| Asia | Articles
For SFC licensed corporations in Hong Kong, maintaining a licence and adhering to the latest regulatory updates from the regulators is no mean feat. To ensure your compliance framework aligns with your business operation and the regulatory requirements, and to monitor your internal systems and controls on an ongoing basis, having a robust compliance monitoring programme is key.
Back in July 2024, the SFC issued a circular discussing licensed corporations (LCs) governance and internal control standards for monitoring the adequacy of financial resources and their compliance with the Securities and Futures (Financial Resources) Rules (FRR) requirements. Two key changes were made in the circular: one around prescriptive internal control measures relating to the expected FRR compliance standards and another around reporting deficiencies in minimum required liquid capital within three weeks from the date of first identifying such deficit.
In October 2024, the SFC then issued another circular stating its intention to place greater emphasis on the supervision of asset management firms and reminding personnel of their regulatory obligations. This came after various deficiencies and substandard conduct was identified in respect of the management of private funds and discretionary accounts, which had resulted in substantial losses for investors.
Directors and senior management of the relevant LCs have been put on notice to “critically review the areas of concern” and “give priority to strengthening their supervisory and compliance programmes”. They are also advised to have an independent and objective audit conducted on their firms’ compliance.
We believe regulators including the SFC are increasingly demanding in both their expectations and levels of challenge regarding compliance monitoring programmes. We are also seeing requests for compliance monitoring programmes during SFC inspections. So why is it worth it, and where do you start?
What are the benefits of having a compliance monitoring programme?
At a basic level, compliance monitoring ensures that your operations are happening and working as they should. It helps to assess not only the robustness of the policies and procedures in place but the extent of compliance by your staff, both with the spirit of the applicable rules and regulations.
More broadly, a strong and comprehensive compliance monitoring programme can help you identify non-compliance and weaknesses in controls and, if necessary, mitigate and self-report breaches that may be identified, which the SFC is likely to view favourably when determining any disciplinary action. LCs that can show evidence that they have proactively monitored, reviewed and improved their compliance programmes are likely to be in the best position in the event of potential issues, particularly if they can demonstrate they have taken steps to enhance their programmes where monitoring has identified weaknesses and taken appropriate action where issues have arisen.
Where do I start with improving or building a compliance monitoring programme?
A compliance monitoring programme should consider all areas of the services provided by a LC and evaluate if the LC’s operations are conducted in compliance with its legal obligations and whether its internal policies remain effective and appropriate. Your compliance monitoring programme should be proportionate to the nature, scale, and complexity of your firm and driven by your business risk assessment.
Common challenges we’ve seen firms face include unworkable documents / tests not in line with the most recent regulatory changes, programmes that don’t involve the right stakeholders, and programmes that often aren’t reviewed at the right committees.
Your programme must align to your business risks, which will be unique to you and the market within which you operate. This is why there’s no such thing as a one-size-fits-all approach when it comes to compliance monitoring.
Building a compliance monitoring framework
Review your existing compliance monitoring programme and, if it doesn’t fit your business risks or address current regulatory requirements, you might need to update or build one from scratch.
Testing and assessing
Once you’ve updated or designed your compliance monitoring programme, you need to put it into action. You will need to formalise and perform tests which seek to assess your alignment with regulatory requirements. You’ll also need to perform periodic checks and flag any issues as soon as they’re identified so that you’ve got enough time to rectify. These tests and assessments will not only ensure that you are complying with regional regulations but can also assist you when preparing and submitting regulatory reporting, including FRRs.
How can Bovill Newgate help you with your compliance monitoring programme?
We are on hand to help you meet the expectations of regulators. Globally we advise over 300 firms, from asset managers to broker dealers and payment services providers to banks and beyond.
Our team of dedicated and experienced consultants are well-equipped to help with any aspect of compliance monitoring programme. We can work with you to develop or update the compliance monitoring programme incorporating the regulatory requirements. We can also run tests and assessments while providing specific recommendations for improving your compliance monitoring programme.
We regularly advise LCs on regulatory and compliance issues, such as preparing and reviewing policies and procedures, compliance health-checks, and preparing for SFC inspections. Please reach out to our team for further information as to how we might help.
Get in touch
Send a message:
