Welcome to Herbert Smith Freehills’ monthly private wealth industry updates in Asia.

Every month we survey ten Asian jurisdictions for legal developments concerning trust and estate planning which are of interest to the private wealth industry, and provide a succinct summary in a table format.  The jurisdictions covered in the update are Hong Kong, Singapore, China, Taiwan, Japan, India, Malaysia, Indonesia, Thailand and the Philippines. We hope that these updates will prove to be a useful resource to keep private clients, business people, and lawyers abreast of legal updates in the region.

Hong Kong

HKMA issues further practical guidance on key AML/CFT requirements for account opening and ongoing monitoring of private banking customers

The HKMA has issued a circular to provide authorised institutions (AIs) with further practical guidance on key AML and CFT requirements for account opening and ongoing monitoring of private banking customers.

Under a risk-based approach, AIs are moving away from a purely compliance-based approach towards a focus on effectiveness and outcomes.  The HKMA places significant emphasis on the risk-based approach in its supervisory work and provides guidance in various formats to assist AIs.  The three guiding principles of this approach (ie, risk differentiation, proportionality, and not a ‘zero failure’ regime) apply equally to private banking businesses.

Nonetheless, feedback from the industry and customers indicate that private banks face challenges in customer onboarding and account maintenance, especially in the following areas:

  • Establishment of source of wealth and source of funds;
  • Ongoing monitoring; and
  • AML regtech adoption.

The HKMA has therefore prepared a set of ‘do’s and don’ts’ and good practices in its Smart Tips for Private Banking to help private banks’ management and AML compliance and customer-facing units to appropriately apply AML/CFT requirements to deliver effective outcomes. AIs should review and update their policies and procedures taking into account this and other guidance, including the presentation on ‘Source of Wealth Requirements‘ in the recent 2022 AML Seminar, and Appendix 1 ‘Establishing source of wealth’ to the AML/CFT FAQs published by the Hong Kong Association of Banks.

In addition, the HKMA is introducing supervisory technology to strengthen its risk-based and data-driven AML supervision. This includes an upcoming revamp of the way it obtains and analyses data collected from banks to optimise supervisory and compliance resources, as well as focusing on collaborative efforts and an ecosystem response to evolving money laundering and financial crime risks, and supporting a safe and efficient platform for the development of private wealth management businesses.

SFC reprimands and fines licensed corporation HK$100,000 for AML/CFT regulatory breaches

The SFC has reprimanded and fined a licensed corporation HK$100,000 for failures in complying with anti-money laundering and countering the financing of terrorism (AML/CFT) and other regulatory requirements between March 2016 and October 2018.

The SFC’s investigation found that the licensed corporation had (amongst other things):

  • Failed to conduct due diligence on the customer supplied systems used by 16 clients for placing orders (and was therefore not in a position to properly assess and manage the money laundering and terrorist financing (ML/TF) and other risks associated with the use of such systems by its clients);
  • Failed to perform proper enquiries on the deposits made into two client accounts to satisfactorily address the associated ML/TF risks (the deposits were incommensurate with the clients’ declared financial profiles); and
  • Failed to implement an effective ongoing monitoring system to detect suspicious trading patterns in client accounts (there were frequent and numerous trades in the two client accounts, and in many instances, buy and sell orders for the same futures contracts were placed by the same client in the same second at the same price).

The SFC considers that the licensed corporation’s systems and controls were inadequate and ineffective, and failed to ensure compliance with the SFC’s AML/CFT guideline and main code of conduct.

HKMA publishes observations on investment product selling processes and relevant regulatory standards following review of selected registered institutions

The HKMA has issued a circular to registered institutions to share its observations from a review of the investment product selling processes of selected registered institutions, covering both retail banks and private banks.  It also outlined the relevant regulatory standards relating to its observations.

The HKMA has been maintaining a dialogue with the industry on supervision and compliance practices to ensure a balanced and responsive supervision (BRS).  In view of market developments and industry feedback, the HKMA has streamlined a number of investor protection measures and provided guidance on the flexibility allowed in the selling processes over the past few years, with a view to bringing about enhancement in customer experience while according customer protection.  Notwithstanding this, the HKMA has heard feedback from various stakeholders about lengthy selling processes of investment products.  The HKMA therefore saw the need to conduct this review.

