COVID-19 Related Circulars or Guidance (Non-Exhaustive) Published By Financial Services Regulators of Hong Kong (Last Updated: 15 April 2022)

Securities and Futures Commission (SFC) Circulars/Guidelines

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REMARKS

The SFC published a Circular on 29 March 2022 to inform licensed corporations (LCs) of the HKMA’s notice (the “Notice”) about updated technical specifications for over-the-counter (OTC) derivatives trade reporting under the Hong Kong Trade Repository (HKTR) and the postponement of the implementation date of updates to coding schemes to cover “Proprietary rates” due to the current pandemic situation.

LCs that may be subject to mandatory reporting obligation are advised to refer to the Notice.

The SFC published a Circular on 24 March 2022 to indicate their expectations to licensed corporations (LCs) in relation to business email compromise (BEC) risks, especially at times when remote working arrangements are commonplace.

Background

The SFC has recently received reports from LCs about BEC, a type of cyber fraud whereby fraudsters posing as known business contacts dupe unwary staff into sending them money or sensitive information. These incidents resulted in the leakage of client information which undermined client interests and, in some cases, significant financial losses which the LCs had to bear.

Business email compromise

A BEC scheme typically involves one or more of the following actions by the fraudsters:

• forging an email address which looks like that of a genuine client contact for communicating with the target LC;
• impersonating client contacts and making apparently legitimate requests such as asking for copies of statement of accounts, adding or altering authorised signatories, applying for user accounts or placing trade orders; and
• issuing fund transfer instructions, usually to bank accounts under their control at multiple receiving banks, some of which are located overseas, to maximise their chances of receiving the funds.

In most cases where fraudsters succeeded, the identities of the email senders were either not verified or were checked improperly. For example, an LC staff simply called the phone number provided by the fraudster and followed the confirmation to process the fund transfer instructions.

In addition, many red flags were ignored by the LCs. In one incident, fund transfers were rejected or withheld by some banks. Instead of promptly investigating the irregularities, the LC proceeded to act on the transfer instructions to other banks. Eventually, a number of fund transfers were effected, inflicting financial losses on the LC.

LCs should take note of the examples of BEC provided in the Annex.

The SFC’s expectations

The SFC expects LCs to have internal control procedures and financial and operational capabilities which can be reasonably expected to protect their operations and clients from financial losses arising from theft, fraud and other dishonest acts, professional misconduct or omissions. The SFC reminds LCs of its circular titled “Circular to licensed corporations Management of cybersecurity risks associated with remote office arrangements” dated 29 April 2020 (item 17 below), to vigilantly monitor and effectively manage BEC risks, especially at times when remote working arrangements are commonplace.

Control mechanisms

LCs should establish effective policies and procedures to provide guidance to their staff for managing BEC risks. In addition, LCs should strengthen internal controls in the following aspects:

(a) Client contact information

• Establish true identities of the clients and their authorised representatives during the account opening process.
• Periodically review and update the official records to keep client contact information accurate and up-to-date.

(b) Amendment of client particulars

• Request written instructions when a client asks to amend his or her particulars (including updating authorised representatives), and verify the requestor’s identity and specimen signature.
• Verify email requests using contact information on LCs’ official records, rather than the email address or phone number provided in the email. Consider arranging a video conference or a physical meeting with the client if needed.
• Issue acknowledgement notifications to the clients’ registered address, email or mobile phone when amendments are requested and when they are made.

(c) Email requests for order placing or fund transfer

• Implement effective confirmation procedures for the requests with the amounts over a reasonable threshold.
• Rather than responding directly to email requests, use alternative channels and contact information from LC’s original records to contact and verify client’s requests.
• Consider using surveillance tools to filter spoofed email addresses and detect unauthorised access to internal networks and systems.

(d) Red flags

• Stay alert and handle with extra care when email requests are inconsistent with the client’s normal practices. Promptly follow up irregularities, such as significant payments to overseas bank accounts, requests for immediate payments and repeated transfer rejections by banks.
• Foster a strong risk culture to encourage staff to report and follow up on red flags. Engage supervisors, IT administrators and compliance staff in a timely manner to formulate appropriate responses to suspicious email instructions.

Senior management responsibility

It should be noted that the above control measures and techniques are by no means exhaustive. The SFC suggests that each LC review its own circumstances and ensure that appropriate and effective control procedures are put in place and effectively enforced. It is the responsibility of the senior management to oversee LCs’ implementation of internal control policies and procedures for the effective management of BEC risks, and ensure that adequate resources for such control functions are allocated and proper checks and balances are in place.

LCs should provide regular training to staff to enhance their vigilance in watching out for email scams and ensure that they understand the appropriate handling procedures. LCs’ staff should carefully examine email addresses, prudently verify the authenticity of requests, diligently investigate red flags and promptly escalate issues according to internal protocols. 

LCs are also advised to make reference to the SFC’s guidance on the control measures and techniques for managing cybersecurity risks and guarding against email scams.

Annex to the circular provides examples of BEC. 

Please refer to the SFC’s circular “Circular to licensed corporations Management of cybersecurity risks associated with remote office arrangements” dated 29 April 2020 here (covered in item 18 below).

Annex – “Examples of business email compromise (BEC)”

The SFC published a Circular on 11 March 2022 regarding the SFC-HKMA joint product survey 2021. In light of the latest COVID-19 situation, the SFC understands that licensed corporations may need more time to complete the survey. Accordingly, the deadline for submitting the survey questionnaire has been extended from 11 March 2022 to 19 April 2022. 

This Circular should be read in conjunction with the circular entitled “Circular to intermediaries - SFC-HKMA joint product survey 2021” issued by the SFC on 10 December 2021, which provides information about the survey and the reporting timetable. 

Circular to licensed corporations

Importance of business continuity planning amidst latest COVID-19 situation 

The SFC published a Circular on 7 March 2022 to again remind licensed corporations to review and update their business continuity plan (BCP). As the HKSAR Government has announced its intention to implement a Compulsory Universal Testing (CUT) scheme, albeit its timing and details have not been announced yet, licensed corporations should start preparing now considering the number of actions that may need to be taken in advance.

Steps for Licensed Corporations to take in light of CUT

Specifically, licensed corporations should critically assess the impact of sudden disruptive events such as the scenarios of temporary staff shortages or reduced service offerings by essential vendors and service providers, as a result of positive cases identified before or during the CUT scheme, and take steps to manage associated risks to ensure that their business operations and client interests are not unduly affected.

Licensed corporations should:

• review each function of their business operations, including those performed by third party vendors or service providers (e.g. IT network, system operators or custodians), to identify the ones that are essential;
• prepare for and keep track of staff being tested positive or identified as close contacts of positive cases, particularly those identified as essential, and put in place contingency measures to allow continued delivery of services to their clients (such as backups or alternative staffing arrangements and temporary outsourcing of trades to another execution broker); Licensed corporations should:
• maintain close communication with the essential third party vendors and service providers identified to understand if, and how, their BCP would impact the licensed corporations’ activities and operations and put in place contingency measures, including support from other vendors and service providers;
• be mindful that the operations of banks have been impacted, with temporary branch closures or reduced service hours, that may affect, among other things, the availability and the efficiency of processing cheque deposits;
• review their operations and consider alternative channels of payment to ensure timely settlement of transactions if licensed corporations themselves or their clients rely on physical cheques and/or visits to bank branches to settle payments;
• adopt measures to mitigate the risk of financial loss arising from potential forced liquidation of positions by licensed corporations themselves or the clearing houses as a result of delays in settlement of margin calls by clients; and
• promptly communicate with and notify their clients in situations where business operations and services to clients are unavoidably affected, delayed or disrupted.

The SFC will continue close dialogue with licensed corporations and, so far as legally permitted (and consistent with market integrity and investor protection principles), afford regulatory flexibility where necessary to address unavoidable operational constraints arising from the COVID-19 situation.

Resources and Updates for Licensed Corporations

Licensed corporations should take note of the SFC’s dedicated webpage, which provides updated information published by the SFC in relation to the COVID-19 situation. Recent updates include Frequently Asked Questions on time extensions for licensing examination and additional Continuous Professional Training hours issued on 2 March 2022 and the circular on the submission of scanned copies of licensed corporations’ audited accounts issued on 4 March 2022. 

The SFC published a Circular on 4 March 2022 on measures to deal with business operation disruptions caused by COVID. In the Circular, the SFC reiterates various existing obligations on licensed corporations (LCs) and explains the SFC’s regulatory approach and expected standards focussing on 6 areas to mitigate the risks and impact of an abrupt discontinuation of business of licensed corporations (LCs) and how to cope with stress events.

Information about all controllers and the shareholding structure of an LC

An LC is required to keep the SFC informed of the identity and details of “any person in accordance with whose directions or instructions [the LC] is, or [the LC’s] directors are, accustomed or obliged to act” (Controller). During a stress event, an LC’s Controllers can be understood as any persons who can influence the prospects of the LC as a going concern. The SFC would be in communication with an LC’s Controllers as well as its senior management to manage a contingent situation in an efficient and timely manner. 

Where relevant and necessary, the SFC will:

(a) ask a corporate licence applicant for the identity and background of its Controllers for assessment. 

(b) seek confirmation of the identities of an LC’s Controllers from any of its directors, responsible officers (ROs) or other management personnel. 

(c) ask a corporate licence applicant or an LC to provide information regarding its shareholding structure and notify the SFC of subsequent changes, and additional information or documents, such as certain licensing forms completed by the Controllers or any entities or persons identified in the shareholding chart, where necessary.

Maintenance of a sufficient number of ROs

A corporate licence applicant or an LC should critically assess the possibility and impact of its inability to maintain a sufficient number of ROs (one of whom must be an executive director (ED)) given the requirements under section 125(1)(b) of the Securities and Futures Ordinance (SFO) and incorporate such a scenario into its business continuity and exit plans. 

(a) Appoint additional ROs and EDs

LCs, in particular those having only two ROs or one ED in respect of any regulated activity for which it is licensed, should implement risk mitigation measures including the following:

i. identify potential RO and ED candidates, such as experienced licensed representatives at the firm or other ROs within its group, who are willing and eligible to become additional ROs and EDs of the firm within a short period of time;

ii. review notice periods for termination in the employment contracts of existing ROs to reduce the risk of an insufficient number of ROs; and

iii. resources permitting, appoint additional ROs and EDs for that regulated activity.

(b) Applicable to sole-shareholder / sole-director firms

Where a corporate licence applicant or an LC is wholly owned by an individual, who also acts as the sole director of the firm, the SFC expects that the firm put in place control measures, such as appointing a reserve director or additional directors, in order to mitigate the risk that the firm becomes incapacitated in the event of the sudden unavailability of the sole director (due to illness, death or other circumstances) and the firm has no shareholder to appoint new directors. Where applicable, the SFC may seek information from a corporate licence applicant or an LC about how the firm will effectively manage the key person risk concerning its operations.

(c) Temporary shortfall of ROs or EDs

When an LC becomes aware that it will have less than two ROs or no ED in respect of any regulated activity for which it is licensed, it should immediately activate its business continuity plan and notify the SFC of the situation. It should also provide information regarding its remedial actions to appoint additional ROs or EDs, with a concrete timeframe. Whilst the LC should submit related RO applications to the SFC as a matter of urgency, the competence of the RO candidates should not be compromised and the quality of the application materials should comply with all the relevant application requirements. 

(d) Exit plan

If an LC lacks a concrete and feasible solution to maintain the minimum number of ROs required, it should initiate its exit plan to ensure an orderly closure of business and submit the plan to the SFC.

Maintenance of adequate financial resources

Applicable to corporate licence applicants

(a) A corporate licence applicant is required to submit a projection of its major operating expenses to the SFC to illustrate that its existing financial resources are reasonably adequate to run its proposed business for at least six months (without taking into account any projected income). If the applicant’s excess liquid capital (ELC) cannot cover its projected total major operating expenses for at least six months, it is required to submit a funding plan, together with supporting documents relating to additional liquidity sources, to demonstrate its financial strength to operate should it be licensed. The funding plan must be approved by the applicant’s board of directors and endorsed by its substantial shareholders (SSH) and Controllers. The plan must also clearly set out the sources of additional funds and the identity of the sponsoring parties as detailed in Appendix A to the Circular.

(b) The SFC may impose conditions on an SSH to reflect the SSH’s funding commitments to the applicant. Depending on the circumstances of each case, conditions may be imposed in the following areas:

i. provision of financial support and other resources to the LC for maintaining its ongoing operations;

ii. notification to the SFC regarding stress events or other circumstances which suggest the potential for the support to be discontinued; and

iii. provision of information to the SFC upon request.

Applicable to LCs

(a) The SFC monitors the adequacy of each LC’s liquid capital on an ongoing basis. Adopting a risk-based approach and taking into account the LC’s business activities, client interests and other specific circumstances, the SFC may make enquiries with an LC when it has not been generating sufficient income to cover its operating expenses for a period of time and its ELC is projected to run out in less than 12 months. The SFC may ask the LC, its SSHs and Controllers to improve the LC’s financial position by, for example, injecting share capital and adopting cost-cutting and risk mitigation measures. If the financial position of the LC continues to deteriorate, the LC will be asked to provide a detailed funding plan (see Appendix A to the Circular), a detailed exit plan (see Appendix B to the Circular) or both, approved by its board of directors and endorsed by its SSHs and Controllers.

(b) Depending on the situation, the SFC may ask an LC, its management, SSHs and Controllers to provide written confirmation and undertakings for the purposes of risk mitigation and to protect client interests. The terms of the confirmation and undertakings may include ceasing to accept new clients and new buy orders, notifying clients of the risk mitigation measures undertaken by the LC and returning client assets. Where the SSHs are also in financial distress, the SFC may ask the LC to undertake other appropriate measures, such as not to provide any financing or guarantee to the SSHs or its affiliates.

(c) The SFC may also impose new conditions or amend or revoke any conditions on an LC’s licence as may be reasonable in the circumstances or take other regulatory actions as it considers appropriate in order to protect the interest of the LC’s clients. Any licensing conditions imposed by the SFC will be published in the public register of licensed persons and registered institutions on the SFC’s website.

Financial and operational dependency on another person

Applicable to LCs

(a) Some LCs have arrangements in place for another party, e.g. their SSHs or group company, to pay for their key operating expenses, such as staff costs and rental expenses. In some cases, these payments are not charged back to the LCs as expenses or management fees and therefore the financial positions of the LCs reported in the financial returns do not fully reflect their actual financial and operational capability. Where a paying party encounters financial difficulty and is unable to continue to pay for an LC’s operating expenses, the LC may be in financial and operational stress, which may result in regulatory breaches. 

(b) Unless the LC is able to demonstrate that the paying party or its SSHs have adequate resources independent of the LC to continue to pay for these expenses on its behalf, or the LC is able to support its operations for at least 12 months should it have to bear these expenses itself, the SFC may require the LC, the paying party and the SSHs to undertake to adopt measures in addition to those mentioned in “Maintenance of adequate financial resources” above. These additional measures may include:

i. provide financial information of the paying party and the SSHs to the SFC upon request; and

ii. notify the SFC should the paying party cease or intend to cease bearing the LC’s key operating expenses.

(c) An LC may also be required to provide:

i. a detailed business continuity plan covering the scenario where the paying party ceases to pay for the LC’s key operating expenses and the LC’s proposed actions to minimise disruptions to its operations and clients; and

ii. a detailed exit plan for an orderly closure of its business and return of all client assets assuming the worst-case scenario that the LC cannot continue its operations.

(d) The SFC may also consider imposing conditions on an LC and its SSHs above.

(e) In view of the issues that may arise from an LC’s financial and operational dependency on another person as discussed above, LCs are strongly encouraged to take appropriate measures to mitigate the risk of such dependency, such as increasing its share capital buffer and establishing a business continuity plan described above. The SFC will request information about an LCs’ financial and operational dependency regularly and on ad-hoc basis for assessment. 

Applicable to licence applicants

When applying for a licence, a corporation should provide information regarding its key operating expenses which are paid by another person and not by the corporation itself. The SFC may request these other persons to provide a written undertaking, confirming their financial soundness and intention to provide continuous support to the applicant in maintaining its operations. Such a confirmation is relevant to the SFC’s consideration of whether the applicant is fit and proper to be licensed. The SFC may also consider imposing conditions on the applicant’s SSHs as discussed above. 

Exit plans

The process of winding down an LC’s business can be lengthy and costly, particularly if it involves the handling of client assets held or managed by the LC. In order to minimise the potential impact of an LC’s business cessation on its clients and the market, it is prudent for an LC to plan ahead for such a scenario even when business cessation may not be imminent or anticipated. In formulating its exit plan, an LC should take into account the financial, human and operational resources required to complete the process and ensure that client interests are protected.

An LC should submit its exit plan which sets out the details (see Appendix B to the Circular) of its orderly wind down and closure of business to the SFC when:

(a) it intends to cease, or has ceased, to carry on regulated activities for which it is licensed;

(b) it is required to suspend or cease to carry on regulated activities for which it is licensed, including but not limited to the SFC’s exercise of its power under section 146(5)(a) and section 195(1)(c) of the SFO; or

(c) it is requested to do so by the SFC.

The SFC may request an LC to provide updates on the activation and implementation of its exit plan, such as regular updates of the latest positions of the client interests connected with the LC. The LC should also inform the SFC immediately of any major changes in the exit plan, eg, changes in key milestones, timelines or designated personnel for executing the exit plan.

