before 2050 – in line with the Hong Kong government’s strategy set out in the Climate Action Plan 2050. In between, an objective is to cut down on 50% of total carbon emissions by 2030.
May
The People’s Bank of China, SFC and HKMA to commence mutual access between the Mainland and Hong Kong interest rate swap markets.
This collaboration is to develop mutual access between the Mainland and Hong Kong interest rate swap markets, and to boost the collective development of financial derivatives markets.
The SFC consults on revisions to takeovers and share buy-back rules.
Amendments put forward during the consultation include codification of current practices of the Takeovers Executive, elaborations on the codes, among others. The consultation paper introduces initiatives to reduce the environmental impact associated with the documents published under the Codes.
The SFC concludes consultation on regulation of virtual asset trading platforms.
The Guidelines set out, among others, requirements relating to safe custody of assets, segregation of client assets, avoidance of conflicts of interest, cybersecurity standards, and requirements expected of licensed virtual asset trading platforms.
June
The SFC concludes consultation on the position limit regime.
Applicable to players in the derivatives market, the consultation imposes obligations on asset managers who manage funds or sub-funds of umbrella funds, in addition to amendments in consideration of HKEX’s proposed enhancements to its position limit regime. This would aid in strengthening market compliance and flexibility.
The SFC updates guidance to prepare for HKD-RMB Dual Counter Model.
Guidance on short selling reporting and stock lending record keeping in preparation for the launch of the HKD-RMB Dual Counter Model in the Hong Kong securities market.
The SFC publishes Annual Report 2022-23.
This report sets out the SFC’s achievements in the past year as well as its vision for the coming year – nurturing high-quality market growth and upholding world-class regulation to advance Hong Kong’s position as a leading international financial centre.
July
The SFC and the AFRC join forces to combat misconduct by listed issuers.
The SFC issued a joint statement with the Accounting and Financial Reporting Council (“AFRC”) on the collaboration in the regulation of the securities and futures markets in Hong Kong. The authorities’ collaboration would focus on dubious practices of improperly offered loans and other misconducts.
The SFC publishes review of SEHK’s performance in regulating listing matters.
The SFC released its review of the performance of SEHK in its regulation of listing matters in 2021. The report included a review of the Listing Division’s operations, processes, procedures and business valuations, also providing recommendations regarding the internal guiding process and the enhancement of the disclosure practices.
The SFC welcomes IOSCO endorsement of new sustainability disclosure standards.
The SFC stated the Commission would work with relevant Government bureaux and local collaborators to develop a comprehensive roadmap for adoption of the sustainability standards in Hong Kong.
The SFC welcomes licence and registration applications from depositaries of public funds.
Following its consultation conclusions, the SFC began accepting applications for carrying on Type 13 regulated activity under a new regime which will bring depositaries of SFC-authorised collective investment schemes under the SFC’s direct supervision.
August
Hong Kong’s asset and wealth management business fared on par with global markets in 2022.
Overall, the SFC’s report showed that the Assets Under Management (“AUM”) of Hong Kong’s asset and wealth management business recorded long-term healthy growth of 143% over the last 10 years.
The SFC concludes consultation on amendments to enforcement-related provisions of the Securities and Futures Ordinance.
The SFC is proceeding to broaden the scope of insider dealing provisions of the SFO but will however put on hold the other two proposed amendments due to complex implementation issues, which relate to professional investor exemption and injunctions and other orders available under the SFO.
Regulators reach consensus on introducing block trading under Stock Connect.
The SFC and China’s CSRC reached a consensus on the introduction of block trading under Stock Connect. This would enable southbound and northbound investors to execute large-sized transactions in both the Hong Kong and Mainland markets respectively.
The SFC issues quarterly report.
The SFC issued its Quarterly Report covering key developments in the industry from April to June 2023.
The SFC concludes consultation on risk management guidelines for futures dealing activities.
The guidelines set comprehensive risk management framework for futures brokers covering market risk, commodity futures trading, client credit risk, concessionary margining and risk management over executing or clearing agents, among others.
Regulators conclude consultation on revising OTC derivative Clearing Rules.
The HKMA and the SFC issued a joint consultation making some amendments to clearing rules for OTC derivatives, expected to come into effect by 1st July 2024.