The HKMA notes from the review that there was some misunderstanding on the part of registered institutions regarding the regulatory standards which may have lengthened their investment product selling processes.  In line with the BRS approach, the circular sets out the HKMA’s observations noted from the review, alongside the relevant regulatory standards, in relation to the following areas: (i) Risk disclosure for subsequent transactions of comparable products; (ii) Assessment of customers’ investment horizon; (iii) Assessment of customers’ concentration risk;(iv) Handling of execution-only transactions; and (v) Audio-recording for retail banking customers.

Registered institutions have the flexibility to design their own investment product selling processes having regard to their business strategies, risk management and controls, so long as such processes are in compliance with the applicable requirements and expected standards.

The HKMA encourages registered institutions to review their policies, procedures and practices in light of these observations, with the aim of streamlining the selling processes and enhancing the customer experience, while according protection to customers.  Adequate training and support should also be provided to staff.

FSTB’s acting secretary Joseph Chan delivers speech at “EU and Hong Kong: The Green Way Forward” forum

The Financial Services and the Treasury Bureau’s (FSTB’s) Acting Secretary, Mr Joseph Chan delivered a speech at the ‘EU and Hong Kong: The Green Way Forward’ forum.

In his speech, Mr Chan indicated that as Asia’s leading international financial centre, Hong Kong is well-positioned to be the green and sustainable finance hub of the region. In addition to green bonds issued under the Government Green Bond Programme, Hong Kong has also issued the world’s first Asian Green Bond ETF, Asia’s first Green Retail Certificate of Deposit, as well as the world’s first offshore ESG A-share ETF, demonstrating the wide range of sustainable financial products developed in Hong Kong market.

Looking ahead in 2023, the Government’s priorities include: (i) continuing to work with financial regulators and the industry to develop green and sustainable finance in Hong Kong through a multipronged strategy, providing the necessary infrastructure and impetus for market development; (ii) the Green and Sustainable Finance Cross-Agency Steering Group (Steering Group) will work towards proposing the structure and core elements of the local green classification framework for consultation, to facilitate easy navigation among the Common Ground Taxonomy, the Mainland’s taxonomy and the EU’s taxonomy; (iii) the Steering Group will make climate-related disclosures aligned with the Task Force on Climate-related Financial Disclosures recommendations mandatory across relevant sectors no later than 2025; (iv) the SFC and SEHK joint working group will take into account the feedback received from the soft consultations conducted with over 50 listed issuers and professional bodies in 2022 when developing the proposals aligned with the International Sustainability Standards Board (ISSB); and (v) continuing to work closely with the industry and relevant stakeholders to develop Hong Kong as a green and sustainable hub in the region, leveraging the enormous opportunities presented by the Greater Bay Area development and the Belt and Road Initiative, and serving as a premier financing platform for international and Mainland green enterprises/projects.


SGX RegCo: Keynote on sustainable finance

Singapore Exchange Regulation (SGXRegCo) has published the keynote delivered by its CEO Tan Boon Gin at the Asia Securities Industry and Financial Markets Association (ASIFMA) 4th Annual Regional Sustainable Finance Conference which was held in Hong Kong.  The SGX RegCo CEO spoke about the drivers for transition to green energy, explaining how this differed from previous energy transitions such as the move from coal to oil in number of ways – from a shortened timescale in which to accomplish the move to the policy-driven nature (as opposed to market-driven) nature of the change.

MAS Circular: ML and TF risks in the wealth management sector

MAS has published a circular to remind all financial institutions (FIs) to stay vigilant to the money laundering and terrorist financing (ML/TF) risks in the wealth management sector. The circular sets out MAS’ expectations that FIs review existing controls to ensure that they remain adequate to mitigate the ML/TF risks from high growth areas.  In conducting their reviews, FIs should take into account the additional information provided in this circular as well as previous MAS guidance.

MAS: Revised FAQs on Trust Companies Act and Trust Companies Regulations

MAS has published revised frequently asked questions (FAQs) on Trust Companies Act and Trust Companies Regulations. The FAQs provide guidance on the regulatory scope of the Trust Companies Act, including licensing and reporting requirements for licensed trust companies, exempt trust companies and exempt persons providing trust services.


Central Government and financial authorities jointly promulgate 30 measures to support reform and opening up of Qianhai Shenzhen-Hong Kong Modern Service Industry Cooperation Zone

The People’s Government of Guangdong Province, the People’s Bank of China, the State Administration of Foreign Exchange and the financial regulators have jointly promulgated the “Opinion on Providing Financial Support for the Comprehensive Deepening Reform and Opening Up of the Qianhai Shenzhen-Hong Kong Modern Service Industry Cooperation Zone“.