If an LC fails to formulate a concrete exit plan or act promptly according to its exit plan, the SFC will consider imposing conditions on the LC and other relevant persons, such as its SSHs and ROs, to require their immediate action to wind up the LC’s business of regulated activities in an orderly manner. The SFC may consider taking other regulatory action, such as issuing restriction notices and appointing an administrator. The SFC may also take regulatory action against the LC and other regulated persons concerned if their conduct does not meet the standards expected of them, such as failure to act in the best interests of clients.

Responsibility of senior management

The senior management of an LC assumes overall responsibility for the LC’s contingency planning, which should cover the areas and mitigation measures for stress events as set out in this Circular. Among other things, senior management is expected to take reasonable steps to ensure that financial and other resources, such as manpower and professional services, required for the effective execution of the contingency plan, including the exit plan, are secured and will be available to the LC should the plans be activated.

Senior management of an LC should also review the LC’s contingency planning, including any test results, at least annually to ensure that the plans are sufficiently robust and remain effective over time to allow the LC to mitigate stress events on an ongoing basis, taking into account the prevailing market conditions and the LC’s specific business mix, scale, operational model and clientele. 

An LC’s contingency plan, including the exit plan, and any subsequent revisions should be properly documented. They should also be approved by the LC’s board of directors, endorsed by its SSHs and Controllers and communicated to all relevant personnel. The SFC may require an LC to submit related documents should circumstances warrant. 

An individual (whether licensed or not) who is or was involved in the management of an LC’s regulated business is expected to ensure the LC’s orderly exit from the business of any regulated activity, particularly in regard to safeguarding the interests of clients and the investing public and upholding the integrity of the market. Failure to meet these expectations may affect an individual’s fitness and properness to be licensed or to be involved in the management of other LCs in the future.

Appendix A to the Circular prescribes the details of a funding plan expected by the SFC.

Appendix B to the Circular prescribes the details of an exit plan expected by the SFC.

The SFC published a Circular on 18 February 2022 urging issuers of SFC-authorized investment products (“Issuers”) to review and maintain an up-to-date and effective business continuity plan.

The BCP should ensure continuous operations relating to SFC-authorized investment products (including product valuation, dealing and trading arrangements, trading of underlying assets, and product risk management) without undue disruption to protect investors’ interests. Issuers should discuss their BCP with key counterparties and third party service providers, including trustees, custodians, market makers, clearing and settlement brokers, administrators and distributors, and the BCP should take account of these services.

Issuers should properly monitor and manage their operations and take prompt and effective measures to mitigate any potential adverse impact on SFC-authorized investment products and their investors.

Issuers should also keep investors informed at all times and immediately report to the SFC any material or untoward issue that may have a significant impact on SFC-authorized investment products and/or their investors. If in doubt, they are strongly encouraged to consult the SFC.

The SFC published a Circular on 18 February 2022 urging licensed corporations to review their business continuity plans, in light of the latest wave of COVID-19 infections and the HKSAR Government’s call for people to avoid gatherings and stay at home and ongoing efforts to promote vaccination.

SFC urges licensed corporations to:

1. Review their BCP to maximise the number of staff who work from home, and arrange for staff to work in the office only if they conduct critical functions or duties that cannot be performed remotely;
2. Consider making arrangements so that only staff who are vaccinated are working in the office; and
3. Implement facilitative measures, such as vaccination leave and flexible working hours, in encouraging their staff, including those eligible to receive the third dose, to get vaccinated, in order to ensure the highest possible level of vaccinations amongst their staff.

This circular should be read in conjunction with the circular to licensed corporations entitled “Reminder of business continuity planning in view of COVID-19 Vaccination Programme” issued by the SFC on 28 October 2021. 

The SFC published a Circular on 13 December 2021 setting out the eligibility criteria and pre-registration procedures for executives of licensed corporations to participate in the HKSAR Government’s scheme for quarantine-free travel to the Mainland (“Scheme”). Phase 1 of the Scheme covers travel to Guangdong Province only.

Eligibility criteria

1. In Phase 1 of the Scheme, the criteria for an eligible executive is a staff or director of a licensed corporation who has a regional role and whose main purpose of travelling to Guangdong Province is for the management of the firm's Mainland business. An executive who proposes to meet clients in the Mainland but does not meet the above criteria is not eligible.

Maximum monthly quota

2. Each licensed corporation in each calendar month may submit one pre-registration for a maximum of two executives.

Pre-registration procedures

3. A licensed corporation should pre-register the executives it intends to sponsor by completing and submitting to SFC the pre-registration and change request form at the Appendix to this Circular (“Form”) and providing the following supporting documents for each sponsored executive:

a. copies of the sponsored executive's identity documents including:

i. Hong Kong residence document (i.e. Hong Kong identity card, visa or entry permit issued by the Immigration Department); and 

ii. document for travelling to the Mainland (i.e. Mainland Travel Permit, Residence Permit or passport photo page together with a valid Chinese visa);

b. supporting documents which demonstrate that the sponsored executive is responsible for regional duties and the main purpose of travelling is for the management of the firm's Mainland business in Guangdong Province. Examples include address proof of a registered office in Guangdong Province (if any), business contracts with or invitations from corporations located in Guangdong Province.

4. The Form should be signed by the Manager-In-Charge of the compliance function of the sponsoring licensed corporation, who should be responsible for ensuring the accuracy and authenticity of the information submitted.

5. The first round of pre-registrations was closed on 17 December 2021. Subsequent pre-registrations and changes (i.e. substitution of a sponsored executive) should be submitted to the SFC by email at etravel@sfc.hk within the first five business days of each calendar month, starting February 2022. If no update is submitted, the most recently registered sponsored executives will continue to be eligible.

6. Subject to the submission of accurate and complete information, the SFC will provide the personal particulars of the executive sponsored by the licensed corporation to the FSTB for registration as an eligible individual on the list maintained by the Office of the Government Chief Information Officer (OGCIO).

7. The SFC will notify the sponsoring licensed corporation when registration with the OGCIO is completed. Upon successful registration, the sponsored executive may then apply for quarantine-free travel to Guangdong Province under the Scheme.

8. Pre-registration via the SFC is not a guarantee of quarantine-free travel as the Scheme is subject to a daily quota administered by the OGCIO. Please pay attention to future announcements by the HKSAR Government on details of application for the quota. 

The SFC published a Circular on 1 November 2021 regarding the cancellation of the Exemption Scheme.

The SFC will not accept any new applications under the Exemption Scheme with immediate effect, in view of the HKSAR Government's cancellation of quarantine exemption arrangements for certain categories of persons in the financial services sector in accordance with the Compulsory Quarantine of Certain Persons Arriving at Hong Kong Regulation (Cap. 599C) and the Compulsory Quarantine of Persons Arriving at Hong Kong from Foreign Places Regulation (Cap. 599E).

This circular should be read in conjunction with the SFC’s earlier circulars to licensed corporations titled “Exemption for senior executives of licensed corporations” dated 28 May 2021 (Exemption Scheme), “Updates to the Exemption Scheme” dated 21 June 2021 and "Further updates to the Exemption Scheme" dated 19 July 2021. 

Please see the SFC’s circulars dated:

• 19 July 2021 (covered in item 13 below) here.
• 21 June 2021 (covered in item 14 below) here.
• 28 May 2021 (covered in item 16 below) here.

The SFC published a Circular on 28 October 2021 reminding licensed corporations of its circular dated 1 June 2021. 

The circular dated 1 June 2021 strongly encouraged licensed corporations to consider vaccination as a critical part of operational risk management, and urged licensed corporations to review their business continuity plan and encourage staff performing critical functions to get vaccinated and consider suitable arrangements for unvaccinated critical staff to undergo periodic COVID-19 testing.

In view of the HKSAR Government’s vaccination-in-lieu of regular testing arrangement that requires all civil servants to get vaccinated, the SFC now urges licensed corporations to adopt a similar arrangement and to strongly encourage ALL staff who are medically fit to do so to get vaccinated by 30 November 2021 or undergo effective testing for COVID-19 every two weeks. 

Please see the SFC’s circular dated 1 June 2021 here.

The above circular has been covered in item 15 below.

The SFC published a Circular to intermediaries regarding the regulatory standards for intermediaries’ ability to prevent, adapt and respond to and recover and learn from operational disruptions, which is accompanied by a Report on Operational Resilience and Remote Working Arrangements ("Report") in the midst of the COVID-19 pandemic. 

While the guidance provided by SFC on cybersecurity, business continuity plans, internal controls and risk management in its codes, guidelines and circulars has helped licensed corporations maintain resilience amid the COVID-19 outbreak, the SFC stresses the importance for licensed corporations to ensure continued strength by adopting a comprehensive approach to achieve their operational resilience objectives based on common established standards.

For example, many intermediaries are considering whether to maintain some form of hybrid working arrangement as a new normal after the pandemic, with employees working partly from the office and partly from home or other remote locations. In doing so, intermediaries should be vigilant about the risks involved and implement appropriate risk management measures and internal controls to address them.

Appendix A to the Circular provides operational resilience standards and required implementation measures which supplement the SFC’s existing guidance. Appendix B to the Circular sets out the expected regulatory standards for managing and mitigating some major possible risks of remote working.

Intermediaries are also encouraged to read the Report. The Report provides intermediaries with a better understanding of the regulatory standards and the required implementation measures for operational resilience, and provides suggested techniques and procedures. In addition, the Report shares case examples and lessons learned drawn from the SFC’s review of some licensed corporations’ operational resilience measures during the COVID-19 pandemic and other disruptive events. It also explains the major possible risks of remote working and provides suggested techniques and procedures for risk mitigation.

Intermediaries are encouraged to adopt the suggested techniques and procedures where appropriate in their circumstances. 

Appendix A – Operational resilience and required implementation measures (p. 1)

Appendix B – Expected regulatory standards for managing and mitigating remote working risks (p. 4)

Report on Operational Resilience and Remote Working Arrangements
 

The SFC published a Circular on 19 July 2021 regarding further updates to the Exemption Scheme. The further updates are made in light of the adjustments to the quarantine requirements for vaccinated persons arriving in Hong Kong announced by the HKSAR Government. The key updates include shortening the period of itinerary and point-to-point transportation requirements for inbound travellers (who have stayed in high or medium risk places specified in Group B or Group C under Cap. 599H or Taiwan, China during the 14 days prior to their arrival in Hong Kong and who possess a positive result of a recognised serology antibody test) to the first seven days instead of the entire 14-day medical surveillance period. The Department of Health and Food and Health Bureau has also updated their "Guidelines for vehicles providing point-to-point transportation arrangements for exempted persons (air crew, sea crew and others)". 

Accordingly, the SFC has adjusted their requirements for the submission of attestation forms under the Exemption Scheme. Sponsored licensed corporations should submit a signed attestation form:

a. for a returning executive, on his or her third and seventh days in Hong Kong;

b. for a visiting executive,

i. on the last day of his or her trip if he or she stays in Hong Kong for less than three days; or

ii. on his or her third day in Hong Kong, and on the seventh day in Hong Kong or the last day of his or her trip, whichever is earlier, if he or she stays in Hong Kong for more than three days.

Please refer to Appendix II to the Circular for the updated attestation form.

The antibody testing and COVID-19 testing (post-arrival test) requirements of the Exemption Scheme are also updated as follows:

a. the list of recognised laboratories and criteria have been updated to align with the Government’s announcements;

b. the specification that specimens must be collected for an antibody test on the day of arrival or the following day has been removed; and

c. the post-arrival test on the seventh day will be advanced to the fifth day in Hong Kong.

Please refer to Appendix I to the Circular for the revisions to the exemption conditions and requirements.

The Circular should be read in conjunction with the SFC’s earlier Circular on Exemption for senior executives of licensed corporations issued on 28 May 2021 (Exemption Scheme) and Updates to the Exemption Scheme issued on 21 June 2021.

Please see the SFC’s circulars dated:

• 21 June 2021 (covered in item 14 below) here.
• 28 May 2021 (covered in item 16 below) here.

See Appendix I - Exemption Scheme Application Form (updated as of 19 July 2021) here.

See Appendix II - Exemption Scheme Attestation Form (updated as of 19 July 2021) here.

See Appendix III - Guidelines for vehicles providing point-to-point transportation arrangements for exempted persons (air crew, sea crew and others) here. 

See Appendix IV - Point to note for designated activities during the designated period here.

The SFC published a Circular on 21 June 2021 regarding the antibody tests and other updates to the Exemption Scheme. This Circular should be read in conjunction with the SFC's earlier Circular on the Exemption Scheme dated 28 May 2021.

1. Antibody tests 

The HKSAR Government has decided that:

(a) antibody tests in Hong Kong should be applied to the Exemption Scheme for all inbound travellers who have stayed in high or medium risk places specified in Group B or Group C2 under Cap. 599H or Taiwan, China during the 14 days prior to their arrival in Hong Kong; and

(b) persons who have stayed in extremely or very high risk places specified in Group A1 or Group A2 under Cap. 599H during the 21 days prior to their arrival in Hong Kong would not be qualified to apply under the Exemption Scheme.

2. Key points concerning the antibody tests and other updates to the Exemption Scheme: 

(a) Returning executives who have stayed in high or medium risk places specified in Group B or Group C under Cap. 599H or Taiwan, China during the 14 days prior to their arrival in Hong Kong

(i) Returning executives must possess a positive result from a pre-departure IgG or total antibody test against spike protein or surrogate neutralizing antibody done at a HOKLAS3-accredited medical laboratory with virology-serology tests within the scope of accreditation. Such test must be done on platforms by Abbott or Roche (or other platforms subject to review), following the standard as specified by the respective manufacturer and with the specimen collected within three months prior to the scheduled arrival time of the flight to Hong Kong. Applications can only be submitted together with a positive antibody test result. Please refer to Appendix III for a list of accredited laboratories carrying out antibody tests.

(ii) Upon returning to Hong Kong, exempted returning executives must be subject to self-isolation at a designated quarantine hotel (DQH) or at home for a reduced isolation period of 7 days upon arrival except for permitted activities as set out in the itinerary endorsed by the sponsoring licensed corporation and submitted to the SFC. Please refer to Appendix I (updated as of 21 June 2021) for the corresponding conditions or requirements.

(b) Visiting executives who have stayed in high or medium risk places specified in Group B or Group C under Cap. 599H or Taiwan, China during the 14 days prior to their arrival in Hong Kong

(iii) Visiting executives must have made an appointment with a HOKLAS-accredited medical laboratory with virology – serology tests within the scope of accreditation for an IgG or total antibody test against spike protein or surrogate neutralizing antibody done on platforms by Abbott or Roche (or other platforms subject to review), following the standard as specified by the respective manufacturer and with the specimen collected on the day of arrival at Hong Kong or the following day. The visiting executive must wait for the results at a DQH.

(iv) The exempted visiting executive must be subject to self-isolation only at a DQH for:

(A) 14 days upon arrival, or until departure from Hong Kong, if his or her antibody test result is negative; or

(B) 7 days upon arrival, if his or her antibody test result is positive, except for permitted activities as set out in the itinerary endorsed by the sponsoring licensed corporation and submitted to the SFC.

(c) Updates to application procedures

(v) In light of the updates to the Exemption Scheme, applications should be made by completing the Application form (updated as of 21 June 2021) at Appendix I enclosed with this circular and submitting it to the SFC by email at etravel@sfc.hk at least 10 working days prior to:

(A) the expected date of departure from Hong Kong for proposed exempted executives travelling from and returning to Hong Kong; or

(B) the expected date of arrival in Hong Kong for proposed exempted executives visiting Hong Kong. 

(vi) The attestation form is also updated at Appendix II to this circular.

(vii) Exempted executives should bring with him or her a print-out copy of the authorisation letter, together with his or her proof of pre-departure positive antibody test result (applicable for returning executives only) and pre-departure negative COVID-19 test result, and COVID-19 vaccination record.

Please see the SFC’s circular dated 28 May 2021 here.

The above circular has been covered in item 16 below.

Appendix I - Exemption Scheme Application Form (updated as of 21 June 2021) can be found here.

Appendix II - Exemption Scheme Attestation Form (updated as of 21 June 2021) can be found here.

Appendix III - Exemption Scheme - List of accredited laboratories for COVID-19 antibody tests can be found here.

The SFC published a Circular identifying vaccination as key element of operational risk management and strongly encouraging licensed corporations to consider vaccination as a critical part of operational risk management to ensure their business operations and client interests are not unduly affected by COVID-19. The SFC urges licensed corporations to:

(a) review their business continuity plan (BCP) and identify functions which are critical to their business operations and client interests and encourage staff performing such critical functions, for example client-facing and critical support staff, to get vaccinated. Licensed corporations are also reminded to maintain proper documentation of any changes to their BCPs; and

(b) consider suitable arrangements for critical staff who have not yet been vaccinated or are unfit for vaccination due to medical conditions to undergo periodic COVID-19 testing.

The goal is to keep driving down infection rates, interrupt community transmission and uplift COVID-related restrictions in order to return to a high level of normalcy. 

The SFC published a Circular informing licensed corporations that the Government has designated certain categories of persons in the financial services sector to be exempted from the compulsory quarantine arrangements in Hong Kong under Cap. 599C and Cap. 599E (“Exemption Scheme”). Senior executives of licensed corporations or their overseas affiliates who are fully vaccinated and meet the eligibility criteria may apply for exemption from the compulsory quarantine arrangements when they return or travel to Hong Kong. 

In short, this is not an automatic exemption. Applications must be made in advance and there are limited quotas. The SFC has sole discretion whether to approve or refuse an application. 

Who are eligible to apply for exemption

1. senior executives travelling from and returning to Hong Kong, namely, senior executives of a licensed corporation with global or regional roles who are returning to Hong Kong after travelling to foreign places primarily for the purposes of managing the group entities for which they have responsibility (“returning executives”); and

2. senior executives visiting Hong Kong, namely, global or regional heads or senior executives of financial institutions that a licensed corporation is affiliated with, who are travelling to Hong Kong primarily for the purposes of managing the licensed corporation (“visiting executives”).

Limited quota

3. The quotas are limited to two entries for returning executives and two entries for visiting executives, respectively, per calendar month per licensed corporation.

Application procedures

4. Applications for exemption should be made by the sponsoring licensed corporation of the returning executives or the visiting executives, by completing the prescribed application form (see Appendix I to the Circular) and providing the requisite supporting documents set out in the Circular, including an itinerary of the proposed exempted executive for the entire duration of the trip (for a visiting executive) or throughout the entire medical surveillance period (for a returning executive) in Hong Kong, with information about his or her arrival, departure, accommodation or designated quarantine hotel, organisations and venues to be visited with the dates and times of the visits. Please also follow the application procedures set out in the Circular. 

Requirements on exempted executives and their sponsoring licensed corporations

5. Each exempted executive is required to fully comply with the specific conditions for exemptions set out in the authorisation letter issued by the FSTB and is only allowed to leave his or her designated quarantine hotel or accommodation arranged by the sponsoring licensed corporation for approved activities set out in the itinerary. A set of sample conditions is set out in the Notes appended to the application form for reference. These conditions include the completion of a COVID-19 vaccination course; pre-departure, on arrival and post-arrival COVID-19 tests; point-to-point transportation; self-isolation and medical surveillance.

6.Each sponsoring licensed corporation is required to:

(a) keep an up-to-date record of the itinerary of each exempted executive for the entire duration of the trip (for a visiting executive) or throughout the entire medical surveillance period (for a returning executive) in Hong Kong. The itinerary maintained by the sponsoring licensed corporation should also include information about the contact details of the persons who had met or would meet with the exempted executive in Hong Kong. Any changes to the itinerary should be submitted to the SFC upon arrival in Hong Kong and at the time when the sponsoring licensed corporation submits the attestation form as required under item(d) below;

(b) ensure compliance with the guidelines for vehicles providing point-to-point transportation (see Appendix III to the Circular);

(c) ensure that, for exempted persons in self-isolation at an accommodation arranged by the sponsoring licensed corporation, the Department of Health's infection control guidelines are adhered to;

(d) submit to the SFC an attestation form (in the form prescribed in Appendix II to the Circular) signed by a responsible officer or the manager-in-charge of compliance function of the sponsoring licensed corporation, every three working days or at the half-way point of the trip, whichever is earlier, and on the last day of the trip (for a visiting executive) or the medical surveillance period (for a returning executive); and

(e) report to the SFC as soon as possible if an exempted executive is confirmed or suspected to be infected with COVID-19 during his or her trip in Hong Kong and within 14 days after departing Hong Kong (for a visiting executive) or during the medical surveillance period (for a returning executive).

Consequence of violation

Any contravention with the exemption conditions would result in removal of the exemption status. In addition, if an exempted person who is subject to self-isolation in a designated quarantine hotel room is found to have breached the self-isolation requirement, the concerned exempted person's exemption status will be removed immediately and he / she will be sent to the HKSAR Government's Quarantine Centre for compulsory quarantine for 21 days. An exempted person who fails to observe any of the conditions commits an offence and, on conviction, will be liable to a fine of HK$5,000 and to imprisonment for 6 months.

The sponsoring licensed corporations are responsible for ensuring the accuracy and authenticity of the information submitted as part of the Exemption Scheme, and such responsibility ultimately rests with the senior management of each sponsoring licensed corporation.

Appendix I – Exemption Scheme Application Form can be found here.

Appendix II – Exemption Scheme Attestation Form can be found here.

Appendix III – Guideline for vehicles providing point-to-point transportation can be found here.

The SFC published a circular informing licensed corporations (LCs) that the SFC will defer the introduction of initial margin (IM) requirements for non-centrally cleared over-the-counter (OTC) derivative transactions by one year to provide operational relief in light of the COVID-19 outbreak. The IM requirements for LCs which are contracting parties to non-centrally cleared OTC derivative transactions entered into with a covered entity were originally to be phased in starting from 1 September 2020.

In light of the Basel Committee on Banking Supervision and the International Organization of Securities Commissions’ announcement of the one-year extension of the deadlines for completing the final implementation phases of the IM requirements for non-centrally cleared OTC derivatives, the SFC has accordingly extended the phase-in schedule for the IM requirements by one year, summarized as follows:

• From 1 September 2021 to 31 August 2022, the exchange of IM by an LC is required in a one-year period where both the LC and the covered entity have an average aggregate notional amount (AANA) of non-centrally cleared OTC derivatives exceeding HK$375 billion on a group basis.
• On a permanent basis starting from 1 September 2022 and for each subsequent 12-month period, the exchange of IM by an LC is required in a one-year period where both the LC and the covered entity have an AANA of non-centrally cleared OTC derivatives exceeding HK$60 billion on a group basis.

For avoidance of doubt, the variation margin requirements will still become effective on 1 September 2020. 

The SFC published a circular reminding licensed corporations (LCs) to assess their operational capabilities and implement appropriate measures to manage cybersecurity risks associated with remote office arrangements, in light of the increased use of such arrangements as a result of the COVID-19 outbreak. The SFC set out some examples of controls and procedures LCs may take in relation to various aspects of remote office arrangements:

Remote access to internal network and systems - LCs should consider the below measures (amongst others) to mitigate cybersecurity risks:

• Implement robust virtual private network (VPN) solutions, which provide strong encryption and two or more layers of protection, to protect the integrity of data transmitted between remote users’ devices and internal systems;
• Monitor, evaluate and implement security patches or hotfixes released by VPN software providers on a timely basis;
• Require the use of strong passwords and implement two-factor authentication for remote access logins by employees, agents and service providers, in particular when accessing privileged accounts and sensitive data repositories;
• Avoid granting standing or permanent access to external parties and only allow vendors to access specific systems during pre-determined timeframes;
• Implement different levels of remote access, such as by equipping computers and mobile devices supplied by LCs with greater capabilities than employee-owned devices;
• Implement security controls to prevent unauthorised installation of hardware and software on computers and devices provided to staff; and
• Implement robust network segmentation to segregate system servers and databases, based on criticality, to better protect more critical and sensitive data, such as clients’ personal data.

Use of video conferencing platforms – LCs should consider the below measures (amongst others) to mitigate the risk of unauthorized access and leakage of critical or sensitive data

• Assess the security features of videoconferencing platforms before use;
• Allow only authenticated and authorized users to join the videoconference, e.g. by checking their email addresses or making use of “waiting room” features;
• Invite participants via conferencing software or other legitimate channels, e.g. office emails, and refrain from sharing links to conferences via social media posts.
• Use a random meeting ID, rather than a personal meeting ID;
• Enable the password protection feature on the videoconferencing platform;
• Lock the conference meeting once all the participants have joined, as appropriate; and
• Use the latest version of the software with the most up-to-date security patches installed.

The SFC also reminded LCs to put in place other measures for enhancing operational capabilities and monitoring mechanisms for remote office activities, such as:

System capabilities:

• Assess the adequacy of, and enhance, existing information technology infrastructures, software (such as remote computer devices, network bandwidth and software licenses) and hardware (such as notebook computers and mobile devices) for the purpose of supporting remote office arrangements.

Surveillance and incident handling:

• Implement monitoring and surveillance mechanisms to detect unauthorized access to internal networks and systems, such as reviewing the list of unauthorized access attempts and detecting the use of unapproved applications; and
• Develop and maintain an effective incident management and reporting mechanism.

Cybersecurity training and alerts:

• Provide adequate cybersecurity training to all internal system users and issue appropriate reminders and alerts to clients, e.g. advice on precautionary security measures, emerging cybersecurity threats and trends (such as phishing and ransomware) and use of secure Wi-Fi networks for accessing internal networks and videoconferencing platforms, on a regular basis.

The SFC published an announcement summarizing the measures it had taken actively in response to the significant impact of the COVID-19 pandemic on Hong Kong's capital markets. The measures apply to brokers, asset managers and other market intermediaries supervised by the SFC as well as listed companies and the Stock Exchange of Hong Kong Limited (SEHK). 

The overriding objective of the measures is to ensure that Hong Kong's international financial markets will function efficiently, effectively and resiliently throughout this episode of extreme stress. In addition to addressing market volatility and major operational challenges associated with special work arrangements and other emergency measures, a significant part of the SFC's efforts has been directed to much-needed regulatory relief for the market participants. Examples include giving specific guidance on how brokers can record client orders when out of office, deferral of regulatory timetables and allowing more flexibility on licensing matters, giving special guidance regarding the timely issuance of preliminary earnings results by listed companies, and intensified supervision on potential vulnerabilities caused by the exceptional market conditions, including investment fund liquidity, gold market volatility, redemption profiles, and fair treatment of investors. 

The SFC would maintain close contact with all clearing houses in Hong Kong to ensure that their margining policies are appropriately calibrated to the risks they faced. The SFC would also closely monitor derivatives markets and short selling data to ensure that activity in these areas does not pose any financial stability or systemic risks. 

The SFC would pursue a flexible approach with a view to ensuring that Hong Kong’s markets remain open and continue to function properly, while safeguarding market integrity and investor protection.

The SFC published a circular reminding issuers of SFC authorized paper gold schemes (PGS) of their obligations in light of the market volatility caused by the COVID-19 outbreak. The SFC reminded PGS issuers to:

1. exercise due skill, care and diligence in the operations of the PGS;
2. closely monitor the dealings by investors under the PGS;
3. ensure that units of PGS are fairly and accurately valued in good faith and in the best interests of investors in accordance with the constitutive and offering documents of the PGS as well as applicable laws and regulations;
4. ensure the continuous provision of material information and services to investors (including pricing and dealings of the units of PGS) in accordance with the constitutive and offering documents of the PGS; and
5. keep investors informed in a timely manner and immediately report to the Investment Products Division of the SFC (IPD/SFC) any untoward circumstances relating to their PGS (including any decision to suspend subscription and/or redemption) and potential impact on the PGS.

Furthermore, for decisions to suspend dealings of the PGS, the SFC reminded PGS issuers that:

1. such decisions should be made in the best interests of investors in accordance with the constitutive and offering documents of the PGS and applicable laws and regulations;
2. they should inform IPD/SFC immediately upon any decision to suspend and they should notify investors in a timely manner;
3. they should regularly review any prolonged suspension of dealings and take any necessary steps to resume normal operations as soon as practicable;
4. they should notify IPD/SFC as well as investors immediately upon any decision to uplift suspension/resume dealing; and
5. the offering documents of the PGS should contain information necessary for investors to make an informed judgement about the PGS. This includes information on suspension of dealing of units of PGS, for example, the circumstances under which dealings can be suspended and how investors are notified as a result.

The SFC also reminded PGS issuers to give IPD/SFC early alerts of any material issues affecting their PGS, and to consult the SFC if in doubt.

The SFC published a circular reminding management companies of exchange traded funds (ETFs) of their responsibility to manage ETFs in the best interests of investors. The circular was prompted by a recent incident where the sole market maker of an ETF temporarily suspended its market making functions for the ETF as some of its traders were under mandatory quarantine due to the COVID-19 outbreak. The SFC is concerned as to the sufficiency of risk management measures of management companies and market makers of ETFs as a whole. Accordingly, the SFC:

1. Reminded ETF management companies of the duty to closely monitor the operations and activities (including secondary market trading and liquidity) of the ETF and to ensure the trading of SFC-authorized ETFs is conducted in a fair and orderly manner, including to:
   1. conduct due diligence on and regular monitoring of market makers and be reasonably satisfied that they remain competent and properly resourced to duly discharge the market making functions (including having appropriate business contingency plans in place);
   2. closely monitor the secondary market trading and liquidity of the ETFs under their management, including the market making activities and performance of the market makers of their ETFs;
   3. maintain a close dialogue with each market maker and make appropriate arrangements to ensure that such market maker will inform the management company immediately if it experiences or foresees that it will experience any operational difficulties or disruptions that may affect the proper discharge of its market making functions;
   4. properly manage the risk of reliance on a single market maker to provide secondary market liquidity for an ETF. This may include procuring more than one market maker for an ETF or securing appropriate arrangement for an alternative market maker to readily step in with short notice in the event of cessation, disruption or suspension of market making activities of the last market maker;
   5. be fully aware of and comply with the administrative arrangements and other requirements associated with the listing of ETFs on The Stock Exchange of Hong Kong Limited (SEHK), including the procedures of the publication of announcements or notices on the SEHK’s website such as the publication windows cut-off times; 
   6. in the event of cessation, disruption or suspension of market making activities or upon notice of such an event happening:
      1. report to the SFC immediately the cessation, disruption or suspension;
      2. assess whether the cessation, disruption or suspension of market making activities for units/shares (traded in any counter) of an ETF under its management could adversely affect the interests of investors;
      3. keep investors informed as required under 8.6(q) of the Code on Unit Trusts and Mutual Funds; and
   7. give the SFC early alerts of any untoward circumstances relating to the ETFs under its management, including any issues which may adversely affect the operations and secondary market trading and liquidity of its ETFs (including receipt of any resignation notice of the last market maker).
2. Reminded market makers of ETFs to ensure compliance with applicable laws, rules, regulations and conduct requirements administered or issued by the SFC (including the Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission) and the applicable rules of SEHK when conducting their business activities (including the Securities Market Maker Regulations), including in particular to:
   1. establish and maintain appropriate internal controls and risk management measures, including an effective business continuity plan commensurate with their size and scale of business, to protect their key business functions of market making. The plan should identify likely scenarios involving disruptions, appropriate backup facilities or alternative arrangements, as well as adequate personnel for the continuity of market making activities;
   2. invoke contingency measures in a timely fashion in anticipation of potential operational disruptions to maintain the key business functions; and
   3. alert the management company of the ETFs, the SFC and the SEHK immediately if they experience or foresee that they will experience any operational difficulties or disruptions that may affect the proper discharge of their market making functions for ETFs.

22

Joint Statement in relation to General Meetings in light of the Prevention and Control of Disease (Prohibition on Group Gathering) Regulation

The SFC and the Hong Kong Stock Exchange (SEHK) published a joint statement regarding the impact of the recently introduced Prevention and Control of Disease (Prohibition on Group Gathering) Regulation (Cap. 599G) on corporate annual general meetings (AGM), extraordinary general meetings (EGM) and special general meetings (SGM). The SFC and SEHK clarified that AGMs fall under an exemption in Cap. 599G, while EGMs and SGMs can also fall under the same exemption under certain circumstances. The SFC and SEHK also set out some guidelines for listed issuers to consider when deciding on the timing of their meetings.

1 April 2020

Click here

23

FAQ – Licensing related matters in light of the COVID-19 pandemic

The SFC published an FAQ on concerns and issues faced by intermediaries and licence applicants relating to licensing related matters. The FAQ covers issues such as working from home, and arrangements relating to extension of timeline for filing audited accounts or extension of timeline for completing annual CPT requirements.

31 March 2020

Click here

24

Circular to intermediaries – Extended deadlines for implementation of regulatory expectations and reminder of order recording requirements under COVID-19 pandemic

The SFC published a circular on the extension of implementation deadlines for a number of upcoming regulatory expectations by six months, including expectations on the use of external electronic data storage, new measures to protect client assets (client asset acknowledgement letters), and data standards for life cycles. The SFC also reminded intermediaries of their need to continue to comply with the order recording requirements under paragraph 3.9 of the Code of Conduct for Persons Licensed by or Registered with the SFC.

31 March 2020

Click here

Please also see Legal Update here.

25

Circular to intermediaries - Reminder of important obligations to ensure suitability and timely dissemination of information to clients

The SFC published a circular reminding licensed and registered persons of their obligations under the Code of Conduct for Persons Licensed by or Registered with the SFC. In particular, the SFC emphasized the need to observe the suitability obligations when they make a solicitation or recommendation and the obligation to disseminate information in a timely manner when they hold an investment product directly or indirectly on behalf of clients, as well as the need to act in the best interests of their clients.

27 March 2020

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Please also see Legal Update here.

26

Circular to management companies and trustees and custodians of SFC-authorized funds

The SFC published a circular reminding managers, trustees, and custodians of SFC-authorized funds of their obligations to properly manage the liquidity of their funds and ensure fair treatment of investors in the wake of the market volatility caused by the COVID-19 outbreak. The SFC has stepped up its monitoring of authorized funds in light of the current market conditions.

27 March 2020

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Please also see Legal Update here.

27

Further Guidance on the Joint Statement in relation to Results Announcements in light of the COVID-19 Pandemic

The SFC and the Hong Kong Stock Exchange (SEHK) provided further guidance on the joint statement of 4 February 2020 regarding the release of results by listed companies. The SFC and SEHK provided clarifications on a number of issues, such as guidance for issuers who are unable to publish a preliminary results announcement in accordance with the Listing Rules by 31 March 2020 and guidance for both GEM and Main Board issuers on the publication of annual reports by the respective 31 March 2020 and 30 April 2020 deadlines.

16 March 2020

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28

Joint Statement in relation to Results Announcements in light of Travel Restrictions related to the Severe Respiratory Disease associated with a Novel Infectious Agent

The SFC and the Hong Kong Stock Exchange (SEHK) issued a joint statement to listed issuers and auditors regarding the impact of the COVID-19 outbreak on the ability of listed issuers to meet reporting requirements under the Listing Rules, namely announcement of their financial information and results by the 31 March 2020 deadline. The SFC and SEHK noted that travel and other restrictions caused by the outbreak may cause disruption to the reporting and audit processes of listed issuers, and encouraged them to consult the SEHK and provide details of the circumstances which would prevent them from meeting the requirements. The SEHK will then provide further guidance in conjunction with the SFC.

