- Our Ref :
- G4/26/5C
B1/15C
12 September 2002
- To:
- The Chief Executive
All Authorized Institutions
Dear Sir/Madam,
Register of relevant
individuals to be maintained by the HKMA under the Banking
(Amendment) Ordinance 2002
You will be aware from my letter of 5 July 2002 that the HKMA
will maintain a register of "relevant individuals" (HKMA Register)
in accordance with the Banking (Amendment) Ordinance 2002 (BAO
2002) under the new securities supervisory regime. In this regard,
I am writing to advise you of the key features of the HKMA Register
and the necessary preparatory work regarding the submission of
information for this purpose. In addition, this letter covers some
other important issues relating to relevant individuals that
require early preparation, if it is your institution's intention to
register with the Securities and Futures Commission (SFC) under the
Securities and Futures Ordinance (SFO).
You are advised to pay due attention to the following sections
which may have a bearing on your institution and take appropriate
measures to meet the relevant requirements, where applicable.
Unless otherwise specified, the terms used in this circular have
the same meaning as in the BAO 2002 and the SFO.
It should be noted that only those individuals whose
names are entered, or are deemed to have been entered during the
transitional period, in the HKMA Register may engage in any
regulated function in any regulated activity of a registered
institution (RI) or a deemed RI when the new regime
commences.
The HKMA Register
The revised section 20 of the Banking Ordinance (BO) requires
that the HKMA Register shall contain specified particulars of every
relevant individual of a RI1 and be
made available for public inspection in the form of an on-line
record.
We intend to make the HKMA Register available from the date of
commencement of the BAO 2002 and the SFO (you will be notified of
the actual commencement date when it is fixed). The specified
particulars of relevant individuals that will be included in the
HKMA Register are set out in Annex
1.
The specified particulars of relevant individuals to be included
in the HKMA Register will be in line with those required for
licensed representatives under the proposed Securities and Futures
(Licensing and Registration - Information) Rules2 in respect of the SFC's public register
insofar as they are applicable. The HKMA Register will therefore
include, among others, the records of public disciplinary actions
taken against every relevant individual by the HKMA and the SFC in
the past 5 years.
Transitional arrangements
This section sets out the transitional arrangements that will
apply to those individuals who are engaged by an AI to perform any
act which would constitute a regulated function in a regulated
activity under the SFO immediately before the commencement of the
transitional period.
As described in my letter of 5 July 2002, under Schedule 10 of
the SFO, there will be a transitional period of two years from the
commencement of the Ordinance for the following categories of AIs
(deemed RIs) to apply for migration to the new regime (i.e. to
apply for registration with the SFC):
- An AI which immediately before the commencement of the SFO is
an exempt dealer under the
to-be-repealed Securities Ordinance shall be deemed to have been
registered with the SFC for Type 1, Type 4, Type 6 and (subject to
the condition of not providing a service of managing a portfolio of
futures contracts for another person) Type 9 regulated activities
during the transitional period.
- Where an AI falling under (1) above carries on a business in
providing automated trading
services (e.g. providing to investors or other market
participants an electronic trading system for securities, which
includes dealing through the Internet) immediately before the
commencement of the SFO, it shall be deemed to have been registered
for Type 7 regulated activity as well.
- An AI which immediately before the commencement of the SFO is
either a licensed bank that engages in
investment advisory activities or an exempt investment
adviser under the to-be-repealed Securities Ordinance
shall be deemed to have been registered with the SFC for Type 4,
Type 6 and (subject to the condition of not providing a service of
managing a portfolio of futures contracts for another person) Type
9 regulated activities during the transitional period.
Where immediately before the commencement of the transitional
period, an individual is engaged by a deemed RI to perform any act
which would constitute a regulated function in a regulated activity
under the SFO, that individual shall be regarded as a relevant
individual in respect of that regulated activity and his name shall
be deemed to have been entered in the HKMA Register during the
transitional period.
Notwithstanding this transitional provision in the SFO, it is
the intention of the HKMA to place the names of all "deemed
individuals" on its register using the powers under the revised
section 20 of the BO when that comes into operation along with the
SFO.
The reason for this is to avoid a situation where the names of
some individuals would be placed on the register during the
transitional period (i.e. those newly engaged after the
commencement date) while others (i.e. the deemed individuals) would
not. This could be a potential source of confusion. The HKMA
Register will provide a clear indication that the deemed
individuals are "registered under transitional arrangements".
This means that every AI which is currently an exempt
dealer, an exempt investment adviser, and/or a licensed bank that
engages in investment advisory activities should prepare as soon as
possible (if they have not already done so), and thereafter
maintain, a list of those individuals who perform any act that
would constitute a regulated function in a regulated activity when
the new regime commences. These AIs should also maintain the
particulars of those individuals as specified in Annex 1.
AIs will be required to submit to the HKMA a list of those
individuals (together with their particulars) as of a specified
date (which will be advised later) before the commencement of the
BAO 2002 and the SFO via the STET system in the form of a standard
spreadsheet set out in Annex
23.
