Hong Kong’s Securities and Futures Commission (SFC) has detailed its strategic priorities to address changing market conditions. The SFC communication provides a comprehensive outline of how it plans to bolster Hong Kong’s securities markets while addressing evolving risks and protecting investors.
Although the SFC generally comments on key priorities within its annual and quarterly reports, its new three-year strategic plan takes a notably different approach, which the regulator says will “steer market development to guard the city’s reputation as a world-class financial centre”.
Notably, Hong Kong has long held a unique position as a financial gateway between China and the Western world. The SFC highlights this aspect of its strategic approach over the next three years, citing its commitment to “further strengthening Hong Kong’s unique role as a gateway to the Mainland”.
The four pillar strategies defined by the SFC aim to:
This article explores these strategic priorities in further detail and key takeaways your financial firm may wish to consider.
The SFC seeks to bolster the resilience of Hong Kong’s financial markets and establish an even stronger foundation for sustainable growth.
Key areas the SFC is focused on to achieve these outcomes include:
The SFC’s 2023 Annual Report revealed enforcement actions including 135 investigations, 115 criminal charges against 25 persons, 14 individuals charged for suspected market misconduct and money laundering offences for indictment prosecution, and 5 convictions.
Additionally, the SFC made 5,851 requests for trading and account records from intermediaries due to surveillance of untoward price and turnover movements.
Firms can help strengthen market resilience and reduce the risk of harm to Hong Kong’s financial markets by enabling employees to understand their obligations and trade ethically. Ways firms can support the right trading behaviours include:
For further insights about managing and mitigating the risk of personal trading misconduct, see our article, How to Reduce Insider Trading Risk and Stay Out of the Headlines.
Additionally, the SFC seeks to create deeper connections with Mainland capital markets and Increase Hong Kong’s risk management competitiveness with more Mainland-related derivative products.
SFC Chairman Lui Tim Leung comments, “The Commission is now better placed than ever to respond robustly and creatively to new regulatory challenges at home and abroad and to shape market developments. In particular, we are committed to playing an even more active part in further strengthening Hong Kong’s unique role as a gateway to the Mainland and positioning the city as an offshore hub for RMB businesses and risk management, as well as supporting national development and safeguarding financial security.”
Additionally, just as the SFC is exploring regulatory monitoring tools, firms should consider taking a proactive approach to monitoring evolving regulatory changes and obligations.
Compliance teams’ ability to stay current with regulations and be aware of upcoming changes is a growing challenge in Hong Kong and across the globe. Firms attempting to navigate the complexities of operating within multiple jurisdictions and effectively manage cross-border compliance have an even greater task in front of them.
Firms sometimes attempt to track compliance obligations and processes using Excel spreadsheets and emailing documentation to the right resources. This Excel and Outlook approach has several drawbacks. There is no single, high-level view of a firm’s compliance status for all of its obligations, which increases the risk of non-compliance. Add to this the complexities of operating within multiple jurisdictions, and compliance teams have a significant task in front of them.
Regulatory Technology (RegTech) solutions like MCO’s Regulatory Change Manager (RCM) and Horizon Scanning tool read legislation and regulator’s rules to rapidly understand changes to regulatory obligations. These tools are a game-changer for organisations, especially with compliance resources based in local head offices and across multiple jurisdictions, empowering them to stay informed of changes without enduring intensive manual workloads.
MCO’s RCM solution automates the extraction & classification of information from regulatory texts & other data sources. RCM uses AI to review and categorise sources, including regulatory updates, legal documents and enforcement actions and provide automatic regulatory insight.
The RCM module is part of MCO’s complete compliance solution, built for the long-term, that fulfils the needs of every sized organisation, including:
The SFC aims to:
The SFC has been clear in its guidance that “the use of technology should not make investors of tokenised products worse off than investing in the underlying traditional products”, and in this respect, product providers will remain and be ultimately responsible for the management and operational soundness of the tokenisation arrangement adopted and record keeping of ownership, regardless of any outsourcing arrangement.
Boards should assess how crypto and digital assets impact existing strategies and products and understand the regulatory or strategic risk factors in dealing with tokenised products.
For further details about the SFC’s current guidance on virtual assets, see its Circular on tokenisation of SFC-authorised investment products.
The SFC is undertaking initiatives to enhance its operational efficiency and resilience, including:
While these are internally focused actions, firms may well note the regulator’s lead in leveraging technology to improve efficiency and resilience.
Financial institutions can enhance resilience and operational efficiency by leveraging financial technology (FinTech), including AI-driven solutions such as eCommunications surveillance.
Employees within financial firms are now communicating across multiple electronic devices using numerous applications, such as WhatsApp, WeChat, Facebook Messenger, and many others. Bring Your Own Device (BYOD) policies add even more complexity, making eCommunications surveillance an increasingly difficult task.
When implementing or reviewing eComms surveillance processes, firms should pay particular attention to the following areas:
Communications compliance software can help your firm prevent, detect, and measure potentially harmful, unethical, or unlawful messages from being sent.
MCO’s AI-driven eComms Review Module detects and measures potentially harmful, unethical, or unlawful messages and even helps prevent the sending of those messages. The solution automatically identifies unapproved communication channels and regulatory risk and prompts employees to change their language as they type words and phrases that trigger compliance policy exceptions.