4 February 2020

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Please also see the FAQ on the joint statement here.

Hong Kong Monetary Authority (HKMA) Circulars/Guidelines

SUMMARY

DATE

LINK

REMARKS

The HKMA has received feedback from members of the public that their bank accounts maintained on the Mainland ("Mainland bank accounts") have become dormant or have been suspended for various reasons, and they are facing difficulties in reactivating their Mainland bank accounts by visiting the banks’ branches on the Mainland in person due to the travel restrictions amid the COVID-19 pandemic situation. The situation is becoming more prevalent over time, and this may create significant hardships to the customers concerned. It will not be conducive to the convenient flow of people, goods and funds between Hong Kong and the Mainland, including but not limited to the Guangdong-Hong Kong-Macao Greater Bay Area. 

HKMA’s Recommendations for AIs

Having communicated with the relevant Mainland authorities, the HKMA strongly encourages authorized institutions ("AIs") to introduce facilitative measures to assist these affected customers to reactivate their Mainland bank accounts, especially during the current pandemic situation for the benefit of the community. In response to some questions from AIs on regulatory aspects of such facilitative measures, this circular provides clarifications for AIs in the offering of assistance to the affected customers. 

Where Mainland banks are AIs

In the case where the relevant Mainland bank is already an AI, facilitative measures to reactivate Mainland bank accounts will not have bank licensing issue or concern on the establishment and maintenance of local representative offices under the Banking Ordinance. AIs should have flexibility in implementing facilitative measures.

Where Mainland banks are not AIs

In the case where the relevant Mainland bank is not an AI, the HKMA is of the view that where the AI, in offering administrative assistance to affected customers to reactivate their Mainland bank accounts, acts according to such customers’ instructions and acts on such customers’ behalf (instead of acting as a representative or an agent of the relevant Mainland bank in Hong Kong, or soliciting customers for the relevant Mainland bank), the offering of such assistance by the AI to the affected customers will not of itself render the relevant Mainland bank to have established or maintained a local representative office in Hong Kong. 

Moving Forward

AIs are encouraged to implement facilitative measures as soon as feasible to assist affected customers under the current pandemic situation, including adopting financial technology solutions, having regard to the applicable laws and regulatory requirements, including those on the Mainland

The Government announced on April 14 the relaunch of the subscription arrangement for the government retail green bond, for which the issuance was previously postponed due to the epidemic situation.

According to the press release published by HKMA, the Financial Secretary, Mr Paul Chan, said, “As the fifth wave of the epidemic gradually subsides, we are relaunching the subscription arrangement of the inaugural retail green bond and combining the issuance targets of the last and the current financial years, so as to minimise issuance costs and administrative work.  Having considered the rising interest rates in the market, we have decided to increase the minimum interest rate of this retail green bond so as to provide the public with a green investment choice with a steady return.”

Details regarding the Government Retail Green Bond

The target issuance size of this retail green bond is HK$15 billion.  The Government may further increase the issuance size to a maximum of HK$20 billion having regard to market conditions.  As set out in the Government’s Green Bond Framework, the proceeds of green bonds will be credited to the Capital Works Reserve Fund to finance or refinance green projects that provide environmental benefits and support the sustainable development of Hong Kong (see Annex).  The Government will provide information on the allocation of the proceeds and expected environmental benefits of green projects on an annual basis.

The bond will have a tenor of three years. Bond holders will be paid interest once every six months at a rate linked to inflation in Hong Kong, subject to a minimum rate of 2.5 per cent.

Subscription Period and Subscription Channels

The subscription period of the retail green bond will start from 9am on April 26 and end at 2pm on May 6.  Hong Kong residents may apply for the retail green bond through a placing bank, a securities broker or the Hong Kong Securities Clearing Company Limited.

A Government spokesman noted that, to facilitate the subscription of the retail green bond and provide more options of subscription channels, the issuance has retained the various channels adopted for government retail bonds in the past.  However, the Government calls on the public to subscribe for the retail green bond through online or telephone channels if possible, which not only supports environmental protection and reduces paper consumption, but also helps reduce social contact.

Issuance and Listing of the Government Retail Green Bond

The retail green bond will be issued on May 18 and listed on the Stock Exchange of Hong Kong on the following business day (May 19). It can be traded in the secondary market afterwards.

The Annex provides the nine categories of eligible projects under the Government’s Green Bond Framework. 

For the nine categories of eligible projects under the Government’s Green Bond Framework, please refer to the Annex here.

Please see the HKMA’s press release sharing the Government’s announcement of the postponement of retail green bond offering dated 26 February 2022 here.

The above press release has been covered in item 8 below.

According to this press release published by HKMA, HKMC Insurance Limited announced that enhancements to the 100% Personal Loan Guarantee Scheme (PLGS) will take effect from 19 April 2022 (Tuesday).

The Financial Secretary announced in the 2022-23 Budget that the application period of the PLGS will be extended to end-April 2023.  The maximum loan amount per borrower will be increased from six times to nine times the average monthly income during employment, subject to a ceiling of HK$100,000 (originally HK$80,000).  In addition, the maximum repayment period under the PLGS will be extended from six years to 10 years, and the principal moratorium arrangement will be extended from 12 months to 18 months. 

Details of PLGS is available on the official webpage here.

For the previous update on PLGS, please refer to HKMA’s circular “Enhancements  to the 100% Personal Loan Guarantee Scheme” dated 23 February 2022 here.

The HKMA issued a Circular dated 30 March 2022 regarding the HKMC Insurance Limited’s announcement that enhancements to the SME Financing Guarantee Scheme (SFGS) will take effect from 1 April 2022 (Friday).

To further alleviate the cash flow pressure of small and medium-sized enterprises in the time of the pandemic, the Financial Secretary announced in the 2022-23 Budget that the maximum loan amount per enterprise under the Special 100% Loan Guarantee will be raised from the total amount of employee wages and rents for 18 months to that for 27 months, subject to a ceiling of HK$9 million (originally HK$6 million), and the maximum repayment period will be extended from eight years to 10 years. Eligible enterprises should have been operating for at least three months as at 31 March 2022, and have suffered at least a 30% decline in sales turnover in any month since February 2020 compared with the monthly average of any preceding quarter from January 2019 to March 2022.

In addition, the principal moratorium arrangement for the 80% Guarantee Product, the 90% Guarantee Product and the Special 100% Loan Guarantee of the SFGS will be extended by six months to a maximum of 30 months in total. An option for borrowers to resume making partial principal repayment for one year will be provided, allowing borrowers to resume normal repayment gradually if they are willing and capable.

The application period of the SFGS has been extended to 30 June 2023. 

For details regarding SFGS, please see here.

For the previous update on SFGS, please refer to HKMA’s circular “ Enhancements to the SME Financing Guarantee Scheme” dated 23 February 2022 here.

The above circular has been covered in item 9 below.

OTC Derivatives Trade Repository of the HKMA

Updated Technical Specifications for Reporting

The HKMA announced through a notice dated 29 March 2022 that a revised version of the Administration and Interface Development Guide ("AIDG") - version 2.0 for reporting is published to update the technical specification under the over-the-counter (OTC) derivatives trade repository of the HKMA ("HKTR"). The AIDG version 2.0 (see attachments to the notice) will start to apply from 19 December 2022. Updates to coding schemes to cover "Proprietary rates" will be postponed to 19 December 2022 as well due to the pandemic.

Key Changes in AIDG version 2.0

With reference to the Proposed Updates to the Technical Specifications for OTC Derivatives Trade Reporting communicated by local regulatory authorities to the reporting entities dated on 11 October 2021, corresponding key changes are made in the revised AIDG, including 

(i) making available the "Global Unique Transaction Identifier" (Global UTI) related data fields' in anticipation of the global implementation of UTI, 

(ii) enhancing the Equity templates to address market feedback and cater to regulatory needs, 

(iii) amending data field descriptions to accommodate the mandating of reporting specified field values and product types. 

The revised AIDG also covers updates of coding schemes supported in the HKTR reporting templates and corresponding changes in some business validation rules.

Postponement of Implementing Updates to Coding Schemes Amid Covid-19

Amid the operational challenges reporting entities may face under the current pandemic situation, the implementation date of updates to coding schemes to cover "Proprietary rates" will be postponed from the originally scheduled 31 March 2022 to 19 December 2022.

Existing Updates and Updates to Come

Reporting entities are reminded to read the proposed updates made by local regulatory authorities and the revised AIDG for the details of the changes and review their obligation to report all transactions involving the updates supported by the HKTR. Further to this, an updated Operating Procedures for Hong Kong Trade Repository -- User Manual for Participants will be published in due course for the enhanced display of the user interface and system reports of the HKTR system. 

Simulated Reporting for AIDG version 2.0

The HKTR will make available a testing environment from October 2022 for interested reporting entities to simulate reporting on the changes made in the AIDG on a voluntary basis.

Attachments to the notice provides details regarding AIDG version 2.0

In light of the latest wave of the Covid-19 pandemic, the HKMA issued a Circular dated 7 March 2022 to (i) extend or temporarily suspend certain deadlines for regulatory submissions; and (ii) extend the deadline for completion of Continuous Professional Training (CPT) hours.

The HKMA is aware that amid an upsurge of infections, the banking industry has stepped up efforts to implement special work arrangements and safety measures to protect staff and customers while ensuring an uninterrupted provision of essential banking services. The operational challenges authorized institutions (AIs) face under the circumstances may increase further in the short term as the Hong Kong community makes a concerted effort to combat the pandemic with city-wide measures, including a universal testing exercise, to bring it under control. 

Extension of Deadline or Temporary Suspension of Regulatory Submissions

To enable AIs to focus resources on essential operations, the HKMA considers it appropriate to provide flexibility in certain submissions required of them during this exceptional period. These cover various surveys, banking returns, self-assessments, consultations, etc. which AIs are required to make submissions to the HKMA within specified periods. The way the HKMA proposes to exercise flexibility in each case (i.e. either by way of an extension of submission deadline, or temporary suspension of submission) is set out at Annex 1 to the Circular. For upcoming consultations, the HKMA is prepared as far as appropriate to allow the industry to provide feedback within a more accommodative time frame. 

Relatedly, the HKMA issued a Circular on 7 February 2020 informing AIs of its preparedness to allow flexibility for those encountering pandemic-related operational difficulties in meeting the deadlines for lodging documents with the HKMA under section 60 of the Banking Ordinance (BO) or in making disclosures under the Banking (Disclosure) Rules. A copy of the Circular is attached as Annex 2 to the Circular. The HKMA reiterates that the same principles for allowing flexibility as set out in that Circular remain applicable. Any AI anticipating difficulties is requested to approach the HKMA as soon as practicable for discussion.

Extension of Deadline for Completing CPT Hours 

In respect of relevant individuals (including executive officers) within the meaning of the BO who are originally required to pass regulatory examinations or have undertaken to complete additional CPT hours on or before 31 May 2022, the HKMA allows the same extension of three calendar months as that provided by the SFC for licensed individuals. Application for time extension to the HKMA is not required. 

The HKMA will continue to closely monitor the development of the pandemic situations and collaborate with the industry in maintaining the safety and soundness of the banking system. The HKMA is using its supervisory tools flexibly in this period and reiterates the importance of risk-based approach.

Appendix 1 – Extended deadlines for regulatory submissions

Appendix 2 – “Requirements under section 60 of the Banking Ordinance (Cap. 155) and disclosure requirements under the Banking (Disclosure) Rules (Cap. 155M)” issued by the HKMA on 7 February 2020

(covered in item 47 below)

For the SFC’s extension of deadline for completing CPT Hours, please refer to questions 1 and 2 of the FAQs on "Licensing related matters in light of the COVID-19 pandemic" last updated on 2 March 2022 here.

(also covered in item 23 of the SFC circulars/guidelines above)

On 23 February 2022, the Financial Secretary announced in the 2022-23 Budget that there will be enhancements to the SME Financing Guarantee Scheme (“SFGS”). The enhancements are as follows:

1. The application period for the 80% Guarantee Product, the 90% Guarantee Product and the Special 100% Loan Guarantee of the SFGS will be extended to 30 June 2023.
2. The maximum loan amount per enterprise under the Special 100% Loan Guarantee will be raised from the total amount of employee wages and rents for 18 months to that for 27 months, subject to a ceiling of HK$9 million (originally HK$6 million), and the maximum repayment period will be extended from eight years to ten years.
3. Having regard to the HKMA and the banking sector’s further extension and new partial principal repayment option under the Pre-approved Principal Payment Holiday Scheme (please see “Remarks”), HKMC Insurance Limited (“HKMCI”) will follow suit with the following enhancements to the principal moratorium arrangement under the SFGS:
   • The principal moratorium arrangement under the SFGS will be extended from six months to 30 months, and the application period for principal moratorium will be extended to end-December 2022.
   • Borrowers will be given the option to resume making partial principal repayment for one year if they are willing and capable. Whether a borrower chooses the principal moratorium arrangement or the partial principal repayment option, the loan tenor and the guarantee period will be extended accordingly.

The HKMCI will follow up on the implementation details with lending institutions, and strive to roll out the enhanced measures in 1.5 months. Effective date and details will be further announced. 

Please see the HKMA’s circular on the Pre-approved Principal Payment Holiday Scheme dated 23 February 2022 here. 

The above circular has been covered in item 11 below.

On 23 February 2022, the Financial Secretary announced in the 2022-23 Budget that there will be enhancements to the 100% Personal Loan Guarantee Scheme (“PLGS”). The enhancements are as follows:

1. The application period of the PLGS will be extended to end-April 2023.
2. The maximum loan amount per borrower will be increased from six times to nine times the average monthly income during employment, subject to a ceiling of HK$100,000 (originally HK$80,000). In addition, the maximum repayment period under the PLGS will be extended from six years to ten years, and the principal moratorium arrangement will be extended from 12 months to 18 months.

The HKMCI will follow up on the implementation details with lending institutions, and strive to roll out the above measures in 1.5 months. Effective date and details will be further announced. Before the measures come into effect, those in need may approach lending institutions to make applications based on the existing terms. 

The HKMA issued a circular dated 23 February 2022 (i) extending the Pre-approved Principal Payment Holiday Scheme (“Scheme”) by six months; and (ii) introducing a one-year partial principal repayment option (“Option”) which will be offered to those customers who prefer to resume principal payment gradually. Given the severity of the prevailing wave of COVID infections, the HKMA calls on AIs to continue to adopt a sympathetic attitude to customers in temporary financial difficulties and render assistance to them insofar as it is consistent with prudent risk management principles. This is intended to avoid an abrupt curtailment of credit to the SME sector and would be in the best interest of the banking industry as a whole. The extension of the Scheme and the introduction of the Option have received the unanimous support of the 11 major lenders of the Mechanism. The HKMA expects all AIs to offer the same treatment to their corporate customers covered by the Scheme. 

Further extension of the Pre-approved Principal Payment Holiday Scheme

During the past few months, the HKMA and the Banking Sector SME Lending Coordination Mechanism (“Mechanism”) explored the possibility of gradually exiting the Scheme. However, due to the recent resurgence of COVID-19 cases, the HKMA and the Mechanism considered a change in plan and decided to further extend the Scheme by six months. 

Principal payments of all loans of eligible corporate borrowers falling due between 1 May 2022 and 31 October 2022 should be deferred by six months (except for repayments of trade loans, which should be deferred by 90 days). The deferment applies whether or not a loan has previously been on a principal payment holiday.

Similar to previous rounds of Scheme extensions:

AIs need not issue individual notifications to eligible customers regarding the six-month extension of the Scheme. Corporate customers in need of relief should be advised to contact their lending institutions. AIs should handle each eligible customer’s case on a pre-approved basis. AIs may seek updated financial or business information from customers, particularly those who have already been granted multiple extensions of payment holidays. All other terms of the Scheme set out in the Annex to the HKMA’s circular on 17 April 2020 should continue to apply.

• For a loan which has been extended for 540 days or more successively since it was first drawn down (or a trade loan which has been extended for 270 days or more successively since it was first drawn down), AIs can adopt a flexible approach and consider on a case-by-case basis whether other forms of relief (including but not limited to full principal payment) are more suitable to help the customers ride out the current difficulties, subject to prudent risk management principles.
• AIs may require a customer to settle trade facilities which are self-liquidating in nature if the customer receives the underlying payment during the extended deferment period
• For revolving facilities that are due for credit review between 1 May 2022 and 31 October 2022, AIs should not adjust downward the existing facility limits within six months from the review dates.

Partial principal repayment option 

The HKMA and the Mechanism note that some customers may be financially capable and willing to resume some principal repayment in exchange for greater certainty to their future repayment schedule. AIs are therefore recommended to offer customers an option to start to resume partial repayment of the original principal repayment amount (i.e. the original payment schedule when the customer first joined the Scheme) over a period of one year. Specific treatments are recommended for different types of loans: 

• For instalment loans (e.g. mortgage loans and commercial vehicle loans), customers may start to repay 20% of the original principal repayment amount within one year. The loan tenor should generally be extended correspondingly. The same treatment should be applicable to commercial vehicle loans taken out by personal customers. The HKMA and the Mechanism will review the arrangement for principal repayment beyond one year at a suitable juncture.
• For trade facilities, loans with bullet payment falling due within one year, and outstanding balances of revolving facilities, customers may repay the amount due to be settled by regular instalments (e.g. quarterly or monthly) over a period of two years. For trade facilities which are self-liquidating in nature, AIs may require the loan to be settled when the underlying payment has been received by the customer.

