Regulatory review - October 2011


Regulation, Tax, Compliance, Enforcement

Below is a snapshot of some of the key local and international regulatory and compliance developments in October 2011 relevant to the Asian wealth management industry.

Each update includes a brief summary, with a link so you can access further information if you would like to. These are divided by geography to make them quicker to review.

If you are a subscriber to the Hubbis Learning Management System – after reading this monthly update you can take a short test to assess and prove your understanding of the content, via the "Continuous Education Test" button in the grey summary box above. If you pass it, you can get a certificate to authenticate 30 minutes worth of learning.


For more information – either click on each link or scroll down to the relevant section.


Hong Kong








UK tax authority targets 6,000 more with Swiss accounts

HM Revenue & Customs (HMRC) is writing to over 6,000 more UK individuals, companies, trusts and other bodies holding HSBC accounts in Geneva who it suspects may not have reported all their income and gains to the authorities.

HMRC has already begun criminal and serious fraud investigations into more than 500 individuals and organisations holding these accounts, and many others have taken advantage of HMRC’s Liechtenstein Disclosure Facility (LDF).

The tax watchdog will write to those who have not yet come forward, or are not currently under investigation, offering them a window of opportunity to contact HMRC and disclose all their tax liabilities. If they do not come forward, HMRC will begin an investigation into their affairs, which could include a criminal investigation or result in penalties.

More details:

G20 ministers agree on tax information exchange

The G20 finance ministers have agreed to work on issues relating to obtaining tax information, a move that can help countries get information about money stashed in tax havens.

A communiqué was issued to underline the importance of a comprehensive tax information exchange, and at the same time encourage competent authorities to continue their work in the Global Forum to assess and better define the means to improve it.

The ministers also agreed on a coordinated framework for monitoring the implementation of financial regulation.

More details:

Financial Stability Board calls for faster OTC derivatives reforms

In its second progress report on implementing over the counter (OTC) derivatives market reforms, the Financial Stability Board (FSB) is calling on jurisdictions to aggressively push forward to meet the G20 end-2012 deadline in as many areas as possible.

The requirements are: that all standardised OTC derivative contracts be traded on exchanges or electronic trading platforms, where appropriate, and cleared through central counterparties; that OTC derivative contracts be reported to trade repositories; and that non-centrally cleared contracts be subject to higher capital requirements.

The report notes that few FSB members have the legislation or regulations in place to provide the framework for operationalising the commitments.

More details:

UK regulator fines Credit Suisse for systems and control failings

The UK’s Financial Services Authority (FSA) has fined Credit Suisse the equivalent of around US$9.5 million for systems and controls failings in relation to sales by its private bank of structured capital at risk products.

Between January 2007 and December 2009, UK customers of Credit Suisse invested over GBP1 billion in these products despite the lack of adequate systems and controls to assess customers’ attitudes to risk.

The FSA also found that the bank failed to take reasonable care to assess the suitability of the products for customers or monitor staff giving advice. Plus, the regulator said Credit Suisse didn’t maintain adequate records regarding its advice on these products. 

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IOSCO publishes recommendations on market integrity

The Technical Committee of the International Organization of Securities Commissions (IOSCO) has published a report containing recommendations to promote market integrity and efficiency, and to mitigate the risks posed to the financial system by the latest technological developments, including high-frequency and algorithmic trading.

These recommendations are also designed to promote a consistent approach amongst global regulators to the latest technological developments.

More details:

Swiss funds body urges reforms to boost industry

The Swiss Funds Association (SFA) is supporting the primary objectives of the partial revision of the Swiss Federal Act on Collective Investment Schemes (CISA), as well as making additional proposals relating to taxation.

The SFA said it supports plans to secure market access for the management, custody and distribution of collective investment schemes.

In addition, the Association has submitted specific proposals for improvements aimed at safeguarding the competitiveness of Switzerland as an asset management location, including proposing improvements on taxation in respect of restructuring, real estate, and withholding tax.

More details:

Financial Stability Board consults on template for global banks

The Financial Stability Board (FSB) has published a consultation paper seeking views on a set of options and proposals to introduce a new common data template for global systemically-important banks.

