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The SFC published the second Compliance Bulletin of the year in May 2018 on the topics of licensing applications in Hong Kong and most importantly, the implementation of the Manager-In-Charge (MIC) regime, which set out the SFC’s observations on the effectiveness of its implementation within licensed corporations (LCs), as well as improvements on LCs’ corporate governance framework since the commencement of the regime.
The Bulletin also mentioned that a thematic review of the management structure of LCs, including board governance and responsibilities of MICs, is forthcoming, and LCs are reminded to have in place an effective and robust corporate governance framework.
MIC regime
The MIC regime was fully implemented in October 2017, which LCs are required to appoint those who are responsible for the different core functions to become MICs. This serves to provide clarity as to who are the senior management of LCs, and their responsibilities and accountability can thus be clearly defined. Similarly, as ROs are being regarded as the senior management of LCs, these two regimes are aligned so as to achieve consistency.
Improvement on corporate governance
The SFC provided several observations on instances where the corporate governance framework of LCs has been enhanced. For example, an LC has appointed a SFC-licensed representative to become responsible officer, MIC, as well as board member of the firm, who has previously supervised a team of ROs who reported directly to him.
Other instances of improvements include:
- appointing group-level senior management personnel as MICs and ROs
- appointing a large financial group’s senior executives as the LCs’ board members
- appointing group senior executives who either were previously licensed as representatives or did not hold an SFC licence, to become MICs and ROs of the LC.
Areas of concern in license application and substantial shareholder application
The SFC will consider various information thoroughly when assessing the application for a license and application to become a substantial shareholder of an LC, which include, but is not limited to:
- background of applicant
- source of funding
- financial position
- fitness and properness
- reputation and character.
The SFC will review and examine every information available, and any adverse information may affect the subject application. For example, in the acquisition of an LC by an overseas financial group, the SFC refused its application as the substantial shareholder of the LC given the group’s notoriety and poor compliance culture, which the SFC considered would tarnish the fitness and properness of the LC, and may also adversely affect investors’ interests and market integrity.
In another example, an individual applicant provided false information to the SFC in her application for license, where she represented that she had no criminal convictions, but she in fact had two convictions of theft which was revealed by the Hong Kong Police during the vetting process.
Way forward
Any substantial shareholder applicant should satisfy the SFC that the LC it sought to acquire a stake in will remain fit and proper if the application is approved. Similarly, for individual license applicants, they should ensure that the information provided in their applications is complete, true and accurate, otherwise they may risk being prosecuted.
We can help
Bovill can help you in reviewing and revising your existing corporate governance framework, and can assist in drafting the relevant policies and procedures in order to enable you to be in full compliance with the SFC’s rules and regulations. Robust and effective senior management accountability controls for board members, ROs and MICs will also need to be in place, which we can also help in their development and implementation.
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