For the avoidance of doubt, loans which have been extended for 540 days or more successively since the first drawdown (or trade loans which have been extended for 270 days or more successively since the first drawdown) are eligible for the Option.

The HKMA and the Mechanism encourage AIs to approach their customers participating in the Scheme to ascertain their interest in the Option. AIs should emphasize to customers that taking up the Option is entirely voluntary for the customers. The HKMA points out that taking part in the full principal payment deferment or the Option will not by itself result in a loan being downgraded, nor will it cause the loan to be categorised as “rescheduled” as long as the terms of the deferment are commercial. That said, AIs should continue to recognise and classify loans of customers which are unable to meet the rescheduled payments in a timely manner, with reference to the HKMA’s Guideline on Loan Classification System, and to make adequate provisions as and when needed. 

Please see the HKMA’s circular dated 17 April 2020 here.

Please see the Annex to the HKMA’s circular dated 17 April 2020 here.

The above circular has been covered in item 39 below. 

The HKMA issued a Circular dated 18 February 2022 encouraging AIs to (i) implement “vaccine pass” arrangements and (ii) encourage their staff to take the third dose of COVID-19 vaccination.

Implementation of “vaccine pass” arrangements

In light of the recent surge in COVID-19 infections involving new, highly transmissible strains, the HKMA advises AIs to step up their precautionary measures for protecting their staff and customers and ensuring the uninterrupted provision of essential banking services. Drawing reference from the “vaccine pass” arrangements by the Government and financial regulators for staff entering the workplace, the HKMA strongly encourages AIs to consider implementing similar arrangements appropriate to their own settings and operational needs at their premises. Under such arrangements:

• Staff should be required to present proof of vaccination for at least the first dose of COVID-19 vaccine before entering the workplace.
• Exemption may be granted to staff who are unfit for vaccination due to medical conditions, supported by a valid medical certificate.
• Exempted staff should continue to be required to undergo regular testing for COVID-19.

AIs are required to inform the HKMA within 2 weeks from the date of the circular (i.e. by 4 March 2022) whether they will implement a “vaccine pass” arrangement and the planned date of implementation. If an AI decides not to implement a “vaccine pass” arrangement, it should provide the HKMA with details of its considerations in reaching this decision.

Third dose of COVID-19 vaccination

HKMA acknowledges that the Hong Kong banking industry has made substantial efforts to promote COVID-19 vaccine uptake in the workplace, strengthening the protection of bank staff and customers and facilitating better business continuity planning. According to the latest information shared by AIs with the HKMA, over 90 percent of bank staff have received at least one dose of COVID-19 vaccine.

AIs are required to strongly encourage eligible staff to take the third dose of COVID-19 vaccine. AIs should provide adequate facilitating measures (e.g. vaccination leave arrangement) for staff to receive COVID-19 vaccination. AIs should also pay close attention to the development of the COVID-19 epidemic situation and conduct timely assessments of the need to adjust their workplace safety measures, having regard to the Government’s latest guidance on COVID-19 prevention and control measures. 

The HKMA and the Banking Sector SME Lending Coordination Mechanism (“Mechanism”) announced a further 90-day repayment deferment for trade facilities under the Pre-approved Principal Payment Holiday Scheme (“Scheme”). 

The decision to extend the repayment of trade facilities under the Scheme for 90 days until the end of April 2022 was made in light of the rapid spread of the COVID-19 variant around the world which creates uncertainties for economic recovery and the ongoing global supply-chain disruptions which put pressure on corporates hard-hit by the pandemic. 

Similar to previous extensions:

• Corporate customers participating in the repayment deferment for trade facilities under the Scheme, if in need, can extend trade facilities falling due between February and April 2022 for another 90 days.
• Eligible corporate customers can also apply for a 90-day extension of trade facilities drawn down from November 2021 to end of January 2022.
• For facilities which are self-liquidating in nature, banks may require the loan to be settled when the customer has received the underlying payment.
• For trade loans which have been successively extended for 270 days or more since first draw-down, banks can adopt a flexible approach and consider on a case-by-case basis whether other forms of relief are more suitable to help the customers, subject to prudent risk-management principles. 

The Mechanism is due to expire at the end of April 2022 and, going forward, HKMA and the Mechanism are considering ways to strike a balance between banks’ need for prudent risk management and supporting corporates that are still hard-pressed by the pandemic.

Please see the HKMA’s circular dated 5 August 2020 here.

The above circular has been covered in item 28 below.

The HKMA issued a circular dated 28 October 2021 requiring AIs to strongly encourage ALL staff to get vaccinated as soon as practicable. Staff who have not received a first dose of COVID-19 vaccine by 30 November 2021 or are unfit to receive vaccination due to medical conditions should undergo effective testing for COVID-19 every two weeks.

In 1 June 2021, the HKMA issued a circular requiring all AIs to strongly encourage staff performing client-facing roles or critical support functions (“designated staff”) to receive COVID-19 vaccinations, and to make arrangements for designated staff who have not been vaccinated to undergo effective testing for COVID-19 every two weeks. The measures aimed to strengthen the protection of bank staff and customers against the risk of COVID-19 and to enhance the business continuity planning of AIs. 

Since the 1 June 2021 Circular, the COVID-19 vaccination rate of designated staff has increased steadily. The latest information shared by AIs with the HKMA shows that over 80% of designated staff have received at least one dose of COVID-19 vaccine. That said, the HKMA notes that more infectious variants of COVID-19 have spread rapidly in some overseas jurisdictions. 

Taking into account the potential for severe business disruption to banking operations in the event of another outbreak, and the experience and practices of other major markets, the HKMA considers it essential for AIs to expand the scope of their vaccination and regular testing arrangements to all staff. AIs should provide adequate facilitating measures for staff to receive vaccination, such as pre-vaccination health checks sponsored by the AI, time off work to get vaccinated and extra days of leave.

Please see the HKMA’s circular on 1 June 2021 here.

The above circular has been covered in item 17 below.

The HKMA issued a circular dated 21 September 2021 (i) extending the Pre-approved Principal Payment Holiday Scheme (“Scheme”) by six months; (ii) disclosing the plan for an orderly exit of the Scheme; and (iii) exploring alternative repayment arrangements for some sectors such as the transportation sector.

Further extension of the Pre-approved Principal Payment Holiday Scheme

The HKMA and the Banking Sector SME Lending Coordination Mechanism (“Mechanism”) has decided to further extend the Scheme by six months to end-April 2022. 

Principal payments of all loans of eligible corporate borrowers falling due between 1 November 2021 and 30 April 2022 should be deferred by six months (except for repayments of trade loans, which should be deferred by 90 days). The deferment applies whether or not a loan has previously been on a principal payment holiday.

For a loan which has been extended for 540 days or more successively since it was first drawn down (or a trade loan which has been extended for 270 days or more successively since it was first drawn down), AIs can adopt a flexible approach and consider on a case-by-case basis whether other forms of relief are more suitable to help the customers ride out the current difficulties, subject to prudent risk management principles. In-line with the existing terms of the Scheme:

• For facilities which are self-liquidating in nature, AIs may require the loan to be settled by the borrower if the borrower receives the underlying payment during the extended deferment period.
• For revolving facilities that are due for credit review between 1 November 2021 and 30 April 2022, AIs should not adjust downward the existing facility limits within six months from the review dates.

Similar to previous Scheme extensions, AIs need not issue individual notifications to eligible customers regarding the six-month extension arrangement. Corporate customers should be advised to contact their lending institutions. AIs should handle each eligible customer’s case on a pre-approved basis and may seek updated financial or business information from customers, particularly those who have already been granted multiple extensions of payment holidays. All other terms of the Scheme set out in the Annex to the HKMA’s circular on 17 April 2020 continue to apply.

The HKMA and the Mechanism are planning for an orderly exit of the Scheme

As the usage of the Scheme has dwindled to a low level on the back of steady economic recovery, the HKMA and the Mechanism consider that planning should be made for the discontinuation of the Scheme, in line with prudent risk management principles. The HKMA will engage the banking industry to discuss the appropriate exit strategy, drawing reference from experience of overseas jurisdictions which are in different stages of withdrawal from pandemic relief measures. Further details will be shared at a later date.

Alternative arrangements for alleviating cash flow difficulty in transportation sector

HKMA stresses that AIs should continue to be accommodative and actively explore alternative repayment arrangement with the borrowers, such as partial principal repayment over a longer period of time as favoured by some sectors.

Making reference to the practice of upgrading of public light buses (PLBs) to 19 seats, the Mechanism agreed that AIs should exercise greater flexibility in handling the new financing applications from taxi operators for replacing aged vehicles. The HKMA considers that AIs do not need to rigidly adhere to the 85% loan-to-value ratio cap provided that prudent risk management principles are observed and that the new loans are only used for purchase of new vehicles. The Mechanism further agrees that AIs should actively consider extending the maximum tenors for existing taxi and PLB loans from 25 years to 30 years, and for non-franchised buses from 7 years to 10 years, after taking into account the circumstances of individual borrowers. During consultation with the transportation sector, views were floated that, as an alternative to the six-month full principal payment holiday, AIs should offer partial repayment of principal over a longer period of time (such as 20-50% principal repayment over one to two years) which has the merit of greater certainty for the borrowers. The Mechanism encourages AIs to explore such options with their customers. The HKMA will also make reference to these suggestions when planning for the exit of the Scheme. 

Please see the HKMA’s circular on 17 April 2020 here.

Please see the Annex to the HKMA’s circular on 17 April 2020 here.

The above circular has been covered in item 39 below.

90-day deferral for trade facilities under the Pre-approved Principal Payment Holiday Scheme

The HKMA and the Banking Sector SME Lending Coordination Mechanism (“Mechanism”) announced a 90-day repayment deferment for trade facilities under the Pre-approved Principal Payment Holiday Scheme (“Scheme”). 

Under the Scheme (which was covered in a previous circular (please see “Remarks”)), trade loans have been granted 90-day extension five times. Some of these loans will fall due in August 2021. The Mechanism recognised that Hong Kong’s external trade has continued to improve and the local economy is gradually recovering, however given the fluctuating pandemic situation around the world, economic recovery is still laden with uncertainties. The Mechanism therefore has agreed to further extend the repayment period of trade facilities under the Scheme for 90 days until the end of October, when the whole Scheme will expire.

Interested corporate customers may contact their banks, which in turn will handle repayment deferment requests on a “pre-approved” basis. Features for trade facilities under the Scheme are similar to previous extensions:

• Corporate customer in need can further extend for 90 days their trade facilities falling due between August and October 2021.
• Eligible corporate customers can apply for a 90-day extension of trade facilities drawn down from May to end-July 2021.
• For facilities which are self-liquidating in nature, banks may require the loan to be settled when the underlying payment has been received by the customer.
• For trade loans extended for 270 days or more cumulatively since their first draw-downs, banks can adopt a flexible approach and consider on a case-by-case basis whether other forms of relief are more suitable to help the customers, subject to prudent risk-management principles. 

When the Scheme expires at end-October, the HKMA and the Mechanism will consider the way forward, taking into account consultations with the banking industry and commercial sectors, as well as overseas practices in handling similar schemes.

Please see the HKMA’s circulars dated 5 August 2020 here. 

The above circular has been covered in item 28 below.

HKMA issued a Circular urging all authorised institutions (AIs) to introduce additional effective measures to encourage all bank staff to get vaccinated. In particular, consideration should be given to following the recent practice of the Government and the HKMA of giving extra days of leave to staff who have taken both doses of the vaccine, or providing other suitable and adequate incentives for inoculation.

HKMA requires that all AIs should strongly encourage staff performing client-facing roles or critical support functions to get vaccinated. AIs should identify and draw up a list of designated staff expected to receive inoculation. The list should include, without limitation, those staff involved in branch operation, wealth management and commercial banking, who have frequent face-to-face interactions with customers, as well as those responsible for critical IT, data centre, treasury and settlement operations.

Bank staff included in the list should be requested to get vaccinated as soon as possible. Arrangements should be made for those, who have not yet been vaccinated or are unfitfor vaccination due to medical conditions, to undergo effective testing for COVID-19every two weeks. Following the advice of public health authorities, the HKMA considers that polymerase chain reaction-based nucleic acid testing using combined nasal and throat swabs is an effective test for COVID-19 for this purpose.

AIs are required to submit to the HKMA, within two weeks from the date of the Circular, a breakdown by department or function of designated staff expected to receiveinoculation. Staff included in the list should undergo the first COVID-19 test by 30June 2021 if they have not yet taken the first dose of vaccine by then.

The Circular added that promoting a high vaccination rate is a collective effort of the whole community towards the ultimate resumption of normal economic activities, and emphasized that the banking sector has an important role to play in this process and should make its contribution to safeguarding public health and bringing Hong Kong's economy onto a steady recovery path. This would also provide the requisite foundation for Hong Kong to re-start international travel, which is crucial for maintaining Hong Kong's status as an international financial centre.

HKMA issued a circular on 20 April 2021 in relation to the 100% Personal Loan Guarantee Scheme (PLGS) proposed in the 2021-2022 Budget. The PLGS provides a supplementary financing option for individuals suffering from cessation of main recurrent incomes from employment due to the COVID-19 pandemic.

The PLGS will be administered by HKMC Insurance Limited (HKMCI). HKMCI will rely on the professional expertise, judgment and care of participating lender institutions in conducting customer due diligence and verification of applicants’ eligibility for concessionary low-interest loans. After drawdown, the loans will be sold by the participating lender institutions to The Hong Kong Mortgage Corporation Limited (HKMC). HKMC's purchase of the loans will be funded by the HKSAR Government. The Government has issued a letter of comfort to HKMA confirming its commitment under the PLGS.

In this circular, HKMA sets out its policy intent on the relevant regulatory treatments in respect of a loan granted by a participating authorised institution (AI) to an eligible borrower under the PLGS:

1) Regulatory and reporting treatments

Under the PLGS arrangement, an AI is considered to have an exposure to HKMC fully covered by the Government’s commitment under the PLGS. It follows that:

• In relation to the Banking (Exposure Limits) Rules, the letter of comfort will be approved for the purposes of the Rule 57(1)(d) in respect of an AI’s exposure to HKMC. The amount so covered will be deducted from the AI’s exposures to HKMC.
• In relation to the Banking (Capital) Rules (BCR), 
  
  • For the STC and BSC approach – an AI may treat its exposure to HKMC as covered by the Government's commitment, and risk-weight the exposure as one guaranteed by the Government.
  • For the IRB approach – an AI should seek HKMA’s exemption approval under section 12(1) of the BCR and apply the STC approach for loans granted under the PLGS instead. HKMA commits to process the application expeditiously.
  • SPM module CR-G-7 – applying the underlying principle of paragraph 3.2.4 of the module taking into account the PLGS arrangements, HKMA would not consider it unreasonable for an AI to regard the cover of the Government’s commitment for the PLGS as enabling the AI to treat an exposure to HKMC under the PLGS as "secured" (in the sense of there being a separate obligation to pay by the Government) for risk management purposes.
• In relation to banking return reporting arrangements
  
  Regarding the Capital Adequacy Ratio return
  
  
  • Under the BSC approach, receivables should be reported as “Loans to or guaranteed by the sovereigns of Tier 1 countries” with a 0% risk weight.
  • Under the STC approach, the receivables should be reported as “public sector entity exposures” (under the subcategory of "domestic PSEs") before CRM and “sovereign exposures” with a 0% risk weight after CRM.
    
    
  Regarding the Large Exposures return
  
  
  • For Part I, II and III, if exposure to the HKMC is reported in these parts, any outstanding receivables from the HKMC under the PLGS at quarter-end should be reported in the “Memorandum item: Deductions”.
  • For Part IV, any outstanding receivables from the HKMC under the PLGS at quarter-end are treated as an exempted exposure and should be reported as an indirect exposure to the Government.
    
    
  Regarding other banking returns, outstanding receivables as at the reporting dates should be reported as exposures to the HKMC as necessary in accordance with the completion instructions.

2) Credit assessment and approval

An AI is expected to check the eligibility of an applicant against the criteria specified under the PLGS. HKMA considers the credit risk exposure of the AI to be minimal as the loan will be transferred without recourse to HKMC shortly after it is created. Therefore, HKMA’s supervisory requirements on credit assessment and risk management set out in the SPM module CR-G-2 do not apply to loans covered by the PLGS.

Having regard to the policy intent of the PLGS is to provide some relief to members of the public over the temporary financial hardship caused by the pandemic, AIs are expected not to take any credit actions which may result in a tightening of existing credit to the borrower, on knowledge of his / her application under the PLGS. HKMA has established an arrangement with the HKMC to handle complaints and feedback received from the public about unfair treatment of borrowers under the PLGS.

Finally, HKMA reminds AIs to refer to the communications of HKMC with the AIs for details regarding disclosure in respect of consumer protection. 

HKMA issued a circular on 24 March 2021 in relation to the territory-wide COVID-19 Vaccination Programme for Hong Kong residents. 

The key message is that it is in the interest of authorized institutions to support the Government’s vaccination drive and help prevent the spread of COVID-19 in the workplace and protect the health and safety of their staff and customers. This is to ensure that banks can operate and provide banking services to their customers without interruption given that they perform a critical financial intermediation role in the economy and provide services that are essential to the wider public interest. 