The key focus is to strengthen information on financial linkages between major banks and on their exposures and funding dependencies.

More details:

Hong Kong

Regulators consult on new OTC derivatives regime

In accordance with commitments of the G20 Leaders in September 2009, Hong Kong’s financial regulators have issued a joint consultation paper on the proposed regulatory regime for the local over the counter (OTC) derivatives market.

"The proposed regime aims to improve overall transparency in the OTC derivatives market, reduce interconnectedness of participants and generally reduce systemic risk in the financial system,” said Eddie Yue, deputy chief executive of the Hong Kong Monetary Authority (HKMA).

As the local OTC derivatives market is relatively small compared with other major markets and the OTC derivatives market is global in nature, the watchdogs have been working on developing a regulatory regime that is on a par with international standards but takes into account local market conditions and characteristics.

Under the main proposals in the consultation paper, OTC derivatives transactions will have to be reported to the trade repository, which is being set up by the HKMA. Besides, standardised OTC derivatives transactions will have to be centrally cleared through a designated central counterparty (CCP). The proposed regime will be jointly overseen and regulated by the HKMA and the SFC. The consultation period will end on 30 November 2011.

More details:

SFC reprimands IFA 

Hong Kong’s securities regulator has fined Solomon Independent Financial Advisors HK$1.5 million (US$193,000) for facilitating unlicensed activities of insurance broker Black SwanCapital.

The Securities and Futures Commission (SFC) also suspended the approval granted to Connie Leung Wing Kam to act as a responsible officer for Solomon, whose licence is also being suspended for seven months.

The SFC found that Black Swan had referred clients to Solomon in exchange for Black Swan receiving commissions for trades executed by Solomon on behalf of the referred clients.
The regulator said in a statement that Solomon knew the arrangement with Black Swan required participants to be properly licensed by the SFC, yet none of the Black Swan employees had been granted an SFC license.

More details:

SFC fines Citi HK$6 million

The Securities and Futures Commission (SFC) has reprimanded and fined Citigroup Global Markets Asia Limited (Citi Asia) HK$6 million (US$770,000) in relation to a fraudulent scheme.

Citi Asia’s former licensed representative Mr X had operated a Ponzi scheme involving 13 Citi Asia wealth management clients, where clients intended to invest their money in US Treasuries and other products.

Mr X’s scheme operated from 2004 until February 2009, when Citi Asia investigated the suspected misconduct and dismissed Mr X shortly afterwards.

Yet, the SFC said in a statement that Citi Asia failed to report Mr X’s activities to the regulator in a timely manner as required by the Code of Conduct, and also failed to provide the existing investigation report which revealed important information for the fraudulent scheme. By the time the reports were provided to the SFC, Mr X had left Hong Kong and has not returned.

More details:

SFC reminds investors about margin trading risks

Amid high levels of market volatility, the Securities and Futures Commission has reminded investors who engage in leveraged or margin trading to closely monitor their positions.

Investment risks have increased due to large fluctuations in financial markets around the world, especially for leveraged or margin trading, said the regulator.

The watchdog is warning investors engaged in such trading that they may face margin calls on their positions, and forced closing out of such positions as the market moves against them.

More details:

SFC reviews rules for reporting on short positions

Following a consultation on the Securities and Futures (Short Position Reporting) Rules in May, the Securities and Futures Commission (SFC) has unveiled the conclusions and has issued a further consultation on the matter.

Noting the industry’s feedback about difficulties in reporting short positions on a gross basis, the SFC proposes to revise the rules to require reporting of net short positions.

The SFC is aiming to implement this reporting requirement by the end of the first quarter of 2012, subject to the legislative process.

More details:


MAS to crack down on violations of AML and CFT

The Singapore regulator plans to tighten its regime on anti-money laundering (AML) and counter financing of terrorism (CFT), to ensure that those people and organisations who jeopardise the financial centre’s hard-earned reputation for integrity face severe consequences.

Speaking at the 8th anniversary of the Wealth Management Institute, Ravi Menon, managing director of the Monetary Authority of Singapore (MAS), said the regulator will step up its enforcement resources to deal with suspicious transactions reported by financial institutions.

