For all those that have been moving to Hong Kong, the following will be of great interest.
As we all know Regulators in key markets around the world have increasingly looked for more effective ways to hold senior managers of financial institutions accountable for failings or wrongdoing within their institutions, driven by the belief that overall corporate behaviour can be improved through increased personal responsibility – two examples that illustrate this regulatory thinking.
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In Hong Kong, there have been concerted reminders from the Securities and Futures Commission (SFC) and other regulators in recent years that senior management of financial institutions
- must foster the “right corporate culture”, and
- that individuals will be held accountable for corporate misconduct.
However, regulatory sanctions against heads of businesses (such as CEO, COO, and Head of Compliance) for failing to ensure their firms’ compliance with law and regulations, which are regularly imposed by the UK and US authorities, have not been the norm in Hong Kong.
Indeed, the SFC has historically seldom relied on its power to take disciplinary action against a large population of such regulated persons who are not licensed by the SFC.
This may now all change following the SFC’s 16 December 2016
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The Circular, with the accompanying 41 FAQs, offer additional guidance on the SFC’s expectations of senior management of Licensed Corporations (LCs) and introduce measures which would bring senior management who are in charge of prescribed “CORE FUNCTIONS” FIRMLY in the crosshairs of the SFC.
The Circular and FAQs are intended to apply to LCs only, and therefore would not cover Registered Institutions (RIs), which are primarily regulated by the Hong Kong Monetary Authority and are already subject to the managers regime under the Banking Ordinance.
However, it is understood that the SFC has indicated to the industry that it would consider extending the regime to RIs in the future.
The SFC considers the measures introduced in the Circular and the FAQs to be consistent with the existing regulatory expectations as stipulated under the Securities and Futures Ordinance (SFO), subsidiary legislation and related codes and guidelines issued by the SFC.
While the latest guidance does not introduce a new senior management regime as such, certain aspects of the enhanced regime, in particular the new concept of
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- the requirement to submit to the SFC detailed governance and operational information,
the above would require LCs and their senior management to start planning for implementation without delay, particularly in view of the tight implementation timeline – the enhanced regime will go live in less than two months from now .
After issuing the Circular on 16 December 2016, the SFC intends to commence the collection of up-to-date management structure information (including MIC information and organisational charts) from licensed corporations and corporate licence applicants on 18 April 2017 (commencement date).
To facilitate collection of the information, the SFC will gazette new forms under section 402 of the SFO.
Existing licensed corporations are expected to submit their management structure information to the SFC via the SFC Online Portal on or before 17 July 2017.
The SFC will organize industry workshops to introduce new portal features in the first quarter of 2017.
The SFC generally expects that on or before 16 October 2017 (i.e. within six months from the commencement date), MICs of the Overall Management Oversight function and the Key Business Line function, who are not already ROs, will have applied for approval to become ROs (please refer to Part F of the Circular).
Prior to then, an LC and its management must map out the key business activities that they engage in and assign MICs who are responsible for overseeing them.
A clear understanding of the scope of duties and obligations of each of the MICs – which may include senior personnel based overseas – must also be established across the LC before the commencement date.
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