The circular provides examples of supportive measures to facilitate staff who wish to get vaccinated to do so, especially those who interact frequently with customers or perform critical functions. These examples include:

• Disseminating information about the Vaccination Programme to staff and referring them to the Government’s dedicated website (www.covidvaccine.gov.hk) for queries they may have in relation to the COVID-19 vaccines;
• Allowing staff to get vaccinated during working hours or implementing flexible working hours to accommodate vaccination appointments; and
• Granting staff time off work, where necessary, to rest after vaccination. 

Authorized institutions should also monitor updates to the Vaccination Programme and related COVID-19 guidance issued by the Government, and provide relevant information to their staff with a view to encouraging vaccine uptake.

HKMA issued a Circular dated 10 March 2021 on the following:

(a) FATF pause in its review process for strategic deficiencies in AML/CFT regimes

In response to the COVID-19 pandemic, the Financial Action Task Force (FATF) decided on a general pause in the review process for the list of “high-risk jurisdictions subject to a call for action”. Authorized Institutions (AIs) and Stored Value Facility (SVF) Licensees should continue to refer to the HKMA circular on “Statements issued by the Financial Action Task Force” dated 11 March 2020, in particular, applying the enhanced due diligence measures and other counter-measures in relation to Iran and the Democratic People’s Republic of Korea.

(b) Outcomes of the FATF Plenary meeting held in February 2021 

FATF member delegates discussed and reviewed various strategic initiatives and country-specific processes. In particular, the FATF is developing Guidance to help both public and private sectors in implementing new requirements to identify, assess, understand and mitigate proliferation financing risk as defined in Recommendation 1 and its Interpretive Note. The Guidance aims to assist both public and private sectors in conducting a risk assessment in the context of proliferation financing, and applying corresponding risk mitigation measures. The FATF is consulting private sector stakeholders before finalising the Guidance.

Click here
(Addressed
to AIs)

Click here 
(Addressed to SVF Licensees)

Please see HKMA’s Circular dated 11 March 2020 here.

FATF’s statement on “Jurisdictions under Increased Monitoring” can be found in here.

Outcomes of the FATF can be found in here.

The HKMA and the Banking Sector SME Lending Coordination Mechanism (“Mechanism”) announced that the Pre-approved Principal Payment Holiday Scheme (“Scheme”) will be extended for another six months to October 2021.

All principal payments of loans falling due between May and October 2021 by eligible corporate customers will be deferred by another six months (except for repayments of trade loans, which will be deferred by 90 days). Similar to the Scheme extension in November 2020, banks will not issue individual notifications to eligible customers regarding the deferment arrangement. Interested corporate customers may contact their banks. Deferment requests will be handled on a "pre-approved" basis. Banks may request customers to provide up-to-date operational and financial information to better understand their needs when processing their requests.

As the Scheme has been rolled out for nearly one year, in order to strike a balance between catering for the unique circumstances facing customers and the need for prudent risk management, the Mechanism has agreed that, for loans which have been extended for 540 days or more cumulatively since first being drawn down (or trade loans which have been extended for 270 days or more cumulatively since first being drawn down), banks can adopt a flexible approach and consider, on a case-by-case basis and subject to prudent risk management principles, whether other forms of relief are more suitable to help the customers ride out the current difficulties.

Please see the HKMA’s circulars dated 5 August 2020 here.

The above circular has been covered in item 28 below.

Please also see the HKMA’s announcement dated 2 September 2020 here.

The above announcement has been covered in item 24 below.

90-day deferral for trade facilities under the Pre-approved Principal Payment Holiday Scheme

The HKMA and the Banking Sector SME Lending Coordination Mechanism (“Mechanism”) announced a 90-day repayment deferment for trade facilities under the Pre-approved Principal Payment Holiday Scheme (“Scheme”). 

Under the Scheme (which was covered in a previous circular (please see “Remarks”)), trade loans have been granted 90-day extension respectively in May, August and November 2020. Some of these loans will fall due in February 2021. The Mechanism has agreed that in light of the COVID-19 pandemic, corporate customers can further extend their trade facilities for another 90-day period. Eligible corporate customers can also apply for a 90-day extension of trade facilities drawn down from November 2020 to end-January 2021.

Similar to previous extensions of the Scheme, interested corporate customers may contact their banks, which in turn will handle repayment deferment requests on a “pre-approved” basis. However, it is important to note some additional features for trade facilities under the Scheme:

• For facilities which are self-liquidating in nature, banks may require the loan to be settled when the underlying payment has been received by the customer.
• For trade loans extended for 270 days or more cumulatively since their first draw-downs, banks can adopt a flexible approach and consider on a case-by-case basis whether other forms of relief (such as repaying the trade loans by instalments) are more suitable to help the customers (subject to prudent risk-management principles). 

Flexibility under the Scheme for customers in the transportation sector

The HKMA and the Mechanism also discussed various difficulties facing customers in the transportation sector and identified the following assistance that banks can provide:

• Banks will be more flexible in handling new financing applications by public light bus (“PLB”) operators to finance the upgrade of their vehicles from 16 seats to 19 seats. 
• Banks do not need to rigidly adhere to the 85% loan-to-value ratio cap (provided that prudent risk-management principles are observed) for new loans used only for the purchase of new vehicles.
• As regards new loans granted for taxis, PLBs and other non-franchised buses, banks agreed that they would actively consider extending the maximum loan tenors for taxis and PLBs to 30 years, and the maximum loan tenors for non-franchised buses to 10 years, on a temporary basis for the next two years. 
• Banks may provide other forms of relief to help alleviate the repayment burden of relevant commercial vehicle owners, subject to prudent risk-management principles.

The HKMA reminded banks to be sympathetic to customers who are not eligible for the Scheme to help tide them over this difficult time (while observing prudent risk-management principles).

Please see the HKMA’s circulars dated 5 August 2020 here.

The above circular has been covered in item 28 below.

HKMA published a circular to draw the attention of all Authorized Institutions (AIs) and Stored Value Facility (SVF) Licensees to the most recent update from the Financial Action Task Force (FATF) on COVID-19-related money laundering / terrorist financing (ML/TF) risks (please find the link to FATF's update in Remarks column). The update highlights developments since FATF’s previous reports and provide details on how criminals continue to attempt to exploit the global financial systems, with case studies (including some provided by Hong Kong), and illustrate how the risks have evolved along with the COVID-19 pandemic.

The FATF update reinforces the continuing importance of a risk-based response which does not disrupt essential and legitimate services. HKMA has already articulated its regulatory expectations in this respect in previous circulars (please find the links to those circulars in Remarks column). 
This circular also provides updates on efforts of HKMA and other organisations on combating ML/TF risks:

• HKMA has been monitoring COVID-19 related impact on ML/TF risks and working closely with AIs and SVF Licensees to cope with the developments;
• the Fraud and Money Laundering Intelligence Taskforce, the public-private partnership for information sharing in Hong Kong which consists of law enforcement agency, banking supervisor and ten retail banks in Hong Kong, has been delivering alerts and case-based intelligence on COVID-19 related deceptions;
• the Fraud Risk Management Taskforce established under the Hong Kong Association of Banks (HKAB) broadcasted a video clip on television to remind the public to stay alert of COVID-19 related fraudulent activities and shared good practices on fraud prevention and detection with the industry; and
• HKAB also held a sharing session, with HKMA’s support, to share financial crime trends observed and challenges encountered during COVID-19, and good practices of AIs in managing and mitigating ML/TF risks.

HKMA reminds AIs and SVF Licensees to study the FATF update in conjunction with the ML/TF risk information provided through the above forums, and consider the relevant implications for their ML/TF risk management.

Please see FATF’s update dated December 2020 here.

Please see the HKMA’s circulars dated 30 July 2020:

Update 1

Update 2

The above circulars have been covered in items 29 and 30 below respectively.

Please see the HKMA’s circulars dated 7 April 2020:

Link 1

Link 2

The above circulars have been covered in items 42 and 43 below respectively.

Please see the press release published on HKMA’s website dated 29 May 2020 here.

The above press release has been covered in item 32 below. 

The HKMA published a circular announcing the extension of the Pre-approved Principal Holiday Scheme by 6 months. 

As covered in a previous circular (please see “Remarks”), the HKMA and the Banking Sector SME Lending Coordination Mechanism had put in place the Pre-approved Principal Payment Holiday Scheme for its authorised institution participants (AI) to alleviate cash flow difficulties faced by small and medium size corporations. Under the Scheme, eligible small and medium size corporate customers could make deferred repayments on loan principal payments. 

The Scheme has now been extended for a further 6 months so that all loan principal payments falling due between November 2020 and April 2021 will be deferred by six months (except for repayments of trade loans, which will be deferred by 90 days). Participating AIs will handle each eligible customer’s case on a "pre-approved" basis, and may request customers (especially those who have been granted multiple extensions of payment holidays) to provide up-to-date business and financial information to better understand their needs when processing their cases. 

Please see the HKMA’s circular dated 5 August 2020 here. 

The above circular has been covered in item 28 below.

The HKMA published a circular on adjustments introduced by the HKMA on 19 August 2020 to the prudential measures for mortgage loans on non-residential properties.The HKMA noted that as a result of the COVID-19 outbreak, non-residential property markets have seen major corrections, with the prices of offices, flatted factories and retail premises declining by 15%, 11%, and 10% respectively. The transaction volume of non-residential properties also contracted in the first half of 2020, and will likely remain under pressure due to lowered business confidence and rising geopolitical tensions.

In light of this, the HKMA has decided to adjust the countercyclical macroprudential measures for mortgage loans on non-residential properties. The applicable loan-to-value ratio caps under different scenarios for non-residential properties have been adjusted upward by 10%. These changes will take effect from 20 August 2020 and will apply to all transactions where the provisional sale and purchase agreement is signed on or after that date.

The HKMA reiterated that these measures are intended to apply to mortgage loans for the purpose of financing property transactions or the refinancing of existing properties. They are not intended to apply to credit facilities secured by properties for the purpose of financing the business operation of corporates, as these credit facilities are subject to a set of comprehensive credit underwriting standards and regular credit reviews by authorized institutions. AIs may send any questions they have regarding this circular to rml_hkma@hkma.gov.hk.

The HKMA published a circular reminding Authorized Institutions (AI) of some important investor protection measures in light of the current volatility in the markets.

In view of the recent price volatility of various markets and investment products (including shares, bonds, commodities, precious metals, FX, etc.) as well as the operational challenges brought about by COVID-19, AIs are reminded to remain vigilant, and continue to treat customers fairly and act in the best interest of their customers in the sale of investment products, in line with the Code of Banking Practice and the Treat Customers Fairly Charter. AIs should exercise extra care when handling leveraged transactions where the customer could have potential losses exceeding the invested amount.

Registered institutions are also reminded to observe the following requirements when making solicitations or recommendations on investment products regulated by the Securities and Futures Ordinance:

1. ensure proper product due diligence, taking into account, among others, the market conditions amid the COVID-19 situation, which may impact on the risk return profile and prospect of an investment. Where the continuous review by an RI of the risk rating of an investment product results in a higher risk rating being attributed to the product, the RI should follow the existing requirement of disclosing such increase in risk rating to customers to whom it has recommended and sold the product;
2. give due consideration to relevant circumstances of a customer when assessing the suitability of an investment product for the customer. Where an RI is aware of material changes to a customer’s circumstances (e.g. impact arising from the COVID-19 situation), such changes should be taken into account in the assessment; 
3. explain to the customer the risks and features of the investment product; and 
4. present balanced views: do not focus solely on advantageous terms such as high coupon rates or yields, but should explain also the disadvantages and potential downside risks.

With regards to leveraged transactions, AIs should

• make adequate disclosure of the nature, key features and terms, and the associated risks of leveraged products or transactions, especially the risk of losing more than the customer’s invested amount (and where applicable the risk of having unlimited loses, e.g. a customer writing a naked call option) 
• ensure that the customer is willing and has sufficient net worth to assume the risks and bear the potential losses of the leveraged transactions.

In practice, AIs are expected to put in place policies and controls to ensure that targeted customers have been provided with adequate disclosure of, and are capable of understanding the risk of leveraged or margin trading, and the possibility of being subject to margin-calls within a short time period. AIs are also expected to put in place mechanism to monitor customers’ margin maintained with the AIs. The HKMA will continue to monitor AIs’ compliance with the regulatory requirements as part of its on-going supervision.

The HKMA published a circular announcing that in light of the issues caused by the COVID-19 outbreak, all Authorized Institutions (AI) are requested to extend the principal payment for trade loans under the Pre-approved Principal Payment Holiday Scheme (Scheme) for another 90 days.

According to the HKMA, the deferment should cover trade loans both currently subject to the Scheme as well as those drawn between 1 May 2020 to 31 July 2020 by eligible customers with no outstanding payments overdue for more than 30 days as at 1 August 2020. For facilities which are self-liquidating in nature, AIs may require the loan to be settled when the underlying payment has been received by the customer. All other terms of the Scheme stated in the Annex to the HKMA’s circular on 17 April 2020 will continue to apply.

As only between 10% to 20% of eligible corporate customers have chosen to take up the Scheme and with AIs adopting work-from-home arrangements in response to the pandemic, AIs will not issue individual notifications to customers regarding the deferment arrangement. Interested corporate customers are requested to contact their AIs, which will handle principal deferment requests on a "pre-approved" basis. AIs may request customers to provide up-to-date operational information to better understand their needs when processing their requests.

The HKMA reiterated that this extension of the Scheme will not by itself render a trade loan to be downgraded, nor will it cause the loan to be categorised as “rescheduled” as long as the terms of the extension are “commercial”. This principle applies regardless of whether or not the trade loan is already on a payment holiday. That said, borrowers who are unable to meet the restructured payment schedule should continue to be recognized in a timely manner and the classification of their loans should refer to the HKMA’s Guideline on Loan Classification System as well as previously issued FAQs. 

The HKMA will continue to engage banks and the commercial sectors through the Mechanism and expects to arrive at a decision regarding follow-up arrangements for the Scheme, which will end in October, as soon as possible.

Please see the Annex to the HKMA’s circular on 17 April 2020 here.

(also covered below in item 39)

The HKMA published a circular highlighting some key observations and industry practices to assist Authorized Institutions (AI) in developing sustained efforts to cope with the evolving COVID-19 situation and support operational responses which are consistent with the risk-based approach (RBA). 

The HKMA stated that as the situation continues to evolve, it has become clear that measures originally intended to be short-term may now have to be kept in place by AIs for relatively longer, or in some cases reintroduced as new clusters of COVID-19 cases emerge. Key observations and practices highlighted by the HKMA include:

1. Customer due diligence under social distancing and travel restrictions

The HKMA noted that social distancing and a significant reduction in travel have significantly impacted the ability of AIs to interact with existing and potential customers. AIs are increasingly using video conferencing to interact with customers in the course of on-boarding and ongoing customer due diligence reviews. Some AIs have utilised the flexibility provided in the Anti-Money Laundering and Counter-Terrorist Financing Ordinance to delay verifying the customer’s identity, while adopting appropriate risk mitigating measures. In addition to remote on-boarding for individual retail customers currently offered by more than 10 AIs, some AIs have also expedited testing of similar initiatives for corporate customers.

2. Pressure on AML/CFT resources

The HKMA noted that all AIs have some form of business continuity planning in place to maintain sound operations. To address the pressure on resources, AIs have been adopting a number of responses, which collectively have minimised potential impact to AML/CFT processes. These include reprioritising work on the basis of ML/TF risks, reallocation of staff, staggering office hours and equipping staff with work-from-home capabilities. Some AIs are also expediting their exploration of regulatory technology (RegTech) solutions (e.g. machine learning) to reduce the number of false positives generated from transaction monitoring and screening systems, and thus enhancing efficiency and effectiveness.
The HKMA continues to monitor resource allocation as part of AIs’ operational responses to ML/TF risk management and reiterates through this engagement the importance of applying the principles of the RBA, maintaining adequate records of decisions made and that relevant controls or risk appetite need not be compromised in the process.

3. Emerging threats and changes in customers’ behaviour

The HKMA noted that AIs have increased their understanding of and vigilance to emerging COVID-19 related financial crime risks, including through the Fraud and Money Laundering Intelligence Taskforce (FMLIT) and a recently established Fraud Risk Management Taskforce under the Hong Kong Association of Banks. In line with global trends, some AIs have also identified changes in customer behaviour, such as digital payments and online transactions, and have been working to incorporate their understanding of emerging risks into transaction monitoring rules and scenarios. The HKMA further noted that it had observed examples where RegTech is helping to build out a more collaborative, intelligence-led approach to financial crime risk management and that some AIs are applying advanced analytics to help detect networks and common vulnerabilities.

The HKMA will continue to work closely with AIs to support ongoing industry efforts, in line with the principles of RBA. AIs may approach the HKMA through their usual contacts at the AML & Financial Crime Risk Division or at aml@hkma.iclnet.hk for any questions about this circular.

The HKMA published a circular updating Stored Value Facility (SVF) Licensees on some key observations and industry practices which the HKMA shared with the banking sector in a circular dated 30 July 2020 regarding the ongoing AML/CFT response to COVID-19 related challenges.

The HKMA stated that as the situation continues to evolve, it has become clear that measures originally intended to be short-term may now have to be kept in place by SVF Licensees for relatively longer, or in some cases reintroduced as new clusters of COVID-19 cases emerge. The HKMA will continue to work closely with SVF licensees to support ongoing industry efforts, and reiterated that the principles of the RBA provide the flexibility to be both pragmatic and responsive to the evolving COVID-19 situation and the challenges it presents.

Please see the HKMA’s circular on key observations and industry practices at here.