The Commercial Affairs Department will double the manpower of the Suspicious Transaction Reporting Office and enhance its analytical and reporting systems to detect criminal activity and illicit funds. In addition, the MAS intends to make criminal the laundering of proceeds from tax offences as a pre-emptive move.

More details:

MAS urges private banks to raise competency

To further develop the local wealth management industry, the Monetary Authority of Singapore (MAS) is urging private banks to raise competency, enhance market conduct and keep the financial sector clean.

'If Singapore is to sustain its growth as a wealth management centre, there is an urgent need to raise competency levels in the industry and to build a strong pipeline of talent,” said Ravi Menon, managing director of MAS. “We need qualified professionals to fill not just front-office jobs like relationship management and investment advice but also mid- to back-office functions in risk management and compliance.”

Menon further stated that the aggressive poaching of private bankers and rapid churning of professional staff are unhealthy for the industry, causing instability and unsustainable wage escalation as well as increased operational risks.

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CBRC regulates wealth management sector with new rules

China’s banking regulator has released a new rule to regulate commercial banks’ wealth management business, in relation to risk management and the sales process.

The new rule from the China Banking Regulatory Commission (CBRC), which will come into effect from 1 January 2012, also covers the risk rankings for wealth products, the evaluation of clients’ risk tolerance, sales management of wealth products and management specification of salespeople.

The new rule makes a few revisions to the regulator’s previous proposal, released at the end of June this year. These changes include: putting in place more rules protecting clients’ legal interests, adding rules on the naming of assets in structured products, and creating rules prohibiting the sales promotion of wealth products.

More details:

China appoints new financial regulators

China has appointed new leaders for its banking, securities and insurance regulators.

Shang Fulin, the formal head of China Securities Regulatory Commission, will replace Liu Mingkang as chairman of the China Banking Regulatory Commission.

Meanwhile, China Construction Bank chairman Guo Shuqing will take over Shang’s role in the China securities watchdog, and Agricultural Bank of China chairman Xiang Junbo will become the head of the China Insurance Regulatory Commission.

More details:

Central bank regulates direct RMB settlement business for foreigners

The People’s Bank of China has released a guideline regarding direct foreign investments in renminbi (RMB) settlement business.

The guideline makes it clear that as long as overseas investors such as enterprises, economic institutions or individuals comply with China’s relevant regulation of direct foreign investment, then they can directly apply to banks for opening RMB banking settlement accounts as overseas institutions.

The banks, according to the regulation, can directly conduct RMB settlement business for foreign investing enterprises.

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Regulator defines foreign securities and derivatives for brokers to buy

Taiwan’s Securities and Futures Bureau has clearly defined the range of foreign securities and derivatives that brokers can buy, releasing the rankings of the issuers or guarantors for foreign stock exchanges, government bonds and corporate bonds.

The revised rule allows brokers to purchase overseas exchangeable corporate bonds and overseas corporate warrant bonds, as well as structured bonds that incorporate fixed income products and the linked derivatives products.

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Forward Markets Commission tightens penalties related to trading

The Forward Markets Commission of India has tightened its existing penalty structure for delays in uploading client details for trading commodity futures – as it has found that some members have executed trades on behalf of clients without uploading their Unique Client Code (UCC) details. 

The Commission has directed all the national exchanges to impose a penalty of over 1% of the value of every trade that has been executed by members without uploading UCC details. Further, these members will be liable to be suspended if the UCC details are not uploaded within a month of the trade.

The Commission has also issued fresh directives to ensure that Client Code Modification (CCM) facility is not misused by trading members.

More details:


Securities Commission strengthen capital markets

To promote the development of Malaysia’s capital market in line with global standards, the Securities Commission has amended the Securities Commission Act 1993 (SCA) and the Capital Markets and Services Act 2007 (CMSA), which came into force in early October.

The amendments include providing a dedicated regulatory framework for private retirement schemes (PRS), removing the requirement for the annual renewal of CMSA licences, and introducing a framework for the reporting of OTC derivative contracts.

The amendments also empower the regulator to share information and cooperate with other local and foreign supervisory authorities who manage systemic risk in the capital market.
More details:

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