Financial resource management and FRR compliance: Guidance for licensed corporations

July 2024

The Securities and Futures Commission (“SFC”) recently issued a circular (“Circular”) emphasising the importance of robust governance and internal control standards for licensed corporations (“LCs”), in particular, in relation to the adequacy of an LC’s financial resources.

The SFC identified examples of undesirable financial practices including:

• inadequate or ineffective controls over liquid capital monitoring;
• failure to make proper accruals or accounting provisions,
• incorrect treatment of certain assets or liabilities for liquid capital computation,

all of which may result in abrupt deficiencies in excess liquid capital and breaches of liquid capital requirement under the FRR (see Appendix A to the Circular for further details). These shortcomings are mainly attributable to ineffective management oversight and the failure to engage competent and qualified personnel for calculating and monitoring liquid capital, as well as preparing and reviewing financial returns (“FRR returns”).

In this News Flash, we summarise the SFC’s expectations in respect of the governance, management oversight, and other internal control standards of LCs for monitoring the adequacy of financial resources and compliance with the Securities and Futures (Financial Resources) Rules (“FRR”).

This news alert was jointly published by PwC Hong Kong and Tiang & Partners.
Tiang & Partners is an independent Hong Kong law firm and a member of the PwC network.