The following updates are examinable from 1 June 2023
TOPIC 1 – REGULATORY OVERVIEW OF THE HONG KONG FINANCIAL INDUSTRY
- Minor updates to Financial Secretary responsibilities
- Update of number of IOSCO members
TOPIC 2 – PRINCIPLES OF RELEVANT HONG KONG LAW AND THE COMPANIES ORDINANCE
- No updates
TOPIC 3 – SECURITIES AND FUTURES ORDINANCE
- No updates
TOPIC 4 – LICENSING AND REGISTRATION, AND SUBSIDIARY LEGISLATION
- Additional material on competence requirements:
Additional Competence Requirements in Connection with Codes on Takeovers and Mergers and Share But-backs
- Takeover Code Adviser Guidelines (TC Adviser Guidelines) provide additional competence requirements for those who advise on takeovers, mergers and share buy-backs
- A responsible officer of a TC Adviser who can advise on takeovers, mergers and share buy-backs is known as a TCRO
- TC Advisers and TCROs must comply with the following requirements:
- At least one TCRO must supervise and be involved in each transaction subject to the Codes the TC Adviser is advising on
- TCROs and licensed representatives of TC Advisers must meet additional eligibility and CPT requirements
- Updated material covering Continuous Professional Training (CPT):
Guidelines on Continuous Professional Training
- A licensed representative or relevant individual must complete 10 CPT hours per calendar year, irrespective of the number or type of regulated activities involved
- A responsible/executive officer must complete a minimum of 12 CPT hours per calendar year, with the 2 additional hours being related to regulatory compliance
- Each individual practitioner must complete at least 5 CPT hours per calendar year on topics directly relevant to the regulated activity he/she is involved in. Sponsors must not take less than 2.5 hours of sponsor-related CPT and TC Advisers/TCROs must complete at least 2.5 hours of relevant CPT
- No less than 2 CPT hours per calendar year must relate to ethics or compliance
- Each new individual practitioner in Hong Kong must complete 2 CPT hours on ethics within 12 months as a one-off requirement (not applicable to temporary lcensees)
TOPIC 5 – BUSINESS CONDUCT AND CLIENT RELATIONS
- Additional material on GP 4: Information about Clients
Investor Identification Regime
Investor Identification
- An intermediary involved in trading on behalf of clients must assign to each client a unique and permanent Broker-to-Client Assigned Number (BCAN) and must keep up-to-date client identification data (CID)
- Investor identification for the Hong Kong securities market took effect on 20 March 2023
- Client on-exchange orders must be accompanied by submission of BCAN and CID to the SEHK’s data repository as well as the unique central entity number (CE number) assigned to the intermediary by the SFC
- These requirements also apply to off-exchange orders that are reportable by SEHK exchange participants (OE Trade Reporting)
OTC Securities Transactions
- Whether as principal or agent, an intermediary involved in OTC transactions (not OE trading) must report OTC trades directly to the SFC – this is intended to improve OTC trade transparency using the SFC market oversight function
- Only transfers of ordinary shares and REIT units listed on the SEHK, that are subject to HK stamp duty, are subject to this requirement
- This OTC reporting requirement will be effective from 25 September 2023
- Information required to be submitted to the SFC within three trading days after the trade: intermediary’s CE number; details of securities traded; client CID; and the CE number of any other licensed intermediary involved in the trade
- Reporting obligation does not apply for share transfers to do with a structured product/derivative, or for conversion of a depository receipt into shares or vice versa
Client Data
- Individual clients must give prior consent to the use of their data
TOPIC 6 –BUSINESS OPERATIONS AND PRACTICES
Material added relating to Customer Due Diligence:
Involvement of Third-Parties
- Extra due diligence steps should be taken when dealing with a third party who claims to be acting on behalf of the customer
- Identity of such third parties should be verified, just as with customers
Cross-Border Correspondent Relationships
- Licensed corporations may provide services for financial institutions located outside Hong Kong
- Additional customer due diligence should be carried out on the respondent institution and the underlying customers
- Cross-border correspondent relationships should not be established with financial institutions that are not physically present in the place it is authorised and is not a member of a regulated group
TOPIC 7 –PARTICIPATING IN THE HONG KONG EXCHANGES
Material updated relating to stock transaction costs:
- FRC transaction levy of 0.00015%
- Trading fee of 0.00565% charged to both buyer and seller and paid to SEHK
- Stamp Duty on stock transactions of 0.13% on each purchase/sale
TOPIC 8 –ACCESSING PUBLIC CAPITAL
- Material added relating to Overall Coordinators, SPACs and cryptocurrency exchange licensing:
Overall Coordinators
- An overall coordinator is a capital markets intermediary that will undertake the overall management of the offering, including:
- Coordinating bookbuilding activities
- Advising listing applicant on the offer price
- Making allocation recommendations to the listing applicant
- Exercising discretion around share allocation
- The listing applicant will need to observe the “sponsor coupling” requirement: each independent sponsor appointed must also be appointed as an overall coordinator, or there must be an overall coordinator appointed from the same group of companies as the independent sponsor
- Sponsors that are not independent will need written confirmation that the listing applicant has already made an appointment that satisfies the sponsor coupling requirement
Special Purpose Acquisition Companies (SPACs)
- A SPAC is created to raise funds that will be used to acquire a business
- Gross funds raised in an initial offering must not be less than HK$1 billion
- SPAC securities can only be marketed to and traded by professional investors
- A SPAC is admitted to listing subject to a pre-defined time period (usually 24 months) within which it must acquire a suitable business in what is known as a “De-SPAC Transaction”
- The De-SPAC transaction must be completed within 36 months of the listing date
- A SPAC must appoint at least one sponsor for the listing application
- A sponsor will also be needed for the De-SPAC Transaction as the company will need to meet the same listing requirements
Cryptocurrency Exchange Licensing
- Platforms that are sometimes called “cryptocurrency exchanges” or “cryptoexchanges” may trade in a variety of virtual assets
- Where any of those assets meet the definition of securities under the SFO, the platform will need to be licensed or registered under the SFO
- Where one or more of the assets do not meet the definition, the platform will need to be licensed under AMLO
- Accordingly, under this dual licensing regime, a platform may need to hold a license under either or both the SFO and AMLO
TOPIC 9 –MARKET MISCONDUCT AND IMPROPER TRADINGPRACTICES
- No updates
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