To maintain the financial stability and facilitate the economic growth of Hong Kong, regulators have been reviewing regulations, guidelines and compliance regularly. Regulators around the globe may introduce new requirements or take enforcement actions from time to time. In our ‘Financial Services Sector Updates’, it will include the latest development of the sector for your reference:
Public consultation from Insurance Authority and implementation of the risk-based capital regime and related rules
The Insurance Authority (IA) launched a six-week public consultation on the draft Insurance (Valuation and Capital) Rules (Cap.41R) and the draft Insurance (Submission of Statements, Reports and Information) Rules (Cap.41S) to tie in with the implementation of the Risk-based Capital (RBC) regime on 5 December 2023.With strong backing from the insurance sector to transition towards a risk-sensitive capital framework, the IA embarked on formulating specific requirements for the RBC regime following a consultation in 2015. Through three rounds of quantitative impact studies (QIS) conducted in collaboration with industry stakeholders, the IA has reached a broad consensus on the detailed prerequisites, deeming the proposed RBC regime suitable for Hong Kong's insurance landscape.
To facilitate the implementation of the RBC regime, the Insurance (Amendment) Ordinance 2023 (Amendment Ordinance) was passed in July 2023, laying down the legal foundation for its enforcement in the insurance sector. This Amendment Ordinance grants the IA the authority to establish rules outlining detailed requirements through subsidiary legislation. The two draft rules presented in this consultation, the Insurance (Valuation and Capital) Rules and Insurance (Submission of Statements, Reports and Information) Rules, address the quantitative assessment under Pillar 1 and reporting obligations to the IA under Pillar 3 within the three-pillar framework.
The Amendment Ordinance, together with the relevant subsidiary legislation, is expected to commence operation in full on a date to be appointed by the Secretary for Financial Services and the Treasury after the passage of the two Rules by the Legislative Council in 2024.
Read more from the source:
https://www.ia.org.hk/en/infocenter/press_releases/20231205.html
HKMA shared progress on digitalisation of AML/ CFT supervision - AML/CFT Surveillance Capability Enhancement Project
The Hong Kong Monetary Authority (HKMA) issued a circular on 7 February 2024 on AML/CFT Surveillance Capability Enhancement Project (AMLS project), in which it has made significant progress by leveraging data and supervisory technology (Suptech) to enhance risk-based anti-money laundering and counter-financing of terrorism (AML/CFT) supervision. This initiative, aligned with the HKMA's ‘Fintech 2025’ strategy, aims to modernise AML/CFT supervision in response to evolving risks from new technologies and the dynamic nature of financial crime.The AMLS Project has resulted in more proactive and collaborative AML/CFT supervision, assisting stored value facility (SVF) licensees in transitioning from a compliance-focused approach to effectively managing fraud, money laundering, and financial crime risks. By implementing automation and process reengineering, the HKMA has streamlined supervisory activities, allowing a targeted focus on higher-risk areas and leveraging advanced analytics for better threat identification.
Furthermore, the project has led to tailored approaches for AML/CFT supervision and SVF licensees, including the consolidation of financial crime risk data collection and analysis. Through initiatives such as the Macro Analytics pilot, which focuses on fraud-related mule account networks, the HKMA aims to enhance control systems and share effective AML practices within the industry. The project also emphasises the importance of industry collaboration, Regtech adoption, and responsible authorised institutions use in AML/CFT processes to achieve outcome-based AML work effectively. Authorised Institutions are encouraged to enhance their AML capabilities through collaboration and technology adoption to combat financial crime effectively.
Read more from the source:
https://www.hkma.gov.hk/media/chi/doc/key-information/guidelines-and-circular/2024/20240207c2.pdf
Insurance Authority emphasised the importance of treating customers fairly principle for practitioners
The Hong Kong Insurance Authority (HKIA) released the publication ‘Conduct in Focus’ for the topic ‘treating customers fairly (TCF)’ on 8 December 2023. TCF is emphasised by the International Association of Insurance Supervisors and the HKIA, urging the insurance industry to prioritise fair treatment throughout the insurance product lifecycle. While compliance functions play a role in gate-keeping, all parties are accountable for TCF, aligning with HKIA's Guidance GL 21 mandating insurers to uphold good business conduct. Managing conduct risks across functions such as product design, marketing, and claims handling is essential for ensuring fair treatment of customers.In the insurance lifecycle, product design and pricing play pivotal roles in customer outcomes, with complex products posing higher risks of poor results. Features such as early encashment and inadequate disclosure of risks can lead to detrimental outcomes for policyholders. Regulatory bodies have intervened to address non-compliance issues, emphasising fair treatment and protection for policyholders. Intermediaries play a crucial role in TCF, requiring adequate training and oversight to prevent misaligned incentives and ensure fair customer treatment.