The Qianhai Shenzhen-Hong Kong Modern Service Industry Cooperation Zone (QCZ) is considered by the Hong Kong Government as an important joint-development platform in the Guangdong-Hong Kong-Macao Greater Bay Area (GBA). The opinion sets out 30 measures on financial reform and innovation, covering financial services relating to people’s livelihood, mutual access between financial markets, facilitation of cross-boundary trade and financing, and strengthening financial regulatory co-operation.

Some examples of the measures include (amongst other things):

  • Facilitating the opening of bank accounts by Hong Kong residents in the Mainland, such as by way of remote onboarding for credit card business in the Qianhai Cooperation Zone (QCZ);
  • Allowing the branch of a Hong Kong bank operating in the QCZ to share credit information with its parent company located in Hong Kong, upon obtaining the clients’ consent;
  • Allowing eligible private banks and family wealth management institutions from Hong Kong to set up operations in the QCZ to commence cross-border wealth management business;
  • Supporting Shenzhen Stock Exchange’s establishment of a Guangdong-Hong Kong-Macau-GBA bond platform;
  • Exploring the mechanism for “private equity connect” (implementing pilot programmes to facilitate mutual equity investment between Hong Kong and QCZ and reduce the entry barriers for Hong Kong investors);
  • Allowing financial institutions from Hong Kong to set up commercial banks, wealth management subsidiaries, consumer financing companies, pension fund management companies, securities companies, public funds, fund distributing companies and futures companies in the QCZ;
  • Exploring the development of a unified, mutually recognised standard in Hong Kong and Shenzhen for the disclosure of environmental information by financial institutions;
  • Setting up research institutions in QCZ to support joint development of regtech between Shenzhen and Hong Kong, and promoting synergy between the HKMA’s Fintech Supervisory Sandbox and the regtech supervisory tools in QCZ.


SEBI: Extension of deadline for consultations

The Securities and Exchange Board of India (SEBI) has announced that it has extended the timeline for submission of comments to the following consultation papers (CPs):

  • CP on holding of sponsor in real estate investment trusts (REITs) and infrastructure investment trust (InvITs) – extended to 15 March 2023; and
  • CP on regulatory framework for ESG rating providers (ERPs) in the securities market – extended to 15 March 2023.

RBI and Central Bank of the UAE sign MoU to promote innovation in financial products and services

The Reserve Bank of India (RBI) and the Central Bank of the United Arab Emirates (CBUAE) have signed a memorandum of understanding (MoU) to enhance cooperation and jointly enable innovation in financial products and services.

Under the MoU, the two central banks will collaborate on various emerging areas of FinTech, especially central bank digital currencies (CBDCs) and explore interoperability between the CBDCs of CBUAE and RBI. CBUAE and RBI will jointly conduct proof-of-concept (PoC) and pilot(s) of bilateral CBDC bridge to facilitate cross-border CBDC transactions of remittances and trade. This bilateral engagement of testing cross-border use case of CBDCs is expected to reduce costs, increase efficiency of cross border transactions and further the economic ties between India and UAE. The MoU also provides for technical collaboration and knowledge sharing on matters related to Fintech and financial products and services.


SECT: Draft regulation prohibiting digital asset business operators providing crypto deposit taking and lending services

The Securities and Exchange Commission of Thailand (SECT) is seeking comments on a draft regulation prohibiting digital asset business operators from providing or getting involved with crypto saving (deposit taking) and lending services. The proposed regulation aims to provide greater protection to investors, reduce associated risks, and prevent a misunderstanding that deposit taking and lending services are under the same supervision as regulated digital asset businesses. Feedback is requested by 7 April 2023.


SECP Exposure Draft: Adoption of ASEAN SRFS

The Securities and Exchange Commission of the Philippines (SECP) has released an Exposure Draft of the Memorandum Circular on adoption of the ASEAN Sustainable and Responsible Fund Standards (SRFS) and establishment of the rules on qualification of a local investment company under the ASEAN SRFS and recognition of a foreign collective investment scheme (CIS) qualified under the ASEAN SRFS that seeks to offer in the Philippines under the ASEAN CIS Framework.  Feedback on the Exposure Draft is requested by 17 March 2023.

The contents of this document are for reference purposes only. Some of the information comes from public sources and this may not be comprehensive, accurate or up to date; where we have relied on third party information and sources, this has not been verified by us. The document does not constitute legal advice, and should not be relied upon as such. Specific legal advice about your specific circumstances should always be sought separately before taking any action based on this publication, and any facts in this document should be checked for your specific circumstances at the time you wish to use or refer to them.


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