Financial Services Risk and Regulation - PwC · investment decisions and risk management. •...
Transcript of Financial Services Risk and Regulation - PwC · investment decisions and risk management. •...
Regulatory Updates Newsletter — December 2019 PwC · 2
Executive
Summary
Managing ML/TF risks
associated with virtual
assets and virtual asset
service providers
SFC survey
findings on ESG,
climate change
and asset
management
Basel Committee report
on open banking and
application
programming interfaces
(APIs)
SFC circular on streamlined
requirements for eligible
exchange traded funds
adopting a master-feeder
structure
Basel Committee consultation on
credit valuation adjustment risk
and guiding principles on sectoral
countercyclical capital buffer
Guideline on
Medical
Insurance
Business
LIBOR
Reform
Updates
Other
Regulatory
Updates
Glossary
Content Dashboard
Regulatory Updates Page Number Banking Asset Management Insurance
Managing ML/TF risks associated with virtual assets
(VAs) and virtual asset service providers (VASPs)4
SFC survey findings on ESG, climate change and
asset management5
Basel Committee report on open banking and
application programming interfaces (APIs)6
SFC circular on streamlined requirements for eligible
exchange traded funds adopting a master-feeder
structure
7
Basel Committee consultation on credit valuation
adjustment risk and guiding principles on sectoral
countercyclical capital buffer
8
Guideline on Medical Insurance Business 9
LIBOR Reform Updates 10
Other Regulatory Updates:
1) Circular to intermediaries: Joint product survey by
the SFC and the HKMA
2) Exposure to HKMCI: 90% Loan Guarantee Product
under SME Financing Guarantee Scheme
3) SFC concludes consultation on margin
requirements for non-centrally cleared OTC
derivatives
11
Emily Lam
Partner
+852 2289 1247
PwC HK FS Risk and
Regulation
“As 2019 comes to a close, we discuss the
regulatory developments shaping the financial
services industry in Hong Kong. With this
newsletter, we will continue to keep you up to
speed with significant regulatory
developments across the financial services
industry.”
Regulatory Updates Newsletter — December 2019 PwC · 3
2019 has been a landmark year for
financial services regulations in Hong
Kong. We witnessed the first batch of
eight virtual banking licences issued, the
new regulatory regime for insurance
intermediaries came into operation and
the SFC provided guidance to
management companies of SFC-
authorised unit trusts and mutual funds on
enhanced disclosures for SFC authorised
green or ESG funds, amongst others.
The regulators kept the momentum up in
the month of December with several
important announcements. For instance,
the SFC announced waiving the annual
licensing fees for the financial year of
2020/21 in order to relieve the regulatory
cost burden on the securities and futures
industry having taken into account the
current challenging market environment.
In addition, LIBOR Reform has emerged
throughout the year on regulatory and risk
agendas. We have seen HKMA take
proactive actions during the year through
its circulars in March and October and
more recently issuing a survey to collect
information on the progress made by AIs
in their preparation to transition to
alternative reference rates. The survey,
requires responses by 23 December 2019.
It is encouraging to see increasing
awareness amongst banks in Hong Kong
which are starting to prioritise preparatory
work for the LIBOR transition.
Apart from these announcements, we
have discussed the following regulatory
updates in this edition of the newsletter:
• The HKMA has issued guidance to AIs
and stored value facility (SVF)
licensees in relation to recent updates
by the FATF to its Recommendation
15, which clarify the businesses and
activities that the FATF requirements
apply in the case of VAs and VASPs.
• The SFC released a report to present
the key findings of the industry-wide
survey to understand how and to what
extent licensed asset management
firms and leading institutional asset
owners consider ESG risks.
• The Basel Committee issued a report
on open banking and application
programming interfaces (APIs) that
monitors the evolving trend of open
banking observed in Basel Committee
member jurisdictions and discusses
the implications of these developments
on banks and banking supervision.