(also covered above in item 29)

The HKMA published a press release announcing the extension of the temporary US Dollar Liquidity Facility to 31 March 2021. The US Dollar Liquidity Facility was originally launched by the HKMA in a circular dated 22 April 2020 in response to a temporary repurchase agreement facility (FIMA Repo Facility) launched by the US Federal Reserve on 31 March 2020, with the intention of providing licensed banks with an additional channel to obtain US dollar liquidity in light of the tightness in the global US dollar interbank money markets amid volatilities and uncertainties in the global financial markets brought about by the spread of COVID-19. Given the decision by the US Federal Reserve to extend the FIMA Repo Facility to 31 March 2021, the HKMA has decided to extend the temporary US Dollar Liquidity Facility accordingly.

The operational parameters of the temporary US Dollar Liquidity Facility will remain unchanged. A total of US$10 billion is currently available to banks under the Facility in the form of repurchase transactions for a term of 7 days through competitive tenders held by the HKMA every week.

The HKMA published a press release on the enhancement measures to the 80% and 90% Guarantee Products under the SME Financing Guarantee Scheme (SFGS). The enhancement measures were included in the second round of the Anti-epidemic Fund announced by the Hong Kong Government in April 2020. Now Hong Kong Mortgage Corporation Insurance Limited (HKMCI) announced that the enhancement measures will take immediate effect from 29 May 2020.

The enhancement measures are intended to allow more enterprises affected by COVID-19 to apply for guaranteed loans to alleviate their cash flow burden in light of the current economic challenges. 

Under the enhancement measures, the maximum loan amount per enterprise for the 80% Guarantee Product is increased from HK$15 million to HK$18 million, while the maximum loan amount per enterprise for the 90% Guarantee Product is increased from HK$6 million to HK$8 million. All borrowing enterprises under the SFGS can benefit from the enhancements. The eligibility coverage of both guarantee products is also extended to listed companies in Hong Kong. In addition, for the requirement of personal guarantee by individual shareholder(s) under the Special 100% Loan Guarantee, the applicable percentage of equity interest is reduced from over 70% to over 50%, which is in line with that for the 80% and 90% Guarantee Products.

The Hong Kong Government will provide interest subsidy for the 80% and 90% guaranteed loans, with the amount of subsidy capped at 3%. Each loan is entitled to an interest subsidy for a maximum period of 12 months. HKMCI has reached a consensus with the Government and the lenders on the implementation details, which are as follows:

• All outstanding loans as of 30 April 2020 will receive the first batch of interest subsidy for up to 3 months, of which payment will be successively made starting from the end of June 2020 (Please refer to the Annex for details);

• The payment of subsequent interest subsidy will be made on a monthly basis thereafter;

• Interest subsidy is applicable to new loan applications successfully submitted before 31 May 2021.

The interest subsidy will be automatically deposited into relevant bank accounts, and no application will be required, to expedite the support to the borrowing enterprises.

The HKMA published a circular setting out the application of additional guidance issued by the Basel Committee on Banking Supervision (BCBS) on 3 April 2020 regarding alleviation of the impact of COVID-19 on the global banking system in the context of Hong Kong. The circular focused on the following 3 measures:

1. Clarifications on the treatment of extraordinary support measures related to COVID-19
   
   Governments and public authorities in many jurisdictions have introduced extraordinary support measures to alleviate the financial and economic impact of COVID-19. These measures include, among others, guarantee programmes for bank loans and payment holidays offered by banks to borrowers. To ensure that AIs reflect the risk-reducing effect of these measures when calculating their regulatory capital requirements, the HKMA has also enclosed an Annex to this circular setting out several technical clarifications.
2. Expected credit loss provisioning
   
   The HKMA expects AIs to continue to apply the relevant expected credit loss (ECL) frameworks for accounting purposes, and also expects ECL estimates to reflect the mitigating effect of the significant economic support and payment relief measures put in place by public authorities and the banking sector. The provision of relief measures to borrowers should not automatically result in exposures moving from a 12-month ECL to a lifetime ECL measurement. Additionally, AIs are expected to exercise informed judgement and to use the flexibility inherent in HKFRS/IFRS 9, for example, to give due consideration to long-term economic trends in estimating ECL. 
   
   However, the BCBS transitional arrangements for the regulatory capital treatment of ECL accounting will not be adopted in Hong Kong. Instead, the HKMA has lowered the regulatory reserve requirement by half to provide AIs with more room on their balance sheets to cater for future financing needs, as per a circular dated 8 April 2020.
3. Margin requirements for non-centrally cleared OTC derivatives
   
   Following the announcement made by the BCBS and the International Organization of Securities Commissions (IOSCO) on 3 April 2020, the HKMA will defer the final two implementation phases of margin requirements for non-centrally cleared OTC derivatives by an additional year. With this extension, the final implementation phase will start on 1 September 2022, at which point covered entities with an average aggregate notional amount (AANA) of non-centrally cleared OTC derivatives greater than HKD 60 billion will be subject to the requirements. As an intermediate step, from 1 September 2021, covered entities with an AANA of non-centrally cleared OTC derivatives greater than HKD 375 billion will be subject to the requirements.

The HKMA will continue to monitor the banking and supervisory implications of COVID-19, and coordinate with the BCBS and other relevant standard-setting bodies on responses to the pandemic.

Please see the Annex to this circular setting out clarifications on the treatment of extraordinary support measures related to COVID-19 here.

Please also see the HKMA’s previous circular dated 8 April 2020 for further details regarding the lowered regulatory reserve requirement here.

(also covered below in item 41)

Please also see the SFC’s circular dated 7 May 2020 regarding the SFC’s measures with respect to margin requirements for non-centrally cleared OTC derivatives here.

(also covered in item 17 of the SFC circulars/guidelines above)

Please see the additional guidance issued by the BCBS here.

Please also see the HKMA’s previous circular dated 17 April 2020 for further details regarding the Scheme here.

(also covered below in item 39)

The HKMA published a circular providing information on the temporary US Dollar Liquidity Facility (Facility), which was announced on the same day. The Facility was launched to provide licensed banks with more US dollar liquidity to meet their US dollar funding needs. This is part of the concerted efforts by central banks to help alleviate tightness in the global US dollar interbank money markets in light of the considerable volatilities and uncertainties in the global financial markets caused by the spread of COVID-19. In principle, the Facility is underpinned by the Federal Reserve’s FIMA Repo Facility. 

The US dollar liquidity will be provided to licensed banks through competitive tender in the form of repurchase transactions for a term of 7 days, settled on the day following the tender. 

From 6 May 2020, the HKMA will conduct a competitive tender every week (normally on Wednesday) for licensed banks to submit bids for US dollar liquidity. Currently a total of US$10 billion is available under the Facility. A licensed bank may submit one valid bid in each tender, and the bid must be at least US$100 million or an integral multiple of US$100 million. The HKMA will contact successful banks to confirm and arrange transfer of eligible assets as collateral to the HKMA, and tender notices and tender results will be published on a designated page on the HKMA website. The names of the banks participating in the tenders or those allotted with funds, and individual allotment amounts will not be disclosed.

The HKMA intends to maintain the Facility until 30 September 2020, and will make a separate announcement if the end date changes. The HKMA may revise any of the parameters of the Facility at any time as necessary, taking into account market conditions, use of the Facility and other relevant factors. Banks may contact the Monetary Operations Division of the HKMA at 2878 8104 or at USDfacility@hkma.iclnet.hk if they have any questions about the operation of the Facility. 

Please see the press release announcing the Facility’s release here

Please see the annexes to the circular for more details regarding the facility:

Annex A - Key Parameters of the Facility 

Annex B – Summary of Terms

Annex C – Submission of Tender Application

The HKMA published a circular referring to the SFC’s circular to issuers of SFC authorized paper gold schemes (PGS). The HKMA reminded authorized institutions (AI) providing PGS services to comply with the SFC’s circular, the Code of Banking Practice, and the Treat Customers Fairly Charter. In particular, the HKMA reminded AIs to 

1. treat customers honestly and fairly; 
2. take into account customers’ interest and be responsible for upholding financial consumer protection; 
3. provide appropriate information at all stages of the relationship with the customers (including any untoward circumstances relating to PGS services and corresponding impact on customers); and 
4. rectify any operational incident having significant impact on continued provision of PGS services.

The HKMA further reminded AIs which issue PGS to immediately report to the HKMA and SFC any untoward circumstances relating to PGS services that may have material customer impact, including any decision to suspend subscription and/or redemption, and uplift suspension/resume dealing.

Please see the SFC’s circular here.

(also covered in item 20 of the SFC circulars/guidelines above) 

Please also see the HKMA’s previous press release dated 16 April 2020 for further details of the Special 100% Loan Guarantee here

(also covered below in item 40) 

The HKMA published a circular announcing the launch of the Pre-approved Principal Payment Holiday Scheme (Scheme) on 1 May 2020. The Scheme is intended to provide immediate relief to eligible small-to-mid-sized corporates facing financial issues in the wake of the COVID-19 outbreak.The HKMA expects all authorized institutions (AIs) to participate in the Scheme, and has confirmed that all of the 11 major lenders in the Banking Sector SME Lending Coordination Mechanism will participate. 

Under the Scheme, participating AIs will pre-approve deferment of loan principal payments falling due between 1 May 2020 and 31 October 2020 of eligible small-to-mid-sized corporates for up to 6 months. All corporate borrowers that have an annual sales turnover of HK$800mn or less (estimated to cover more than 80% of all corporate borrowers in Hong Kong), and that have no outstanding loan payments overdue for more than 30 days are eligible for the Scheme. Applications by borrowers are not required so that financial relief can be provided to corporates in the timeliest manner. In accordance with the HKMA’s loan classification guidelines, deferments of principal payments under the Scheme will not by themselves render a loan account to be downgraded to a lower category. 

For corporate customers not currently covered by the Scheme or have payment falling due before 1 May 2020, the HKMA expects AIs to adopt a sympathetic stance and proactively reach out to those customers to understand whether they require similar assistance and assess, on a case-by-case basis, whether it is in line with established risk management principles to provide such arrangements.

The HKMA will issue FAQs about the operation of the Scheme. AIs may approach the HKMA through their usual contacts at the Banking Supervision Department for any question about this circular.

The HKMA published a press release reporting that Hong Kong Mortgage Corporation Insurance Limited (HKMCI) had announced the launch of its Special 100% Loan Guarantee under the SME Financing Guarantee Scheme (SFGS) and would begin receiving applications from 20 April 2020. The guarantee arrangement is intended to help ease the cash flow issues of enterprises affected by the COVID-19 outbreak. 

HKMCI welcomes all lenders under the SFGS to participate in the guarantee arrangement. The following lenders will receive applications from 20 April 2020: Bank of China (Hong Kong) Limited, Bank of Communications (Hong Kong) Limited, Chong Hing Bank Limited, DBS Bank (Hong Kong) Limited, Hang Seng Bank Limited, Nanyang Commercial Bank, Ltd., OCBC Wing Hang Bank Limited, Standard Chartered Bank (Hong Kong) Limited, The Bank of East Asia, Limited and The Hongkong and Shanghai Banking Corporation Limited. Other lenders have also indicated their interest in joining. 

The HKMA published a circular informing locally incorporated authorized institutions (AI) of its decision to lower the regulatory reserve (RR) requirement on locally incorporated AIs by 50% with immediate effect. The HKMA noted that the decision was taken partly in light of the need to provide AIs with more lending headroom to support customers in coping with the COVID-19 outbreak, and encouraged AIs to do so. The HKMA expects that AIs should not use the RR release for dividend distribution, share buyback or payment of bonus to senior management. The HKMA will continue to assess the situation to determine if any further adjustments are necessary. AIs may approach the HKMA through their usual contacts at the Banking Supervision Department for any question about this circular.

The RR requirement was implemented under the Hong Kong Financial Reporting Standard 9 (HKFRS 9) since January 2018. The HKMA observes that locally incorporated AIs have made good progress in enhancing their expected loss provisioning models, systems and controls, and in general reported notable increases in their accounting provisions for the second half of 2019 given the deterioration in the economic environment. This indicates that the “expected loss” provisioning requirement under HKFRS 9 is robust and responsive to changes in external conditions. Accordingly, the need for locally incorporated AIs to maintain an RR on top of accounting provisions has diminished. This also plays a part in the HKMA's decision to lower the RR requirement.

44

The HKMA and the banking sector join forces to help Hong Kong’s economy overcome the outbreak of COVID-19

The HKMA published a press release summarizing the results of a meeting with Hong Kong Mortgage Corporation Insurance Limited (HKMCI), major banks, and representatives from the commercial sector regarding measures by banks and the HKMA to support SMEs in the wake of the COVID-19 outbreak. The HKMA noted that a number of previous measures had seen success and provided statistics in this regard. The HKMA and HKMCI also suggested 5 more measures to further support SMEs in addressing cash-flow pressure.

3 April 2020

Click here

Please also see Legal Update here.

45

Liquidity measures in response to Covid-19 outbreak

The HKMA published a circular outlining liquidity measures taken to ensure the continued operation of the interbank market and banking system. The measures taken focus on three aspects, namely the HKMA’s Liquidity Facilities Framework, the Federal Reserve’s temporary Financial Services Instant Messaging Association (FIMA) Repo Facility, and the HKMA’s supervisory expectations on the use of liquidity buffers under the liquidity coverage ratio (LCR) and liquidity maintenance ratio (LMR) regimes. The HKMA also reminded authorized institutions (AI) to ensure they have the appropriate internal policies and processes in place when using the HKMA’s liquidity facilities and buffers, and the HKMA will reach out to AIs to ensure compliance.

3 April 2020

Click here

Please also see the Annex to the circular containing clarifications on the HKMA’s Standby Liquidity Facilities (SLF) framework here.

46

Deferral of Basel III implementation and HKMA’s supervisory actions in response to COVID-19

The HKMA published a circular in response to the decision by the Group of Central Bank Governors and Heads of Supervision (GHOS) to defer the implementation of Basel III by one year, to allow banks time to deal with current issues arising from the COVID-19 outbreak. The HKMA stated that it would accordingly delay its own implementation of Basel III to 1 January 2023, in line with GHOS.

30 March 2020

Click here

47

Requirements under section 60 of the Banking Ordinance (Cap. 155) and disclosure requirements under the Banking (Disclosure) Rules (Cap. 155M)

The HKMA published a circular regarding the requirement for authorized institutions (AIs) incorporated in or outside Hong Kong to file audited annual accounts and other documents with the HKMA under section 60 of the Banking Ordinance. The HKMA will allow AIs to apply in writing for an extension of the deadline to do so, if necessary due to operational difficulties caused by the COVID-19 outbreak.

7 February 2020

Click here

48

Measures to relieve impact of the novel coronavirus

The HKMA published a circular outlining measures that authorized institutions (AI) should implement to relieve the impact of COVID-19 on their customers. The measures include temporary relief measures to lessen the impact of financial stress, such as principal moratorium for residential and commercial mortgages and fee reduction for credit card borrowing. The HKMA also suggested AIs should adopt a sympathetic stance in dealing with customers facing financial stress, and communicate their policies to relevant staff to ensure consistent treatment of customers.

6 February 2020

Click here

Insurance Authority (IA) Circulars/Guidelines

TITLE

SUMMARY

DATE

LINK

REMARKS

The IA published a circular on 25 March 2022 regarding the change in CPD requirements for insurance intermediaries. 

The current CPD assessment year runs from 1 August 2021 to 31 July 2022 (“Assessment Period 2021/2022”) and is the first during which the CPD requirement has increased from 10 hours to 15 hours (with 3 of the 15 hours having to be in “Ethics or Regulations”). This has, however, coincided with the 5th wave of the COVID 19 pandemic which has meant that during the first part of this calendar year, delivery of CPD courses has effectively been limited only to online channels. 

The industry has adapted to online mechanisms of CPD learning with impressive speed and agility. The IA recognize, however, the additional logistical and practical challenges that curating and delivering these courses in business continuity conditions (as many have been operating in during these past few months) can pose. In view of this, the IA sees merit in limiting the increase in CPD hours for the Assessment Period 2021/2022, to 12 CPD hours (instead of 15). This would afford a more graduated approach, moving the full increase to 15 CPD hours to the next CPD assessment period (1 August 2022 to 31 July 2023). 

Accordingly, the following changes are announced: 

Changes to the CPD Requirements for Assessment Period 2021/2022

1. CPD hours required for the Assessment Period 2021/2022 

The number of CPD hours which an individual licensee is required to complete for the Assessment Period 2021/2022 (i.e. by 31 July 2022) is reduced by 3 CPD hours from 15 CPD hours to 12 CPD hours. This reduction applies to all individual licensees (except travel agents – see 2. below). It remains the case, however, that a minimum of 3 CPD hours must be on “Ethics or Regulations”. For details, please refer to the illustrations in the Appendix. 

Starting from 1 April 2022, every principal can download, via its Insurance Intermediaries Connect (“IIC”) account, the CPD list (in Microsoft Excel format) showing the applicable CPD hours for each of its appointed individual licensees reflecting the above reduction. Individual licensees, from 1 April 2022 onwards, can also check the number of CPD hours they need to complete for Assessment Period 2021 /2022 (with the reduction applied) through their individual IIC accounts. 

The increase to 15 CPD hours will now take effect for the next Assessment Period, i.e. for the Assessment Period from 1 August 2022 to 31 July 2023 (and for each Assessment Period thereafter).

2. Travel agents’ CPD requirements for the Assessment Period 2021/2022 

The travel industry has been hit particularly hard during recent months (and regulated activities involving travel insurance with it). In recognition of this, travel agents (i.e. individual licensees with licences for restricted scope travel insurance business only) are not required to earn any CPD hours for the Assessment Period 2021/2022. 