September
The SFC amends takeovers and share buy-backs codes.
Changes include codification of existing practices of the Takeovers Executive, addition of clarifications, revision of definitions of important terms, streamlining of processes and introduction of green initiatives to reduce the carbon footprint of Codes documents.
The SFC steps up information dissemination and investor education on VATPs.
The SFC put in place series of measures to reinforce information dissemination and investor education in light of recent public concerns and incidents connected with unregulated virtual asset trading platforms (“VATPs”).
SFC-HKMA joint product survey in 2022 shows shifts to investments in money market funds.
The survey showed that money market funds were the top-selling collective investment scheme, followed by bond funds and equity funds. The shift is attributed to investors’ preference for stable income and liquidity amid rising interest rate environment. Notably, the collective investment scheme (“CIS”) and total investment product sales experienced a decline.
Enhancements to the Cross-boundary Wealth Management Connect Pilot Scheme: Strengthening Financial Market Connectivity in the GBA.
Authorities in Hong Kong, Macao and Mainland have agreed to revise and refine implementation details and operational guidance to increase synergistic economic developments in the 3 markets. Ultimately, this agreement when implemented would expand market connectivity across the GBA.
October
The SFC consults on market sounding guidelines.
Under the proposals, intermediaries would have to implement robust governance policies and internal control procedures to prevent the misuse and leakage of non-public information, amongst other obligations to be imposed.
The HKPF and the SFC establish joint working group on VATPs.
The Hong Kong Police Force and the SFC have established a dedicated working group to facilitate the sharing of information on suspicious activities and breaches of VATPs, implement a mechanism to assess the risks of suspicious VATPs; and enhance coordination and collaboration in related investigations, ensuring the cooperation in tackling illegal practices with virtual assets.
The SFC consults further on proposed amendments for implementing an uncertificated securities market (“USM”).
The amendments being proposed in the latest consultation relate to regulation of approved securities registrars under the USM environment and further amendments to the Stamp Duty Ordinance.
The SFC supports and sponsors the development of an industry-led voluntary code of conduct for ESG ratings and data products providers.
The SFC announced that it supports and sponsors the development of a code of conduct for voluntary adoption by ESG ratings and data products providers providing products and services in Hong Kong.
November
The SFC welcomes new financial infrastructure for retail fund distribution in Hong Kong.
The SFC welcomed a plan by the HKEX to establish an integrated platform overing front-to-back distribution life cycle and value chain for distribution of SFC-authorised funds in Hong Kong. This would also contribute to the advancement of fintech and the Hong Kong real economy.
December
The SFC issues quarterly report.
The SFC issued its Quarterly Report to provide operational and financial highlights for the quarter from July to September 2023 including important regulatory work and market data.
The SFC and the State Administration of Foreign Exchange top management meet in Beijing.
Julia Leung, CEO of the SFC, and Mr. Zhu Hexin, Deputy Governor of the People’s Bank of China and Administrator of the State Administration of Foreign Exchange, convened a high-level meeting in Beijing to discuss developments in both Hong Kong and Mainland markets, focusing on enhancing cross-boundary investment, financing collaboration and fostering cooperation on market developments.
The SFC’s enhanced position limit regime to take effect.
The SFC’s amendments to the Securities and Futures (Contracts Limits and Reportable Positions) Rules came into effect on 22nd December 2023. The changes include clarifications on applicability cases, new expectations and reporting obligations, etc. This new regime emphasizes regulatory requirements and promotes market compliance and flexibility.
Circular to management companies of SFC-authorised unit trusts and mutual funds -Updated guidance on streamlined measures for SFC-authorised funds.
The SFC updated guidance covering appointment of investment delegates, post authorisation notifications, derivatives investments, disclosures and reporting.
Joint circular on intermediaries’ virtual asset-related activities.
Joint circular from the SFC and HKMA setting guidance for licensed virtual asset trading platforms (VA trading platforms) to serve retail investors and authorised virtual asset futures exchange-traded funds (VA futures ETFs) for public offering.
Circular on SFC-authorised funds with exposure to virtual assets.
The SFC set out the terms for authorising investment funds with exposure to virtual assets (“VA”) of more than 10% of their net asset value (“NAV”) for public offerings.