• The SFC issued a circular on
streamlined requirements for eligible
exchange traded funds adopting a
master-feeder structure.
• Moreover, the Basel Committee
launched a consultation on credit
valuation adjustment risk and issued
guiding principles on sectoral
countercyclical capital buffer.
• The IA has published GL31 –
Guideline on Medical Insurance
Business. The principal function of the
guideline is to regulate and supervise
the insurance industry for the
protection of existing and potential
policy holders.
• LIBOR Reform Updates: FCA
launched a consultation on extending
the senior managers regime to
benchmark administrators, ISDA letter
to FSB OSSG on pre-cessation issues,
and ISDA issued December 2019
Benchmark Fallbacks Supplemental
Consultation.
We also discuss other regulatory updates
such as the joint circular to intermediaries
by the SFC and the HKMA on product
survey. For further details on these
developments, please refer to the
following sections in this publication.
Emily Lam
FS Risk and Regulation
+852 2289 1247
Executive Summary
Executive
Summary
Managing ML/TF risks
associated with virtual
assets and virtual asset
service providers
SFC survey
findings on ESG,
climate change
and asset
management
Basel Committee report
on open banking and
application
programming interfaces
(APIs)
SFC circular on streamlined
requirements for eligible
exchange traded funds
adopting a master-feeder
structure
Basel Committee consultation
on credit valuation adjustment
risk and guiding principles on
sectoral countercyclical
capital buffer
Guideline on
Medical
Insurance
Business
LIBOR
Reform
Updates
Other
Regulatory
Updates
Glossary
Regulatory Updates Newsletter — December 2019 PwC · 4
AIs and SVF licensees must keep
abreast of international and local
developments to maintain an up-to-
date understanding of risks
The HKMA has issued a guidance to AIs
and stored value facility (SVF) licensees
in relation to recent updates by the FATF
to its Recommendation 15, which clarify
the businesses and activities that the
FATF requirements apply in the case of
VAs and VASPs.
FATF member jurisdictions have put in
place or are implementing regulatory
regimes for VASPs in response to the
international development. For example,
the SFC has recently announced a
framework allowing a VA trading
platform operator to opt-in to its
regulation.
Therefore, increasingly there may be
more VASPs which are licensed or
registered in Hong Kong or other
jurisdictions, and subject to AML/CFT
regulation and supervision in line with
the FATF Recommendations. Some
VASPs may be in the process of
applying for licensing or registration.
Key highlights of the guidance are:
• Following the risk-based approach,
when AIs and SVF licensees
establish and maintain business
relationships with VASPs, appropriate
risk assessments should be
conducted to differentiate the risks of
individual VASPs, recognising that
there is no “one-size-fits-all”.
• Depending on the nature of
relationship, AIs and SVF licensees
may undertake additional customer
due diligence measures, including
• the collection of sufficient
information to adequately
understand the nature of the
VASP’s business
• determining from publicly
available information whether
the VASP are licensed or
registered, and subject to
AML/CFT supervision; and
• assessing the AML/CFT
controls of the VASP as
appropriate.
• The extent of customer due diligence
measures should be commensurate
with the assessed ML/TF risks of the
VASP.
• In line with the FATF standards,
before an AI and / or SVF licensee
offers any new products relating to
VAs, it should undertake ML/TF risk
assessment.
Managing ML/TF risks associated with virtual assets (VAs) and virtual
asset service providers (VASPs)
Hokee Fu
Partner
+852 2289 2721
Executive
Summary
Managing ML/TF risks
associated with virtual
assets and virtual asset
service providers
SFC survey
findings on ESG,
climate change
and asset
management
Basel Committee report
on open banking and
application
programming interfaces
(APIs)
SFC circular on streamlined
requirements for eligible
exchange traded funds
adopting a master-feeder
structure
Basel Committee consultation
on credit valuation adjustment
risk and guiding principles on
sectoral countercyclical
capital buffer
Guideline on
Medical
Insurance
Business
LIBOR
Reform
Updates
Other
Regulatory
Updates
Glossary
Regulatory Updates Newsletter — December 2019 PwC · 5
PwC was engaged as a consultant to
conduct the survey and analyse the
findings for the SFC
From March to September 2019, the SFC
conducted an industry-wide survey to
understand how and to what extent
licensed asset management firms and
leading institutional asset owners
consider environmental, social and
governance (ESG) risks, particularly
those relating to climate change. The
issued report presents the key findings
and discusses the way forward.