3. Lifting the cap on CPD hours applicable to E-learning Activities permanently 

To further facilitate the completion of CPD hours and to encourage greater use of E-learning Activities, the cap on the number of CPD hours that can be obtained through Type 1 and Type 7 E-learning Activities for each Assessment Period is lifted permanently. This means that there is no longer any cap on the number of CPD hours to be earned through E-learning Activities for this Assessment Period and each Assessment Period going forward.

Extra 2,500 free enrollments for the IA’s e-CPD courses on ethical business practices

On 29 December 2021, the IA launched two e-CPD courses on ethical business practices for licensed insurance agents and licensed insurance brokers (3 CPD hours for each course, which also qualifies for the 3 compulsory hours on “Ethics or Regulations”). On that date 4,000 free enrollments were made available and the IA is pleased to note that all 4,000 were subscribed by the end of February 2022. In view of the demand, the IA is now making an additional 2,500 enrollments for these e-CPD courses available free-of-charge. Individual licensees interested in enrolling for these courses can register by creating an account in our e-learning system on a “first come, first served” basis. As before, to ensure fairness, once a participant enrolls for a course, he or she will need to complete the course within one month, otherwise the course will be made available to another individual licensee.

Appendix to this circular provides the CPD Requirements for all Individual Licensees (except Travel Agents) for Assessment Period 2021/2022. 

For registering to create an account in the IA e-learning system to enrol for the IA’s e-CPD courses on ethical business practices, please click here. 

Please refer to the Appendix for “CPD Requirements for all Individual Licensees (except Travel Agents) for Assessment Period 2021/2022” here.

Applications for new licences by deemed licensees 

Cut-off dates for applications

The IA published a circular on 21 March 2022 to update all authorized insurers, Responsible Officers of all licensed insurance agencies and licensed insurance brokers companies on the progress made in processing the applications for new licences by deemed licensees. In light of Covid-19 as well as the complexity and resources involved in processing applications, the IA announced cut-off dates by which all remaining applications by deemed licensees for new licences should be submitted to the IA, to ensure such applications can be processed in time (and avoid the prospect of any discontinuity in licensing). 

Background

A “deemed licensee” is any licensed insurance agency, licensed insurance broker company, licensed individual insurance agent, licensed technical representative (agent), or licensed technical representative (broker), which or who was automatically granted a licence under the new regulatory regime as at 23 September 2019, by reason of their being registered with one of the former self-regulatory organizations immediately prior to that date. Every deemed licensee has a licence which runs from 23 September 2019 to 22 September 2022 (“transitional period”). During this transitional period, every deemed licensee needs to apply for a new licence from the IA if they wish to continue carrying on regulated activities after 22 September 2022. 

Update on Progress

There are approximately 106,300 deemed licensees, so processing this number of applications has been mammoth logistical task. The IA started in January 2021 and 14 months down the line (as at end February 2022), is well over 80% complete and have a number of applications currently under processing. Indeed, only around 11% of deemed licencees have yet to submit their applications (or inform the IA of their intention not to). The IA expressed their gratitude to the industry for their cooperation and efforts in getting the IA to this stage of completion, especially under the trying circumstances of the pandemic. The IA viewed this as a real demonstration of the industry’s resilience and its determination to ensure those serving the insurance needs of customers continue with their licences in order to perform that vital function. 

The IA asked for that resilience to continue to shine through, so that the remaining deemed license applications are submitted and completed. To ensure the remainder of applications are submitted and processed within the time available between now and the deadline of 22 September 2022, the IA is setting the following cut-off dates by which such applications should be made.

Cut-off Dates

In view of the complexity and resources involved for processing different types of licence, there will be two cut-off dates for deemed licensees who have not yet submitted their new licence applications:

Consequences of Submitting before Cut-Off Date

Provided a deemed licencee submits his/her/its application for a new licence, with all necessary information and documents, by the above cut-off date (relevant to their licence type), the IA will endeavour to process the application by 22 September 2022. Indeed, given the ongoing pandemic, provided the application (with necessary information and documents) is submitted by the cut-off date, even if it is the case that the application cannot be processed by 22 September 2022, the IA will ensure continuity of the licence until the application for the new licence has been processed. The bottom line is, however, that the application needs to be submitted by the relevant cut-off date indicated above. 

Consequences of Submitting after Cut-Off Date

If a deemed licensee submits his/her/its application after the cut-off date, the IA will not be able to guarantee that it will be processed before the 22 September 2022 deadline. Accordingly, if the application has not been processed by that date, the deemed licence will expire and the person will not be able to carry on regulated activities until the application has been processed and the new licence has been granted (so the person will face the prospect of a gap in licensing). It is imperative, therefore, that the remaining 11% of deemed licensees who or which have not yet submitted their new licence application, do so as soon as practicable and in any event by the relevant cut-off date indicated above.

Exemption to Deemed Licensees 

The IA also drew attention to Annex 2 to the Guideline on “Fit and Proper” Criteria for Licensed Insurance Intermediaries under the Insurance Ordinance (GL23). This exempts a deemed licensee from the new education requirement set out under paragraph 5.2(a) of GL23 in relation to his/her application for a new individual licence provided the licence application is submitted within the transitional period. In other words, a deemed licensee will no longer be able to benefit from this exemption if he or she does not submit an application by the end of the transitional period.

For details regarding exemption to deemed licensees, please refer to Annex 2 to the “Guideline on “Fit and Proper” Criteria for Licensed Insurance Intermediaries under the Insurance Ordinance (Cap. 41)”(GL23) here.

Please refer to the following IA webpage for the application forms for deemed licensees, a set of Frequently Asked Questions, an e-portal user guide and a demonstration video here.

The IA published this circular to announce that the Remote Invigilation Mode Examination (RIME) will be launched by the Vocational Training Council (VTC) on 31 March 2022. This will enable a degree of continued availability of the Insurance Intermediaries Qualifying Examination (IIQE) throughout this challenging period. The RIME was first announced in a circular issued by the IA on 21 December 2020 for the IIQE as a back-up contingency in the event of a substantial decrease in the IIQE onsite seating capacity. 

RIME will enable candidates to take certain IIQE papers remotely on their own computers, provided they have a stable internet connection, a webcam, microphone and speaker, so that remote invigilation can take place. RIME is only available, however, for the three basic IIQE papers, namely (1) the Principles and Practice of Insurance (P&P) paper, (2) the General Insurance (GI) paper, and (3) the Long Term Insurance (LT) paper. The duration and number of questions of a RIME paper are the same as those for the original IIQE papers. 

Conditions and limitations 

Please note, however, that individuals taking IIQE through RIME will be subject to certain conditions and limitations as follows: 

(1) An individual who passes the relevant RIME papers would be considered, for the purposes of licensing, as having passed the equivalent IIQE papers, such that he/she can be granted an intermediary licence by the IA to carry on regulated activities in the lines of business that passing these papers would permit, subject to the fulfillment of all other applicable licensing requirements. However, within 18 months counting from the date of passing the RIME paper (the 18-month period), the individual must also:

(i) attend a tailor-made course to be administered by VTC for the relevant IIQE paper (a certain number of CPD hours will be available for such course) - for details, please refer to the Appendix; or 

(ii) pass the relevant original IIQE paper. 

(2) An individual who relies on the RIME passing results to apply for his/her intermediary licence from the IA, will initially only be granted a licence for 18 months counting from the date of passing the RIME paper (the first licence). For the purpose of counting the 18-month period of the first licence, the latest passing date of the RIME paper will be adopted. 

(3) Upon expiry of the 18-month period, the first licence can be renewed for 3 years provided that the individual has fulfilled either of the requirements in (1)(i) or (ii) above within the 18-month period and shows proof of this to the IA during his/her licence renewal application. If the individual is unable to submit to the IA evidence of fulfilling either post measures (1)(i) or (ii) above by the end of the 18-month period when his/her first licence is due for renewal, the first licence will expire at that point without renewal. 

(4) RIME is only available to individuals who are NOT existing licensees but who wish to be licensed by the IA. Individuals who are already licensed to carry on regulated activities in certain lines of business cannot rely on RIME results for the purpose of varying their line of business. 

Rollout of RIME 

As stated, RIME will be launched by VTC on 31 March 2022. For these purposes, RIME is now open for enrolment. 

RIME may not be able to replace the full decrease in IIQE seating capacity caused by the pandemic (and we wish to manage expectations in this respect). It does, however, serve as the best available alternative and it is precisely to address the kind of challenges currently posed that it has been developed.

Principals’ Responsibilities 

The IA asks that Principals keep a central register of all individual licensees appointed by them who have relied on RIME results to apply for an insurance intermediary licence. The IA also asks that they put in place measures to ensure that such licensees fulfill either one of the two post measures as outlined above within the 18-month period (see conditions (1)(i) and (ii) above), and not renew or continue (but terminate) the appointment of any individual licensee who fails to comply by the expiry of the 18-month period.

Appendix to the circular prescribes the details of the tailor-made training course to be administered by VTC. 

Please also see the circular titled “Remote Invigilation Mode Examination (RIME) of the Insurance Intermediaries Qualifying Examination (IIQE)” issued by the IA dated 21 December 2020 here.

Please refer to the website of VTC for enrolment details and other examination requirements applicable to RIME here.

The IA published a circular encouraging intermediaries to implement “vaccine pass” arrangements.

In view of the fifth wave of community outbreak precipitated by the Omicron variant and a rapid surge of infected cases in recent weeks, the IA has introduced a “vaccine pass” arrangement on 16 February 2022 whereby all personnel are required to receive at least one dose of vaccine before they may enter the IA office premises, except those with exemption backed by valid medical proof. At present, over 86% of their staff have already received at least two jabs.

The IA strongly recommends insurers and insurance intermediaries to implement similar “vaccine pass” arrangements to enhance occupational health and safety. Active efforts to encourage and facilitate staff to receive the third dose of vaccine is of equal importance as an integral part of corporate risk management and business continuity plans.

Please also see the circular issued by the IA dated 1 June 2021 here. 

(also covered below in item 8)

Please also see the circular issued by the IA outlining phase 2 of the temporary facilitative measures here.

(also covered below in items 9, 10, 11, 12, 13 and 17)

The IA published a Circular strongly encouraging insurers and insurance intermediaries to arrange for all staff and intermediaries who come into regular contact with customers or who deliver critical functions to get inoculated, while those who have not yet been vaccinated or are unfit for vaccination due to medical conditions should undergo periodic COVID-19 testing. 

The IA believed this is in line with sound risk management practices and would help avoid undue business disruptions. The IA called upon the insurance industry's support in the drive towards herd immunity in Hong Kong, through collective determination. 

Please also see the circular issued by the IA outlining phase 2 of the temporary facilitative measures here.

(also covered below in items 10, 11, 12, 13 and 17)

Please also see the circular issued by the IA outlining phase 2 of the temporary facilitative measures here.

(also covered below in items 11, 12, 13 and 17)

Please also see the circular issued by the IA outlining phase 2 of the temporary facilitative measures here.

(also covered below in items 12, 13 and 17)

Please also see the circular issued by the IA outlining phase 2 of the temporary facilitative measures here.

(also covered below in items 13 and 17)

The IA published a circular extending phase 2 of the Temporary Facilitative Measures (“TFM”) in view of the current pandemic situation. 

Phase 2 of the TFM was intended to obviate the need to conduct face-to-face (“F2F”) meetings in order to minimize the risk of infection during the sale process of insurance policies (please see circular titled “Phase 2 of the temporary facilitative measures to tackle the outbreak of COVID-19” issued by the IA on 27 March 2020). 

Phase 2 will be extended by three months to 30 September 2020 (based on policy application date) unless otherwise varied by the IA, during which the TFM set out in the previous circular will continue to apply. For the avoidance of doubt, the scope of products covered and the implementation details remain unchanged. 

Please also see the circular issued by the IA outlining phase 2 of the temporary facilitative measures here.

(also covered below in item 17)

The IA published a circular regarding additional measures introduced to facilitate individual licensees’ ability to comply with CPD requirements in light of practical difficulties in complying due to the COVID-19 outbreak. The relevant measures are:

• Merger of the 2019/2020 and 2020/2021 CPD Assessment Periods: The IA has decided to merge the CPD assessment period for 23 September 2019 to 31 July 2020 (the First CPD Assessment Period) with the CPD assessment period for 1 August 2020 to 31 July 2021 (the Second CPD Assessment Period). As a result:
  
  (A) Each individual licensee will be considered as CPD-compliant provided that by the end of the Second CPD Assessment Period, i.e. 31 July 2021, he or she has earned sufficient CPD hours required for both the First and the Second Assessment Periods; 
  
  (B) If an individual licensee is unable to complete the requisite CPD hours for the First CPD Assessment Period by the First CPD Fulfilment Deadline, he or she can make up the shortfall by the end of the Second CPD Assessment Period, i.e. 31 July 2021; and
  
  (C) Each individual licensee will be required to report his or her CPD compliance for the First and Second CPD Assessment Periods no later than 30 September 2021.
  
  
• Additional Facilitative Measures regarding CPD: Two additional measures have been introduced in this regard:
  
  (A) Increasing the Cap on the number of CPD hours that can be obtained through Type 1 and Type 7 E-Learning Activities for the First and Second Assessment Periods from 5 CPD hours to 7 CPD hours; and
  
  (B) No Cap on CPD hours for Type 1 and Type 7 Qualified CPD activities earned through CPD Activities Delivered via Virtual Classroom Platforms (eg Microsoft Teams, Cisco, Webex, Zoom).
  
  
• Responsibilities of Principals and Individual Licensees: 
  
  (A) Principals - Principals are required under GL24 to ensure that each of their appointed individual licensees comply with their applicable CPD requirements. As such, principals are required to have in place controls and procedures to monitor and ensure compliance by their appointed individual licensees. Principals are also encouraged to proactively ensure their appointed individual licensees attend CPD activities/courses evenly, and should request, check and verify documents evidencing completion of CPD hours;
  
  (B) Individual Licensees - The IA will conduct CPD compliance audits for the First and Second CPD Assessment Periods subsequent to the reporting deadline of 30 September 2021. Upon request, individual licensees selected for such compliance checks should promptly produce for the IA’s inspection the original documentation evidencing completion of their CPD requirements. Individual licensees should therefore retain sufficient documentation to evidence their CPD compliance for the First and Second CPD Assessment Periods; and
  
  
• Consequences of CPD Non-compliance: Given the flexibility afforded by the facilitative measures, the IA will have little tolerance for non-compliance of the CPD requirements. Any failure to comply with the CPD requirements for the First and Second Assessment Periods by the deadline of 31 July 2021 can be expected to be met with disciplinary action. Principals should disseminate this message and the measures to their appointed individual licensees.

The IA published a circular regarding the implementation of certain Guidelines in light of COVID-19. The relevant Guidelines are:

• GL25: Guideline on Offering of Gifts 
• GL27: Guideline on Long Term Insurance Policy Replacement 
• GL28: Guideline on Benefit Illustrations for Long Term Insurance Policies 
• GL29: Guideline on Cooling-off Period 
• GL30: Guideline on Financial Needs Analysis 
• GL31: Guideline on Medical Insurance Business

The Guidelines have already commenced on 23 September 2019 with a transitional period that runs until 22 September 2020, except GL 31 which is to commence from 23 September 2020. Fully recognising that the COVID-19 outbreak is causing serious disruption to normal economic activities and in light of a request made by The Hong Kong Federation of Insurers, the IA has decided to modify the approach in bringing these GLs into effect.

For all GLs except GL31, the IA will assess the degree of compliance by authorized insurers and licensed insurance intermediaries with the requirements therein as if the transitional period is extended until 31 March 2021. The commencement date of GL31 remains unchanged, but the IA will exercise flexibility in determining if the requirements therein have been observed for a period up to 31 March 2021 and expect full compliance with effect from 1 April 2021. This modified approach is intended to provide a sufficient buffer for authorized insurers and licensed insurance intermediaries to update their documentation, controls and processes.

Authorized insurers and licensed insurance intermediaries should contact their case officers for any clarifications or elaborations. 

17

Phase 2 of the temporary facilitative measures to tackle the outbreak of COVID-19

The IA published a circular introducing phase 2 of the temporary facilitative measures in response to the COVID-19 outbreak. Phase 2 extends the measures to cover term insurance policies, refundable insurance policies without a substantial savings component, and renewable insurance policies without cash value that provide insurance protection (eg hospital cash, medical, critical illness, personal accident, disability or long-term care cover).

27 March 2020

Click here

Please also see Legal Update here.

18

Submission of Audited Financial Statements and Auditor’s Report under Section 73(1) of the Insurance Ordinance (Cap.41) (“IO”)

The IA published a circular regarding the requirement for licensed insurance broker companies to submit audited financial statements and an auditor’s report under section 73(1) of the Insurance Ordinance (Cap.41). The IA will allow broker companies to apply for an exemption to the deadline to submit these documents under section 79 of Cap.41, if such companies encounter difficulties in complying with the deadline due to the COVID-19 outbreak. The IA will consider the circumstances and impact of the outbreak on each individual broker in assessing the application.

24 February 2020

Click here

19

Temporary facilitative measures to tackle the recent outbreak of Novel Coronavirus

The IA published a circular introducing temporary facilitative measures in response to the COVID-19 outbreak. The measures largely involve the facilitation of the distribution of Qualifying Deferred Annuity Policy (QDAP) and Voluntary Health Insurance Scheme (VHIS) products via non-face-to-face methods, provided that authorized insurers adopt two compensating measures – upfront disclosure and an extended cooling-off period. The circular also sets out guidelines on the implementation of non-face-to-face distribution methods.

21 February 2020

Click here

Please also Legal Update here.