Compliance & Regulation

SFC extends deadlines for implementation of regulatory expectations

The Securities and Futures Commission (SFC) has announced that it is extending the deadlines for the implementation of regulatory expectations by six months due to the impact of the COVID-19 epidemic.

The SFC has said that it is closely monitoring the development of the global COVID-19 pandemic, as stated in a circular. The SFC has said that it is aware of concerns from the industry that staff performing different functions locally and overseas may encounter difficulties in working from their usual place of business due to recent government policies such as travel bans, regional lockdowns and mandatory quarantine periods.  Further, some intermediaries have decided to reconfigure their staffing arrangements to limit COVID-19 infection risks.

As communicated previously distributed in February 2020, intermediaries are generally expected to make all reasonable efforts to comply with regulatory obligations. At a time of unprecedented market activity and volatility, intermediaries are expected to remain focused on internal controls and risk management to ensure financial and operational resilience.

The SFC appreciates that intermediaries face operational and “business as usual” challenges, which differ between intermediaries depending, among other factors, on their individual sizes and the types of regulated activity they carry out. The SFC would continue ongoing dialogue with the industry and provide regulatory flexibility to help intermediaries cope with COVID-19 challenges while ensuring that market integrity and investor protection principles are maintained.

The SFC also addressed a number of FAQs pertaining to a number of licensing related matters arising from firms reconfiguring staffing arrangements.

The SFC has decided to extend the deadlines for implementation of the following regulatory expectations by six months: Use of external electronic data storage; New measure to protect client assets; and Data standards for order life cycles.

In light of the global COVID-19 pandemic, intermediaries’ staff may not work from their usual place of business. The SFC has expressed that it understands that many intermediaries have provided their staff with remote access to order management systems, which are capable of centralised order recording for orders placed from a remote location.

However, some intermediaries may encounter challenges in ensuring compliance with the order recording requirements set out in paragraph 3.9 of the Code of Conduct, which provides that a licensed or registered person should do the following:

  • Record and immediately time stamp records of the particulars of the instructions for agency orders and internally generated orders.
  • Use a telephone recording system, where order instructions are received from clients through the telephone, to record the instructions and maintain telephone recordings as part of its records for at least six months.

The regulator has also stated that it wishes to remind intermediaries that alternative order receiving and recording options are available to comply with the regulatory requirements, which can be adopted by intermediaries as appropriate to meet the needs of their current circumstances.

The SFC points to instances such as where orders are accepted by mobile phones outside the trading floor, trading room, usual place of business where orders are received or usual place where business is conducted, intermediaries’ staff members should immediately call back to the intermediaries’ telephone system and record the time of receipt and the order details; and the use of other formats (e.g. in writing by hand) to record details of clients’ order instructions and time of receipt can be used if the intermediaries’ telephone recording system cannot be accessed.

When considering order placing and recording alternatives, intermediaries should have in place appropriate control measures for ensuring that the alternatives are properly implemented in compliance with the order recording requirements.

As explained previously, states the SFC circular, complete and accurate records are an integral part of the audit trail. They ensure that reliable evidence is available to assess disputes with clients about the particulars of a trade order.  This protects the interests of both the intermediary and the client.  Proper records also serve as a useful supervisory tool to detect irregularities and potential malpractices for intermediaries and the SFC.