The survey forms part of the SFC’s
Strategic Framework for Green Finance,
published in September 2018.
Key survey findings are:
• Consideration of ESG factors,
including climate change: Of the
firms surveyed, 83% (660) of those
actively involved in asset management,
considered at least one environmental,
social and governance factor in order
to understand a company’s investment
potential and facilitate better
investment decisions and risk
management.
• Governance and oversight: To
improve the financial performance of
investment portfolios and satisfy client
demand, 35% of the 660 asset
management firms which considered
ESG factors have implemented a
consistent approach to systemically
integrate ESG factors in their
investment and risk management
processes, rather than doing so on an
ad-hoc basis.
• Investment management: Asset
management firms which systemically
integrate ESG factors most often use
investment strategies such as
negative and exclusionary screening,
corporate engagement, shareholder
action and ESG integration.
• Risk management: Those asset
management firms which systemically
integrate ESG factors have put in
place risk management controls, such
as incident monitoring mechanisms to
flag major ESG incidents, so that
portfolio managers adjust investment
portfolios as appropriate.
• Disclosure: Although 660 asset
management firms reported giving
general consideration to ESG factors,
a majority, 68%, indicated that
information about their own ESG
practices was not available.
• Market trends: Survey results also
show that asset management firms of
various sizes, including small firms in
terms of AUM, have ESG investment
processes relating to research and
portfolio management.
To help firms move forward and more
closely align the SFC’s regulatory regime
with global standards, the SFC intends to
deliver three outcomes in the near term:
• To set expectations of asset
management firms in areas such as
governance and oversight, investment
management, risk management and
disclosure, focusing on environmental
risks with an emphasis on climate
change;
• To provide practical guidance, best
practices and training in collaboration
with the industry and relevant
stakeholders to enhance the capacity
of asset management firms to meet
the SFC’s expectations; and
• To establish an industry group to
exchange views amongst the SFC and
experts in environmental and climate
risks, as well as sustainable finance.
SFC survey findings on ESG, climate change and asset management
Sammie Leung
Partner
+852 2289 3188
Executive
Summary
Managing ML/TF risks
associated with virtual
assets and virtual asset
service providers
SFC survey
findings on ESG,
climate change
and asset
management
Basel Committee report
on open banking and
application
programming interfaces
(APIs)
SFC circular on streamlined
requirements for eligible
exchange traded funds
adopting a master-feeder
structure
Basel Committee consultation
on credit valuation adjustment
risk and guiding principles on
sectoral countercyclical
capital buffer
Guideline on
Medical
Insurance
Business
LIBOR
Reform
Updates
Other
Regulatory
Updates
Glossary
Regulatory Updates Newsletter — December 2019 PwC · 6
Basel Committee report on open banking and application programming
interfaces (APIs)Open banking brings potential benefits but also risks and
challenges to customers, banks and the banking system
The report on open banking and application programming
interfaces (APIs) monitors the evolving trend of open banking
observed in Basel Committee member jurisdictions and
discusses the implications of these developments for banks
and banking supervision. It builds upon the findings of the
Committee's Sound Practices paper on "Implications of fintech
developments for banks and bank supervisors".
