HKSI Paper 6 (Regulation of Asset Management) English Free Trial

The Code of Conduct applies to all persons licensed by or registered with the SFC, both corporations and individuals and, in that sense, is the primary code on which all others are based.

Cross trades between client accounts should only be done:
(a) if the trades are in the best interests of both clients and in line with their investment objectives and restrictions;
(b) the trades are done at arm’s length at current market value;
(c) the activities are disclosed to both clients; and
(d) the reasons are documented prior to executing the trades.

The licensed corporation or associated entity is required to pay any money held in a segregated account that is not client money out of the account within one business day of becoming aware of the fact.

A licensed corporation or associated entity which becomes aware of a failure to meet the requirements to open a segregated account, to pay money into the segregated account or to retain money in the segregated account as specified must report the fact to the SFC within one business day after becoming aware of such failures.

A failure by a licensed corporation or associated entity to comply with the requirements to pay money into or out of a segregated account in the manner specified, without reasonable excuse or with an intention to defraud, is an offence and the offender is liable to pay penalties and to imprisonment on conviction.

Fund subscription money held by a licensed corporation is subject to the Client Money Rules and will have to be deposited in a segregated account if held for more than two business days after receipt.

Under the SFO, the SFC is responsible for operating a single licensing regime.

The SFO defines Type 9 regulated activity as “asset management”.

The SFC derives its licensing powers from Part V, SFO.

A corporation engaging in any activity regulated by the SFO, which includes asset management, will need to be licensed by the SFC.

Paragraphs 7.1 and 7.2, Guidelines on Continuous Professional Training set out the following as relevant topics for CPT purposes.
(a) For licensees generally:
(i) applicable compliance, legislative and regulatory standards;
(ii) business conduct and ethical standards;
(iii) new financial products in the industry and the associated risk management systems;
(iv) business communication skills and trade practices;
(v) general principles of law;
(vi) computer knowledge;
(vii) basic accounting theories; and
(viii) fundamental economic analysis.

Asset managers must consider the provisions of the Code of Conduct, which cover:
(a) the General Principles, such as honesty, diligence and so on, which are subsequently expanded to cover practical situations;
(b) the position of PIs, who do not need the same protection as retail investors;
(c) the position of analysts who prepare and issue research reports, who need to comply with high standards of integrity and ethical behaviour, particularly where there may be conflicts of interest;
(d) risk disclosure statements that intermediaries are expected to make in their dealings with investors;
(e) additional requirements for specific regulated activities, including dealing in securities listed or traded on the SEHK (Schedule 3, Code of Conduct), dealing in futures and other contracts traded on the HKFE (Schedule 4, Code of Conduct), and securities margin financing (Schedule 5, Code of Conduct); and
(f) electronic trading

The general approach and underlying philosophy the SFC adopts in undertaking its statutory regulatory obligations and responsibilities is set out in two papers, the Regulatory Framework for Intermediaries and the Approach to Supervision of Intermediaries.

Where an asset manager licensed by or registered with the SFC engages in the investment management of a product which is registered and approved by the MPFA as an MPF product, the SFC will be involved as follows:
(a) The SFC will be responsible for:
(i) registering, approving and monitoring investment managers;
(ii) supervising the activities of investment advisers and securities dealers providing services with respect to MPF products; and
(iii) investigating alleged breaches of the SFC Code on MPF Products and taking enforcement action as necessary.

Corporate governance has been defined in various ways, but it can be seen as primarily concerned with the proper relationship between a company’s management, its board and its shareholders, and possibly also its stakeholders

The definition of “futures contracts” is somewhat briefer: a contract or an option on a contract made under the rules or conventions of a futures market.