Hong Kong SAR – SFC Issues guidance for firms on issues related to COVID-19 difficulties
FAQs – Licensing
The FAQs are badged as relating to licensing issues, and cover issues including continuous professional training (CPT), alternative working arrangements (e.g. working from overseas), overseas affiliates covering trading desks, changes that need to be notified to the SFC, and delays to submitting audited accounts. We highlight some of the answers from the SFC below.
The SFC confirms a (non-exhaustive) list of situations which would require an LC to notify the SFC of changes implemented by the LC under the Securities and Futures (Licensing and Registration) (Information) Rules. An LC is expected to notify the SFC immediately of the following situations;
- Confirmation of staff infection which may have an impact on the LC’s operations
- Closing of office premises as a result of staff infection or government lockdown, including overseas office premises, if the closure has implications for the LC’s operations or the carrying on of its regulated activities (e.g., temporary closing of overseas office premises which handles back and middle office functions)
- Changes to its organisational resources (e.g., split team arrangements, staff relocation to overseas offices)
- The triggering of the LC’s business continuity plan.
The SFC also confirms the approach where an LC’s staff work from home or from its overseas offices which are not premises approved under section 130 of the Securities and Futures Ordinance (approval for using any premises for the keeping of records or documents relating to the carrying on of the regulated activities for which it is licensed). In such circumstances, the LC should ensure that the staff will be able to remotely access the LC’s trading or other systems, and that the activities conducted by the staff will be captured in the records and documents generated by these systems. If certain records and documents need to be kept in unapproved premises on a temporary basis, the LC should send them back to the approved premises of the LC as soon as practicable.
As to whether an overseas affiliate can cover the trading functions of a Hong Kong SAR trading desk which has been temporarily shut down, the SFC would expect firms to have a back-up office and have remote access to trading facilities so that it can continue to provide trading services if the main dealing office is shut down. However, in the event that the back-up facilities fail and orders need to be routed to an overseas affiliate for execution, the LC is required to;
- notify the SFC immediately, and
- seek approvals from the SFC and overseas authorities for trading offshore where necessary.
Under these exceptional circumstances, the SFC would provide flexibility and assistance to ensure continued service to clients.
The SFC will permit a licensed individual to be deployed to an overseas office as a contingency measure, but the LC must notify the SFC, and both the LC and the licensed individual must be able to comply with the relevant legal and regulatory requirements in that jurisdiction. The LC must continue to exercise oversight over that individual as it remains responsible for the regulated activities performed by that individual for the LC.
The SFC has included a query relating to whether to obtain a temporary representative licence for staff from an overseas affiliate, who intended to come to Hong Kong to carry on regulated activities when meeting with Hong Kong clients of the LC, but who will now hold teleconferences instead. The question notes the LC originally intended to obtain a temporary representative licence, and the SFC considers that this approach should still be considered as the “overseas individual intends to conduct regulated activities servicing Hong Kong clients”, even though they will not be present in Hong Kong. The SFC does note that it will be pragmatic in considering the grant of such licence in view of the current exceptional circumstances.
The FAQ also cover several questions relating to CPT, and the SFC approach here is that there will be forbearance in this area in the form of extensions for meeting CPT requirements and carry forwards of unfulfilled hours.
SFC Circular on Order Recording and Extension of Certain Deadlines
The SFC also confirms the approaches that should be taken to ensure compliance with the order recording requirements when staff are not working from their usual place of business during the COVID-19 situation. The SFC reminds all intermediaries however, that when looking at and implementing alternative order placing and recording, intermediaries must have appropriate control measures in place for ensuring that the alternatives are properly implemented in compliance with the order recording requirements.
Where orders are accepted by mobile phones outside the usual place where business is conducted, staff members should immediately call back to the telephone system and record the time of receipt and the order details.
Staff can use other methods (e.g. in writing by hand) to record details of clients’ order instructions and time of receipt if the telephone recording system cannot be accessed.
As highlighted in the SFC’s circular dated 4 May 2018, receiving client orders through instant messaging is permitted where the requirements set out in the circular in relation to record keeping, security and reliability, compliance monitoring and establishing internal policies and procedures are observed.
Extension of Deadlines for New Regulatory Expectations and Order Recording Compliance
The SFC has decided to extend the deadlines for implementation of the following regulatory expectations by six months:
- Use of external electronic data storage (EDSP) – Where a data centre of an EDSP used by a licensed corporation has been approved under section 130 of the SFO before 31 October 2019, the LC's provision of certain documents to the SFC’s Licensing Department (extended to 31.12.2020)
- The requirement to have countersigned acknowledgement letters from relevant banks in place before depositing any client money or securities into any new client asset accounts (extended to 31.01.21)
- Data standards for order life cycles which require in-scope brokers to implement system changes for compliance with the data standards (extended to 30.04.21)