Ongoing obligations
What are the ongoing compliance matters for licensed entities?
Licensed corporations and licensed individuals have to comply with all applicable provisions of the SFO and its subsidiary legislation as well as the codes and guidelines issued by the SFC. Licensed corporations and licensed individuals may have to notify or obtain prior approval from the SFC for different types of changes. The below highlights certain focus areas where ongoing statutory obligations are imposed on licensed corporations, licensed individuals, registered institutions and associated entities of intermediaries.
Availability of responsible officers |
Submission of financial resources returns |
Cessation of business |
Payment of annual fees |
Notification by licensed corporations, licensed individuals and registered institutions |
Submission of annual returns |
Notification by directors and substantial shareholders of licensed corporations |
Continuous professional training (CPT) |
Notification by associated entities of intermediaries |
Provision of services involving virtual assets and robo-advisors |
Summary of notification requirements |
Management Accountability at Registered Institutions |
Submission of audited accounts, etc. |
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What are the ongoing obligations for entities carrying out asset management activities?
In Hong Kong, the Fund Manager Code of Conduct (FMCC) sets out requirements for persons licensed by or registered with the SFC, whose business activities involve the management of collective investment schemes (whether authorized or unauthorized) and/or discretionary accounts. The FMCC provides guidance on the following components:
Organisation and Structure
- Organisation and Management Structure
- Staff Ethics
Reporting
- Reporting Obligations to the SFC
Dealing with the Fund and Fund Investors
- Marketing Activities
- Fees and Expenses
Fund Management
- Custody
- Operations
- Valuation policies, procedures and process
For licensed corporations that distribute or manage SFC-authorised funds, the key requirements are set out in the Code on Unit Trusts and Mutual Funds.
What are the key KYC obligations of asset managers in Hong Kong?
The compliance of KYC obligations is one of the key focus areas of the regulator. The SFC has continued to enhance and enforce regulatory requirements in order to ensure that regulated entities have robust processes and controls in place. With KYC being a particularly hot topic in recent years, it is imperative that asset and wealth managers assess whether they are readily able to comply with and keep abreast of evolving rules and address any potential gaps, as well as reviewing and enhancing their existing compliance practices. In addition, all licensed firms and registered institutions are expected to have robust processes and controls in place when recommending an investment product or making an investment decision on behalf of a client. However, many industry players still struggle to handle suitability effectively, with efforts often limited by competing compliance priorities, internal inefficiencies and sub-optimal operating models.
The KYC process – how to conduct effectively?
Know your customers (KYC) |
Customer risk profiling assessment |
Truly assess a client’s financial situation, investment experience and investment objectives on an ongoing basis. |
Avoid over reliance on a clients’ self-declaration of their risk profile or using an inappropriate risk profiling questionnaire. |
Product due diligence (PDD) |
Suitability assessment |
Ongoing product due diligence that takes into account the key features and risks of products and assigning a risk rating with proper justification. |
A robust methodology to match a product risk rating with an investor’s risk tolerance level and investment objectives. |