The key findings of open banking frameworks and related
challenges identified for banks and bank supervisors are:
• Traditional banking is evolving into open banking
• Open banking frameworks vary across jurisdictions in
terms of stage of development, approach and scope
• Data privacy laws can provide a foundation for an open
banking framework
• Multi-disciplinary features of open banking may require
greater regulatory coordination
Some key challenges identified for banks and supervisors are:
• Adapting to the potential changes in business models
• Ensuring data and cyber security in an open banking
framework
• Some of the challenges hindering the development of APIs
to share customer -permissioned data include the time and
cost to build and maintain APIs and the lack of commonly
accepted API standards
• Oversight of third parties can be limited, especially in cases
where banks have no contractual relationship with the third
party, or where the third party itself has no regulatory
authorisation
• Assigning liability in the event of financial loss, or in the
event of erroneous sharing or loss of sensitive data, is
more complex with open banking, as more parties are
involved
• Banks may face reputational risk, even in jurisdictions
where there are established liability rules
Gary Ng
Partner
+852 2289 2967
Brian Yiu
Partner
+852 2289 1934
Executive
Summary
Managing ML/TF risks
associated with virtual
assets and virtual asset
service providers
SFC survey
findings on ESG,
climate change
and asset
management
Basel Committee report
on open banking and
application
programming interfaces
(APIs)
SFC circular on streamlined
requirements for eligible
exchange traded funds
adopting a master-feeder
structure
Basel Committee consultation
on credit valuation adjustment
risk and guiding principles on
sectoral countercyclical
capital buffer
Guideline on
Medical
Insurance
Business
LIBOR
Reform
Updates
Other
Regulatory
Updates
Glossary
Regulatory Updates Newsletter — December 2019 PwC · 7
SFC circular on streamlined requirements for eligible exchange traded
funds adopting a master-feeder structure
Carlyon Knight-Evans
Partner
+852 2289 2711
carlyon.knight-
Helen Li
Partner
+852 2289 2741
Executive
Summary
Managing ML/TF risks
associated with virtual
assets and virtual asset
service providers
SFC survey
findings on ESG,
climate change
and asset
management
Basel Committee report
on open banking and
application
programming interfaces
(APIs)
SFC circular on streamlined
requirements for eligible
exchange traded funds
adopting a master-feeder
structure
Basel Committee consultation
on credit valuation adjustment
risk and guiding principles on
sectoral countercyclical
capital buffer
Guideline on
Medical
Insurance
Business
LIBOR
Reform
Updates
Other
Regulatory
Updates
Glossary
The SFC is prepared to consider
authorising an index tracking feeder
ETF that invests in an overseas-listed
master ETF without SFC
authorisation on a case-by-case basis
Currently, index tracking exchange
traded fund (ETF) adopting a master-
feeder structure is permitted under the
Code on Unit Trusts and Mutual Funds
(UT Code) provided that both the feeder
ETF and the master ETF are authorized
by the SFC. Recently, the SFC has
received a number of requests to allow
more flexibility in the master-feeder ETF
structure so that an SFC-authorized
feeder ETF may invest its assets in an
overseas-listed master ETF without SFC
authorization. This would facilitate the
development of ETF product line-up in a
more cost-effective manner, offering
more investment choices to investors.
In response to the requests received, the
SFC has proposed the following
requirements under which it would
consider authorising such a feeder ETF.
The master ETF should, at a minimum,
meet the following key requirements:
• The master ETF must be a scheme
regulated in a recognized jurisdiction
managed by a management company
in an acceptable inspection regime or
a scheme eligible under a mutual
recognition of funds arrangement;
• The master ETF, together with its
management company and
trustee/custodian, must have a good
compliance record with the rules and
regulations of its home jurisdiction
and (in the case of master ETF) the
listing venue;
• The master ETF must have a fund
size of not less than USD 1 billion
and a track record of more than 5
years at the time of the feeder ETF’s
listing on the Stock Exchange of
Hong Kong;
• The master ETF must adopt physical
replication of the underlying index
through either a full replication or a
representative sampling strategy; and
• The master ETF’s engagement in
securities financing transactions
should not exceed 50% of its total net
asset value unless there are
comparable safeguards and
disclosure.