Any subsequent amendments to the list i.e. additions or
deletions after the submission of the spreadsheet up to the
commencement of the BAO 2002 and the SFO as well as changes to the
previously reported particulars of individuals should be notified
to the HKMA. The final list of names immediately prior to
commencement of the two Ordinances will comprise the "deemed
individuals" referred to above.
The subsequent amendments will be handled by a web-based
electronic form through on-line submission. This is also to be
adopted on an on-going basis after the commencement of the new
regime (see below). Further details of this on-line submission
mechanism will be provided in due course.
The purpose of collecting the list of names and the particulars
of the relevant individuals before the commencement of the two
Ordinances is to give enough time for the setting up of the HKMA
Register on the first day of the new regime. The names and the
specified particulars of the individuals will be placed on the
register on that date.
It should be noted that certain personal data (e.g. Hong Kong
Identity Card/passport number and date of birth) are obtained for
administrative purposes only and will not be included in the HKMA
Register for public inspection. This information will however be
passed to the SFC in order to obtain any record of public
disciplinary actions taken against the individual during the last 5
years (if the individual was previously engaged in an activity that
brought him or her within the scope of the SFC's disciplinary
powers). Such record of disciplinary action will be included in the
HKMA Register.
AIs should notify each individual concerned of the HKMA's
collection of his or her personal data, the purpose of such
collection as mentioned herein and the individual's rights under
the Personal Data (Privacy) Ordinance (PDPO) as summarised in Annex 3. The HKMA will treat all
data about the individuals concerned in accordance with the PDPO.
Any disclosure of such data to other persons will be in accordance
with sections 120 and 121 of the BO.
Arrangements for individuals engaged after the start of
the transitional period
This section sets out the arrangements that will apply to those
individuals who are engaged by either a deemed RI or a newly
registered RI to perform any act that would constitute a regulated
function in a regulated activity under the SFO after the
commencement of the transitional period, i.e. once the SFO and the
BAO 2002 have come into operation.
It should be noted that such individuals will not be "deemed
individuals" under the transitional arrangements.
The names and particulars (as set out in Annex
1) of the relevant individuals should be submitted to the HKMA
for inclusion on the HKMA Register prior to their beginning to act
for the RI or deemed RI in respect of any regulated activity. They
should not begin to act in that capacity until their names and
specified particulars have been entered in the register.
As mentioned, the submission of the names and particulars of the
relevant individuals will be made by on-line submission to the HKMA
via STET. The same system will be used to notify RIs that the
information has been placed on the HKMA Register. Further details
of this reporting mechanism will be provided in due course.
A RI must notify the HKMA of any subsequent changes to the
information submitted for the purpose of the HKMA Register, within
seven business days after such changes take place. This also
applies to information relating to "deemed individuals".
The HKMA will conduct vetting of the relevant individuals with
the SFC prior to placing their names and specified particulars on
the HKMA Register. Under normal circumstances, it is envisaged that
the entry will be made on the register within five business days
after submission to the HKMA.
Arrangements in respect of Executive Officers
(EOs)
Special arrangements will apply in respect of those individuals
who will act in the capacity of EOs with responsibility for
directly supervising the conduct of a regulated activity.
It should be noted that there is no statutory requirement for
deemed RIs to appoint EOs during the transitional period4. However, those institutions which apply
for and are granted registered status under section 119 of the SFO
will need to appoint at least two EOs in respect of each of the
regulated activities they undertake.
Under the new section 71C of the BO no person may become an EO
of a RI without the consent in writing of the Monetary Authority.
RIs or applicants for RI status will therefore need to submit to
the HKMA in writing their applications for consent for individuals
to become EOs under section 71C. The individual concerned should
not act as an EO prior to obtaining the HKMA's consent.
If consent is granted, the HKMA will notify the RI and the EO
concerned and will enter the name and specified particulars of the
EO concerned in the HKMA Register. Further details of the
arrangements in respect of EOs will be given in due course.
Fitness and propriety of relevant
individuals
AIs need to ensure that the relevant individuals engaged by them
in regulated activities, i.e. those whose specified particulars are
to be included in the HKMA Register, are fit and proper for the
purpose. This will be a statutory condition of registration under
the new regime, but AIs should ensure that those individuals
engaged to act on their behalf prior to the commencement of the SFO
and the BAO 2002 (i.e. deemed individuals) are also fit and proper.
In this regard, AIs are required to observe the SFC Fit and Proper
Criteria as well as the supplementary Guidance Notes on Competence
and Continuous Professional Training.
Regarding competence, it should be noted that different
regulated activities may require a pass in different papers of the
recognised industry qualifications. For instance, the recognised
examinations to be taken by persons who deal in/advise on
securities and those who deal in/advise on futures contracts are
not entirely the same. In other words, a relevant individual who
has passed the recognised examinations for dealing in/advising on
securities may not be considered competent for engaging in Type 2
(dealing in futures contracts) and Type 5 (advising on futures
contracts) regulated activities. You should refer to the Frequently
Asked Questions for Guidance Note on Competence posted on the SFC's
web-based Regulatory Handbook for more details.
