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.
SFC launches consultation on proposed requirements for operators of VA trading platforms, including proposals to allow such operators to serve retail investors
The Securities and Futures Commission ("SFC") has launched a consultation on proposed requirements for operators of virtual asset ("VA") trading platforms. Feedback on the proposals is required by 31 March 2023.
Following the passage of amendments to the Anti-Money Laundering and Counter-Terrorist Financing Ordinance ("AMLO") by the Legislative Council in December 2022, the new licensing regime for centralised VA trading platforms trading non-security tokens will come into effect on 1 June 2023 (see our previous update). All centralised VA trading platforms carrying on their businesses in Hong Kong, or actively marketing their services to Hong Kong investors, will need to be licensed and regulated by the SFC.
The key proposals under the present consultation include (among others):
- Detailed regulatory requirements to be set out in the new Guidelines for Virtual Asset Trading Platform Operators, based on the requirements of the existing regime under the Securities and Futures Ordinance (these include proposals to allow retail access to licensed VA trading platforms, as well as requirements relating to areas such as onboarding, governance, token due diligence and admission, disclosure, and insurance);
- Adding a new Chapter 12 to the existing Guideline on Anti-Money Laundering and Counter-Financing of Terrorism (For Licensed Corporations) which sets out the requirements relating to the business activities of licensed VA trading platform operators (such as those relating to VA transfers);
- Publishing disciplinary fining guidelines for the new licensing regime under the AMLO.
The consultation paper also sets out proposed transitional arrangements to allow reasonable time for existing VA trading platforms to either apply for a licence or arrange for an orderly closure of their business in Hong Kong. The SFC plans to publish lists on its website to inform the public of the different regulatory statuses of VA trading platforms.
VA trading platforms (together with their proposed responsible officers and licensed representatives) should apply for approvals under both the existing Securities and Futures Ordinance regime and the new AMLO regime, given that a VA's classification may change from a non-security token to a security token (or vice versa) due to changes in its features over time. They are also required to engage an external assessor in the application process.
HKMA publishes conclusions to discussion paper on crypto-assets and stablecoins, with plans to conduct further consultation and implement regulatory regime by 2023/2024
The Hong Kong Monetary Authority ("HKMA") has published the conclusions to its discussion paper on crypto-assets and stablecoins (see our previous update regarding the discussion paper of January 2022).
In general, the respondents were supportive of regulating stablecoins with a risk-based and agile approach. They also broadly support the need to take into account the latest market developments and draw reference from the discussion of international regulatory bodies when developing the relevant regulatory regime. The HKMA aims to implement the regulatory regime by 2023/2024, and is considering the pros and cons between introducing a new legislation and amending existing laws. A further consultation with more granular information about the regulatory regime will be conducted in due course with a view to hammering out the major parameters that will be covered in the draft legislation. The HKMA's thinking includes:
- Adopting a risk-based approach in scoping in stablecoin structures for regulation - The HKMA will start with regulating stablecoins that purport to reference to one or more fiat currencies. Flexibility will be built in to enable the regulator to scope in other stablecoin structure(s) for regulation in the future.
- The key activities that will be regulated include governance, issuance, stabilisation and wallets.
- The value of the reserve assets of a stablecoin arrangement should meet the value of the outstanding stablecoins at all times. The reserve assets should be of high quality and high liquidity. Stablecoins that derive their value based on arbitrage or algorithm will not be accepted.
In broad terms, the following entities will require a licence from the HKMA - Entities that (i) conduct a regulated activity in Hong Kong, (ii) actively market a regulated activity to the Hong Kong public, (iii) conduct a regulated activity which concerns a stablecoin that purports to reference to the value of the HKD; or (iv) in the opinion of the regulator should be regulated in light of matters of significant public interest.
SFC reprimands and fines licensed corporation HK$4.8 million and sanctions two ROs/MICs for AML/CFT and other regulatory breaches
The SFC has reprimanded and fined Jinrui Futures (Hong Kong) Limited ("Jinrui Futures") HK$4.8 million for failures in complying with anti-money laundering and counter-terrorist financing ("AML/CFT") and other regulatory requirements between April 2015 and June 2018. The SFC has also disciplined the following responsible officers ("ROs") (who were also managers-in-charge ("MICs")) of Jinrui Futures: (i) banned Shen Chun (a former executive director, RO, and MIC of the overall management oversight function) from re-entering the industry for six months; and (ii) suspended Jiang Xiaoqing (an RO and MIC of the operational control and review and AML/CFT functions, and former MIC for the compliance function) for five months. The SFC's investigation found that Jinrui Futures (amongst other things): (i) failed to conduct adequate due diligence on customer supplied systems by permitting 258 clients to use them for placing orders during the material time (as a result, Jinrui Futures was not in a position to properly assess and manage the money laundering and terrorist financing and other risks associated with the use of such systems by its clients); (ii) failed to perform adequate enquiries on deposits made into the accounts of four clients that were unusual and/or suspicious and inconsistent with the clients' declared net worth; and (iii) failed to comply with its account opening procedures which required its staff to conduct AML investigations on its clients before account opening, including identifying whether the clients were politically exposed persons or under existing terrorist and sanction lists.