In addition, the feeder ETF should meet
the following requirements:
• The feeder ETF must be a Hong
Kong-domiciled ETF authorized by
the SFC;
• The feeder ETF must be managed by
a management company which is
licensed or registered for Type 9
regulated activity and has a good
compliance record;
• The management company of the
feeder ETF should report to the SFC
as soon as practicable if the master
ETF ceases to comply with the
requirements set out in this circular
and take appropriate remedial action
to promptly rectify the situation; and
• The management company of the
feeder ETF should put in place
appropriate arrangements to inform
Hong Kong investors of any material
change to, or event that has a
significant adverse impact on, the
master ETF in a timely manner.
Regulatory Updates Newsletter — December 2019 PwC · 8
The consultation is open for
comments till 25 February 2020
Improvements to the capital framework
to better capture credit valuation
adjustment (CVA) risk is one of the key
elements of the Basel Committee's
overall efforts to reform global regulatory
standards in response to the global
financial crisis.
This consultation document proposes a
set of targeted adjustments to the CVA
risk framework issued in December 2017.
These revisions aim to align relevant
parts of the revised CVA risk framework
with the Minimum capital requirements
for market risk published in January
2019 as well as Capital requirements for
bank exposures to central counterparties.
In addition, the Committee seeks
feedback on a possible adjustment to the
overall calibration of capital
requirements calculated under the CVA
standardised and basic approaches.
The proposed standards text has been
prepared in a new modular format that
adopts the style of the Basel framework .
In addition, the BCBS issued the Basel
III standard which includes a
countercyclical capital buffer (CCyB)
regime. National authorities can
implement a CCyB requirement to
ensure that the banking system has an
additional buffer of capital to protect
against potential future losses related to
downturns in the credit cycle.
Sectoral countercyclical capital buffer
(SCCyB) is a useful complement to the
CCyB. The impact of a SCCyB would
depend on a bank's exposure to a
targeted credit segment (eg, residential
real estate loans). Targeted tools such
as the SCCyB may be effective to aid in
building resilience early and in a specifc
manner, to more efficiently minimise
unintended side effects, and may be
used more flexibly than broad-based
tools.
These guiding principles are intended to
support the implementation of a SCCyB
on a consistent basis across jurisdictions.
The guiding principles are not included in
the Basel standards and are only
applicable for those jurisdictions that
choose to implement them on a
voluntarily basis.
Also, to help ensure a consistent
implementation of the new local IRRBB
framework, the HKMA has issued
answers to some additional FAQs. All
AIs not exempted from the new local
IRRBB framework are encouraged to
make reference to these FAQs for their
IRRBB compliance. The HKMA has also
included an updated version of the
spreadsheet containing calculation
examples for the completion of the
IRRBB return.
One of the key highlights of the FAQs is
that AIs must assess Credit Spread Risk
in the Banking Book (CSRBB) for items
at fair value, that is, for example, debt
securities. It is the AI’s responsibility to
develop a suitable methodology for
CSRBB.
In addition, the HKMA issued a circular
titled ‘Market Risk Capital Requirements:
Local Implementation Timeline’. The
standards on Minimum Capital
Requirements for Market Risk issued by
the Basel Committee on 14 January
2019 are scheduled to be implemented
by national supervisors by 1 January
2022. According to the latest BCBS
timetable, banks would be required to
calculate their market risk based on the
new standards from 1 January 2022.
Basel Committee consultation on credit valuation adjustment risk and
guiding principles on sectoral countercyclical capital buffer
Brian Yiu
Partner
+852 2289 1934
Executive
Summary
Managing ML/TF risks
associated with virtual
assets and virtual asset
service providers
SFC survey
findings on ESG,
climate change
and asset
management
Basel Committee report
on open banking and
application
programming interfaces
(APIs)
SFC circular on streamlined
requirements for eligible
exchange traded funds
adopting a master-feeder
structure
Basel Committee consultation
on credit valuation adjustment
risk and guiding principles on
sectoral countercyclical
capital buffer
Guideline on
Medical
Insurance
Business
LIBOR
Reform
Updates
Other
Regulatory
Updates
Glossary
Regulatory Updates Newsletter — December 2019 PwC · 9
Guideline on Medical Insurance Business
This Guideline shall take effect from 23 September 2020
Pursuant to section 133(1) of the Insurance Ordinance (Cap.
