Hong Kong SFC Extends Deadlines For Implementing Regulatory Expectations and Reminds Intermediaries Of Their Order-recording Obligations
In light of the potential disruption to the operations of intermediaries as a result of the COVID-19 outbreak, Hong Kong’s Securities and Futures Commission (SFC) has announced via a circular1 dated 31 March 2020 that it would extend the implementation deadline for three previously -announced regulatory expectations by six months.
While the SFC has reiterated that intermediaries are expected to make all reasonable efforts to comply with regulatory obligations, it acknowledges the staffing difficulties intermediaries currently face as a result of travel bans, regional lockdowns, and mandatory quarantine periods, etc.
The following table sets out the affected regulatory expectations and the new deadlines for implementation:
|Upcoming Regulatory Expectation
|Original Implementation Deadline
|New Implementation Deadline
|Use of external electronic data storage (EDSP)2
If any data centre of an EDSP used by a licensed corporation exclusively for keeping records required under the Securities and Futures Ordinance or the Anti-Money Laundering and Counter-Terrorist Financing Ordinance was approved as being suitable premises for keeping records or documents before 31 October 2019, the licensed corporation must provide the SFC with certain specified documents by 30 June 2020.
30 June 2020
|31 December 2020
|New measure to protect client assets – standardised acknowledgement letter3
|Intermediaries must implement new standard form countersigned client acknowledgement letters from relevant banks before depositing any client money or securities into any new client asset accounts.
|31 July 2020
|31 January 2021
|Data standards for order life cycles4
|Licensed securities brokers whose trading turnover in Hong Kong Stock Exchange-listed equities reaches or exceeds 2% of a year’s total market trading volume must implement system changes and make other necessary arrangements for compliance with new data standards for trading-related data to be submitted to the SFC upon request.
|31 October 2020
|30 April 2021
Order Recording Requirements Under the Code of Conduct For Persons Licensed By or Registered With the SFC (Code of Conduct)
The SFC notes that as a result of the COVID-19 outbreak, staff members of intermediaries are often unable to work from their usual place of business and must remotely access their order management systems. In light of this, the SFC reminds intermediaries of the need to ensure continued compliance with paragraph 3.9 of the Code of Conduct, which provides that a licensed or registered person must record and immediately time stamp records of the particulars of the instructions for agency orders and internally generated orders. For order instructions received via phone, a telephone recording system must be used to record the instructions.
The SFC also reminds intermediaries of the availability of alternative order receiving and recording options as well as the respective requirements, such as:
- Orders accepted by mobile phones outside the trading floor, trading room, the usual place of business where orders are received, or the usual place where business is conducted- for such orders, intermediaries’ staff members should immediately call back to the intermediaries’ telephone system and record the time of receipt and the order details;
- Alternative formats (e.g. in writing by hand) for recording details of clients’ order instructions and time of receipt, which can be used if the intermediaries’ telephone recording system cannot be accessed; and
- The receipt of client orders through instant messaging, which is acceptable as long as it is in compliance with previous SFC guidance.
These alternative options are discussed in the notes to paragraph 3.9 of the Code of Conduct. If intermediaries choose to adopt them, they have to ensure that the arrangements comply with the requirements set out in the Code.
1. Securities and Futures Commission (2020) 'Circular to intermediaries Extended deadlines for implementation of regulatory expectations and reminder of order recording requirements under COVID-19 pandemic', Circulars [online]. Available at: https://www.sfc.hk/edistributionWeb/gateway/EN/circular/intermediaries/supervision/doc?refNo=20EC26 (Accessed: 1 April 2020)
2. Securities and Futures Commission (2020) 'Circular to Licensed Corporations – Use of external electronic data storage', Circulars [online]. Available at: https://www.sfc.hk/edistributionWeb/gateway/EN/circular/intermediaries/supervision/doc?refNo=19EC59 (Accessed: 1 April 2020)
3. Securities and Futures Commission (2020) 'Circular to intermediaries New measure to protect client assets', Circulars [online]. Available at: https://www.sfc.hk/edistributionWeb/gateway/EN/circular/intermediaries/supervision/doc?refNo=19EC48 (Accessed: 1 April 2020)
4. Securities and Futures Commission (2020) 'Circular to licensed corporations Data Standards for Order Life Cycles', Circulars [online]. Available at: https://www.sfc.hk/edistributionWeb/gateway/EN/circular/intermediaries/supervision/doc?refNo=19EC50 (Accessed: 1 April 2020)