The above failures constituted breaches of various provisions of the Anti-Money Laundering and Counter-Terrorist Financing Ordinance, the SFC's Guideline on Anti-Money Laundering and Counter-Terrorist Financing and the SFC's main code of conduct. The SFC considers that Jinrui Futures' failures were partly attributable to the failures of Mr Shen and Ms Jiang in discharging their duties as the firm's ROs and senior management.
MAS: Industry Taskforce launches third consultation on green and transition taxonomy
The Monetary Authority of Singapore ("MAS") has launched its final public consultation on a green and transition taxonomy for Singapore-based financial institutions. The consultation seeks views on the detailed thresholds and criteria for the classification of green and transition activities in five sectors: (i) agriculture and forestry/land use; (ii) industrial; (iii) waste and water; (iv) information and communications technology; and (v) carbon capture and sequestration.
Feedback is requested by 15 March 2023.
BNM: Discussion paper on Financial Inclusion Framework 2023-2026
The Bank Negara Malaysia ("BNM") has published a discussion paper setting out proposed features of the Financial Inclusion Framework 2023-2026 ("Framework"). The BNM explains that the implementation of the Financial Inclusion Framework 2011-2020 has led to significant improvements in the accessibility and take-up of basic financial services in Malaysia. However, several barriers and challenges remain to be addressed. The Framework will also take into consideration alignment of strategies towards new emerging growth angles in financial services, and achievement of the United Nation's Sustainable Development Goals and Environmental, Sustainability and Governance propositions for higher value creation.
Feedback on the proposals is requested by 31 March 2023.
RBI statement on developmental and regulatory policies
The Reserve Bank of India ("RBI") has released a statement which sets out various developmental and regulatory policy measures relating to (i) financial markets; (ii) regulation; (iii) payment and settlement systems and (iv) currency management. The statement includes an outline of regulatory initiative on climate risk and sustainable finance; the RBI will shortly release the following guidelines for regulated entities: broad framework for acceptance of green deposits; disclosure framework on climate-related financial risks; and guidance on climate scenario analysis and stress testing.
Other matters in the statement are the recover penal charges on loans, expanding the scope of the Trade Receivables Discounting System, extending Unified Payments Interface for inbound travellers to India, and a pilot project on QR code based coin vending machine in collaboration with a few leading banks. Matters in the statement are also referred to by the Governor in the latest monetary policy statement.
New omnibus law: carbon bourse
For the first time, Indonesia now regulates carbon bourse and exchange-facilitated carbon unit trading. The recently enacted Law No. 4 of 2023 on the Development and Strengthening of the Financial Sector ("Law 4/2023", in Indonesian language only) gives the Indonesian Financial Services Authority (Otoritas Jasa Keuangan, "OJK") the authority to supervise carbon bourse. A carbon bourse and carbon trading participants (although at this stage it is unclear what constitutes a participant) must be licensed by the OJK. Various news sources report that the Indonesian Stock Exchange will be the first carbon bourse. Furthermore, carbon units, whether traded via bourse or over the counter, are now classified as "securities" within the meaning of the Indonesian capital market law, therefore subjecting them to various laws and regulations that apply to securities and securities transactions.
Law 4/2023 mandates OJK to consult with the House of Representatives in drafting the implementing regulations regarding carbon bourse.
BOT: Directional paper on sustainable solutions to Thailand's structural debt overhang problems
The Bank of Thailand ("BOT") has published a directional paper on sustainable solutions to Thailand's structural debt overhang problems. The paper on provides an in-depth analysis of household debt problems in Thailand and explains the BOT's approach to resolve structural debt overhang problems in a sustainable manner. The paper also sets out the BOT's guidelines for dealing with debt overhang problems, these guidelines cover: current non-performing loans ("NPLs"); persistent debts; new debts that have grown rapidly and are at risk of becoming NPLs or persistent debts in the future; and other debts that are uncounted in the household debt statistics.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.