41), the IA has published GL31 – Guideline on Medical
Insurance Business.
The principal function of the guideline is to regulate and
supervise the insurance industry for the protection of existing
and potential policy holders. In addition, it aims to protect its
function to promote and encourage the adoption of proper
standards of conduct and sound and prudent business practices
by authorized insurers and proper standards of conduct by
licensed insurance intermediaries.
This guideline also takes account Insurance Core Principles,
Standards, Guidance and Assessment Methodology (“ICP”)
promulgated by the International Association of Insurance
Supervisors, in particular ICP 19 which stipulates that the
conduct of the business of insurance should ensure that
customers are treated fairly, both before a contract is entered
into and through to the point at which all obligations under a
contract have been satisfied.
This guideline applies to all authorized insurers underwriting
medical insurance business, and all licensed insurance
intermediaries carrying on regulated activities in respect of
medical insurance business.
GL31 applies to all medical insurance businesses, including
individual and group businesses, certified plans under the
Voluntary Health Insurance Scheme (“VHIS”) and any other
types of medical insurance business.
This Guideline provides guidance on the standards and
practices which are expected to be met in order to ensure fair
treatment of customers across all aspects of medical insurance
business.
The areas covered in this guideline are:
• Responsibilities of board of directors, controllers and senior
management;
• Product design;
• Sales process;
• Claims handling;
• After-sales service;
• Complaints handling;
• Proper handling of customers’ personal data; and
• VHIS-compliant policies
Billy Wong
Partner
+852 2289 1259
Executive
Summary
Managing ML/TF risks
associated with virtual
assets and virtual asset
service providers
SFC survey
findings on ESG,
climate change
and asset
management
Basel Committee report
on open banking and
application
programming interfaces
(APIs)
SFC circular on streamlined
requirements for eligible
exchange traded funds
adopting a master-feeder
structure
Basel Committee consultation
on credit valuation adjustment
risk and guiding principles on
sectoral countercyclical
capital buffer
Guideline on
Medical
Insurance
Business
LIBOR
Reform
Updates
Other
Regulatory
Updates
Glossary
Regulatory Updates Newsletter — December 2019 PwC · 10
UK’s Financial Conduct Authority (FCA)
launched a consultation on extending the
senior managers regime to benchmark
administrators
The Senior Managers Regime (SMR) will
come into force for firms that only administer
benchmarks on 7 December 2020. This
consultation explains how FCA proposes to:
• not apply the Certification Regime to
benchmark administrators
• categorise benchmark administrators
under the SMR as ‘Core’ firms initially, with
the option of subsequent waivers
• require them to allocate up to 4 Senior
Manager Functions, depending on their
governance structure
• require them to apply the Conduct Rules to
almost all their employees.
Additionally, after 9 December 2019, the
existing Approved Persons Regime will no
longer apply to firms authorised under FSMA,
and will only apply to Appointed
Representatives. The consultation proposes
some consequential changes to our rules to
make this clear.
The consultation is open for comments until
28 February 2020.
ISDA letter to FSB OSSG on pre-cessation
issues
ISDA has submitted a letter to the Financial
Stability Board’s Official Sector Steering
Group (FSB OSSG) on pre-cessation triggers
for derivatives fallbacks. The communication
is in response to a letter sent by the FSB
OSSG to ISDA in November 2019.
The key highlights of the letter are:
• ISDA is currently on track to finalise the
substantive portion of its work to develop
permanent cessation fallbacks by the end
of 2019, and to facilitate implementation
during the first half of 2020.