Effective claims handling and policy definitions are crucial aspects of TCF, with prompt and accurate claims settlement being paramount for customer satisfaction. Companies are shifting focus towards claims settlement rates as a positive indicator of product quality. Concerns over declined claims highlight the importance of clear policy benefits explanation and accurate disclosure by customers. Technology integration, such as smart systems and wearable devices, is enhancing the claims process and pricing accuracy. Addressing outdated claims definitions, as seen in recent legal cases, is vital to mitigate risks, underscoring the need for up-to-date policy definitions to uphold TCF principles.
Read more from the source:
https://www.ia.org.hk/en/legislative_framework/files/Eng_Conduct_in_Focus_Issue_8_Dec_2023.pdf
HKMA took disciplinary action against TNG (Asia) Limited for violating the Payment Systems and Stored Value Facilities Ordinance
The Hong Kong Monetary Authority (HKMA) announced on 18 December 2023 that it has recently took disciplinary action against TNG (Asia) Limited (TNG) for violating the Payment Systems and Stored Value Facilities Ordinance. Following an investigation, TNG was reprimanded and ordered to pay a penalty of HK$1,575,000 for failing to meet the criteria related to anti-money laundering measures and risk management under the ordinance.The disciplinary action stemmed from TNG's inadequate control systems during specific periods, which led to non-compliance with guidelines on anti-money laundering and counter-financing of terrorism (AML/CFT) and risk management. The HKMA found deficiencies in transaction monitoring, governance arrangements, and internal control systems within TNG from 2016 to 2020. Despite taking some remedial actions, TNG's shortcomings warranted disciplinary measures to emphasise the importance of robust AML/CFT systems and risk management practices for stored value facility (SVF) licensees.
Ms Carmen Chu, Executive Director of Enforcement and AML at HKMA, highlighted the significance of sound governance, internal controls, and compliance awareness for SVF licensees. She stressed the need for adopting appropriate governance systems, providing staff training on relevant guidelines, and enhancing internal controls to effectively manage risks in SVF operations. TNG's cooperation and efforts in addressing identified deficiencies were acknowledged, but the disciplinary action underscored the importance of regulatory compliance in the financial industry.
Read more from the source:
https://www.hkma.gov.hk/eng/news-and-media/press-releases/2023/12/20231218-5/
SFC secures first criminal conviction of securities fraud via illegal short selling
The Securities and Futures Commission (SFC) announced on 27 February 2024 that Ms Christine Yeung Tak Sum, an unemployed retail trader, pleaded guilty to the charges brought by the SFC. Yeung was found guilty of employing a fraudulent scheme with intent to defraud under the Securities and Futures Ordinance (SFO) related to illegal short selling, marking a significant milestone in such cases.During a ramp-and-dump investigation, the SFC uncovered Yeung's fraudulent activities, leading to her conviction. Yeung had manipulated information to deceive her broker, Aristo Securities Limited, into allowing her to sell 15 million shares of Aurum Pacific (China) Group Limited that she did not actually possess. Subsequently, she engaged in illegal short selling by selling the shares before settling the purported transfer, then buying back the shares at a lower price to cover her positions and making an unlawful profit of approximately HK$602,600.
Yeung's sentencing is scheduled for 20 March 2024, as she remains in custody. This case serves as a reminder to financial intermediaries to diligently adhere to short selling regulations and be vigilant against signs of illegal short selling by clients. The SFC emphasises the importance of implementing and maintaining adequate measures to ensure compliance with regulations and prevent fraudulent activities in the securities market.
Read more from the source:
https://apps.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/enforcement-news/doc?refNo=24PR29
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