Hong Kong enforces new rules to better manage city’s funds, stockbrokers and financial firms

Managers in eight designated functions must be approved by the regulator under the new regime

PUBLISHED : Wednesday, 18 October, 2017, 8:01am
UPDATED : Wednesday, 18 October, 2017, 11:14pm

A new rule aimed at ensuring brokers, fund houses and financial advisers in Hong Kong are being run by qualified, experienced managers came into force on Tuesday.

The “manager in charge” regulation requires such companies to hire staff approved and licensed by the Securities and Futures Commission to take up senior management roles in eight key areas including compliance, IT and oversight.

The SFC first announced the measure in December and has been implementing it in different phrases since April.

The move came after waves of mainland investors, many of them lacking any experience in the securities or financial field outside the mainland, bought local brokerages and other financial firms in recent years.

Their acquisitions have brought new capital to the market and boosted the number of active local brokers from about 430 to more than 500. According to the SFC, 13 per cent of local brokers, fund houses and financial advisers are now owned by mainland shareholders, overtaking the US which was formerly the largest non-Hong Kong owner of local financial firms.

But the regulator was concerned that some of the firms were under the control of management teams that lacked the necessary experience.

The SFC listed the eight “core functions” affected by the new rule as overall management oversight; key business line; operational control and review; risk management; finance and accounting; information technology; compliance; and anti-money-laundering and counterterrorist financing.

Hong Kong brokers, fund managers struggle to get their heads round new SFC rule

To give the firms sufficient time to find the right people the SFC allowed a six-month transition period which ended on October 16.

During the transition period, about 10,000 individuals were appointed by licensed corporations as “managers-in-charge”.

The SFC said it is now handling applications for about 500 of these cases.

“Senior managers bear primary responsibility for the effective and efficient management of their firms, and they should be well aware of the obligations currently imposed on them as well as their potential liability if they fail to discharge their responsibilities,” said Ashley Alder, chief executive of the SFC.

“Our manager-in-charge regime has been working well. It is encouraging that many firms have worked hard to strengthen their governance structures.”

The Hong Kong Monetary Authority on Tuesday also issued a circular to banks requiring them to submit their up-to-date management structure information and organisational charts via email to both the HKMA and the SFC between March 16 and April 16, 2018.

In Hong Kong, the banks’ securities departments are regulated by the HKMA, but it usually follows the same approach of the SFC.

Brokers and fund houses had already submitted their structure charts to the SFC by July this year, Alder said.

SFC pledges more aggressive enforcement action