• On November 15, 2019, ISDA released the
results of a third successful industry
consultation on the adjustment
methodologies for permanent cessation
fallbacks rates.
• Based on strong majorities, this concluded
that the adjustments should use a
compounded setting in arrears rate with a
spread adjustment calculated as the
median of the historical differences
between the IBOR and the corresponding
RFR over a five-year lookback period.
• Bloomberg expects to commence
publication of indicative fallback rates
based on these adjustments at the
beginning of 2020.
• ISDA will shortly issue a brief
supplemental consultation to confirm the
suitability of these adjustments for
fallbacks in derivatives referencing euro
LIBOR and EURIBOR.
• Upon completion of this consultation in the
first quarter of 2020, ISDA will publish the
Supplement to the 2006 ISDA Definitions
containing the fallbacks and will open for
adherence a protocol to include these
fallbacks in existing derivatives.
• The amendments to new and existing
derivatives contracts will take effect
approximately three months later, in the
second quarter of 2020.
• Based on feedback and support from
market participants, ISDA believes that the
new documentation will provide a critical
backstop in contracts that continue to
reference LIBOR or another key IBOR if
and when that IBOR ceases.
ISDA issued December 2019 Benchmark
Fallbacks Supplemental Consultation
ISDA issued the Supplemental Consultation
on Spread and Term Adjustments, including
Final Parameters thereof, for Fallbacks in
Derivatives Referencing EUR LIBOR and
EURIBOR, as well as other less widely used
IBORs.
This consultation seeks input on the approach
for addressing certain issues associated with
adjustments that would apply to €STR if
fallbacks in EURIBOR or EUR LIBOR take
effect, including the final parameters for these
adjustments. It also asks about adjustments
that could apply if fallbacks take effect in less
widely used IBORs.
The deadline for responses to the consultation
is January 21, 2020.
LIBOR Reform Updates
Ilka Vazquez
Partner
+852 2289 6565
Amy Yeung
Partner
+852 2289 1245
Ian Farrar
Partner
+852 2289 2313
Executive
Summary
Managing ML/TF risks
associated with virtual
assets and virtual asset
service providers
SFC survey
findings on ESG,
climate change
and asset
management
Basel Committee report
on open banking and
application
programming interfaces
(APIs)
SFC circular on streamlined
requirements for eligible
exchange traded funds
adopting a master-feeder
structure
Basel Committee consultation
on credit valuation adjustment
risk and guiding principles on
sectoral countercyclical
capital buffer
Guideline on
Medical
Insurance
Business
LIBOR
Reform
Updates
Other
Regulatory
Updates
Glossary
PwC · 11
Circular to intermediaries: Joint product survey by
the SFC and the HKMA
The SFC and the HKMA will jointly launch an annual
survey on the sale of non-exchange traded investment
products by LCs and registered institutions (RIs)
licensed or registered for Type 1 or 4 regulated activity.
The first joint annual survey will cover the period from 1
January to 31 December 2020.
The survey will enable the SFC and the HKMA to better
understand market trends, identify risks associated with
the selling activities of intermediaries and coordinate
their responses to address areas of common concern.
The survey covers the sale of non-exchange traded
investment products, such as collective investment
schemes, debt securities, structured products, swaps
and repos, to individual professional investors1, certain
corporate professional investors (where intermediaries
cannot rely on a waiver of the suitability obligation) and
investors other than professional investors.
Transactions by institutional professional investors and
corporate professional investors for which
intermediaries have been exempted from the suitability
obligation are outside the scope of this survey.
Intermediaries are expected to submit completed
questionnaires to the SFC electronically in the first
quarter of 2021 for the first reporting period (1 January
to 31 December 2020).
Exposure to HKMCI: 90% Loan Guarantee Product
under SME Financing Guarantee Scheme
On 16 December 2019, the HKMC Insurance Limited
("HKMCI") announced the introduction of a 90% Loan
Guarantee Product under the SME Financing Guarantee
Scheme (“90% Guarantee Scheme”) with effect from 16
December 2019.
The HKMA issued a letter to confirm that the above has
been approved for the purposes of Banking (Exposure
Limits) Rules (“BELR”) Rule 57(1)(d) in respect of an
AI’s exposure to the HKMCI arising from the provisions
of the guarantee by the HKMCI under the 90%
Guarantee Scheme. Accordingly, for the exposure to the
HKMCI arising from any loan to an SME which is
covered by the HKMCI guarantee under the 90%
Guarantee Scheme, the amount so covered is deducted
from the AI's exposures to the HKMCI.
For capital adequacy calculation purposes, AIs
participating in the 90% Guarantee Scheme should
follow the relevant requirements set out in the Banking
(Capital) Rules (“BCR”) for calculating the risk-weighted
amount of their related exposures to the HKMCI under
the Scheme.
SFC concludes consultation on margin
requirements for non-centrally cleared OTC
derivatives
The SFC released consultation conclusions on
proposals to impose margin requirements for non-
centrally cleared over-the-counter (OTC) derivatives.
The proposals will be adopted with some amendments
and clarifications. A licensed corporation which is a
contracting party to a non-centrally cleared OTC
derivative transaction entered into with an authorized
institution, a licensed corporation or another defined
entity would be required to exchange margin with the
counterparty if the notional amount of their outstanding
non-centrally cleared OTC derivatives exceeds specified
thresholds.
The initial margin requirements will be phased in starting
from 1 September 2020, which is also the date the
variation margin requirements will take effect.
Regulatory Updates Newsletter — December 2019
Other Regulatory Updates
Executive
Summary
Managing ML/TF risks
associated with virtual
assets and virtual asset
service providers
SFC survey
findings on ESG,
climate change
and asset
management
Basel Committee report
on open banking and
application
programming interfaces
(APIs)
SFC circular on streamlined
requirements for eligible
exchange traded funds
adopting a master-feeder
structure
Basel Committee consultation
on credit valuation adjustment
risk and guiding principles on
sectoral countercyclical
capital buffer
Guideline on
Medical
Insurance
Business
LIBOR
Reform
Updates
Other
Regulatory
Updates
Glossary
PwC · 12Regulatory Updates Newsletter — December 2019
Glossary
AI Authorised Institutions IC-2 Internal Audit Function
AML Anti-Money Laundering ICO Initial Coin Offering
BC Basel Committee IFRS International Financial Reporting Standard
BCBS Basel Committee on Banking Supervision IOSCO International Organization of Securities Commission
CFT Counter-Financing of Terrorism IR-1 Interest Rate Risk Management
CG-1 Corporate Governance of Locally Incorporated Authorized Institutions IRR Interest Rate Risk
FATF Financial Action Task Force IRRBB Interest Rate Risk in the Banking Book
FinTech Financial Technology LC Licensed Corporation
FMCC Fund Manager Code of Conduct MAS Monetary Authority of Singapore
FI Financial Institutions MoU Memorandum of Understanding
FSB Financial Stability Board RO Responsible Officer
HKMA The Hong Kong Monetary Authority RE-1 Recovery Planning
IA The Insurance Authority SFC The Securities and Futures Commission
IAF Internal Audit Function SFO Securities and Futures Ordinance
IC-1 Risk Management Framework SPM Supervisory Policy Manual
Executive
Summary
Managing ML/TF risks
associated with virtual
assets and virtual asset
service providers
SFC survey
findings on ESG,
climate change
and asset
management
Basel Committee report
on open banking and
application
programming interfaces
(APIs)
SFC circular on streamlined
requirements for eligible
exchange traded funds
adopting a master-feeder
structure
Basel Committee consultation
on credit valuation adjustment
risk and guiding principles on
sectoral countercyclical
capital buffer
Guideline on
Medical
Insurance
Business
LIBOR
Reform
Updates
Other
Regulatory
Updates
Glossary