AIs should put in place adequate policies and procedures to
ensure that their relevant individuals (whether "deemed" or not)
are and continue to be fit and proper, according to the Fit and
Proper Criteria and the supplementary Guidance Notes. Set out in
Annex 4 are the
internal controls that should be implemented in this
connection.
Temporary engagement
To be in line with the SFC's granting of temporary licences for
representatives under the SFO, a RI may temporarily engage an
individual in the conduct of a regulated function in one or more
regulated activities (other than providing automated trading
services (Type 7) and asset management (Type 9)) provided that:
- the engagement is for a period not exceeding 3 months;
- such engagements of the same individual should not in total
exceed 6 months in any period of 24 months;
- such individual carries on the relevant activity for or on
behalf of the RI or one of its group companies in a place outside
Hong Kong;
- the RI is satisfied that the individual is a fit and proper
person to be so engaged for the regulated activity; and
- the RI must implement proper internal control procedures and
maintain adequate records to demonstrate that the above conditions
have been satisfied.
The specified particulars of such temporarily engaged staff
would also need to be included in the HKMA Register, i.e. they are
also relevant individuals. It is therefore the responsibility of
the RI to ensure that all temporarily engaged staff are fit and
proper to be so engaged for the regulated activity. In assessing
the competence of such temporarily engaged staff, authorization by
an overseas regulator and industry knowledge gained outside Hong
Kong will be taken into account. Such staff will not be required to
fulfil the continuous professional training requirements since each
period of temporary engagement will not exceed 3 months. These
arrangements are in line with those applicable to the temporary
licences granted by the SFC.
Notification of certain events to the HKMA
To be in line with the reporting requirements imposed by the SFC
on licensed representatives under the proposed Securities and
Futures (Licensing and Registration - Information) Rules, RIs will
be required to notify the HKMA in writing within seven business
days upon knowledge of the occurrence of certain matters (including
any subsequent changes) which might reasonably be considered
relevant to the fitness and propriety of any of their relevant
individuals (both EOs and non-EOs), whether deemed or otherwise, to
act in such capacity under the new regime.
As proposed, these include whether the individual is or has
been:
- convicted of or charged with any criminal offence (other than a
minor offence5) in Hong Kong or
elsewhere;
- subject to any disciplinary action, or investigation by a
regulatory body or criminal investigatory body6 (as the case may be) in Hong Kong or
elsewhere;
- subject to, or involved in the management of a corporation or
business that has been or is subject to, any investigation by a
criminal investigatory body or any regulatory body in Hong Kong or
elsewhere concerning offences involving fraud or dishonesty;
- engaged in any judicial or other proceedings, whether in Hong
Kong or elsewhere that are material or relevant to the fitness and
propriety of the individual; or
- bankrupt or aware of the existence of any matters that might
render him insolvent or lead to the appointment of a receiver of
his property under the Bankruptcy Ordinance.
While the proposed Rules have yet to be finalized, we expect
those AIs that will become deemed RIs or intend to apply for
registration under the SFO to ensure they have adequate procedures
and systems in place to meet the reporting requirements upon the
commencement of the new regime. This should also be clearly
communicated to all relevant individuals. We will inform you of the
finalized list of events to be notified to the HKMA in due
course.
Should you have any questions relating to this letter, please
contact Miss Maisy Chang at 2878-1604, Mr. Neville Ng at 2878-8283
or Mr. Samuel Leung at 2878-1541.
Yours faithfully,
D T R Carse
Deputy Chief Executive
- Encl.
- Annex
1 (PDF file, 75KB)
Annex 2
- Proforma
Spreadsheet for the HKMA Register (PDF file, 103KB)
- Notes of
completion (PDF file, 128KB)
Annex 3
(PDF file, 56KB)
Annex 4
(PDF file, 61KB)
- cc:
- FSTB (Attn: Miss Emmy Wong)
SFC (Attn: Mrs Alexa Lam)
1 A relevant individual in relation to a RI
is defined in the revised section 20 of the BO as an "individual
who performs for or on behalf of or by an arrangement with the
institution any regulated function in a regulated activity".
2 As proposed this will replace the draft Securities
and Futures (Intermediary Information) Rules published earlier for
consultation.
3 The actual spreadsheet template will be provided
via STET nearer the time of submission.
4 Notwithstanding this, AIs should identify well in
advance the individuals that will fulfil the role of EOs in each of
the regulated activities they will undertake. It should be noted
that individuals who perform functions similar to that of an EO but
who are not formally appointed as EOs during the transitional
period are nevertheless relevant individuals, and as such their
specified particulars should be included in the HKMA Register.
5 For this purpose, "minor offence" means an offence
punishable by a fixed penalty, under the Fixed Penalty (Traffic
Contraventions) Ordinance, or the Fixed Penalty (Criminal
Proceedings) Ordinance, or the Fixed Penalty (Public Cleanliness
Offences) Ordinance, or equivalent legislation of a place outside
Hong Kong.
6 For this purpose, a "criminal investigatory body"
means the Hong Kong Police Force and the Independent Commission
Against Corruption established under section 3 of the Independent
Commission Against Corruption Ordinance, and bodies carrying out
criminal investigatory functions in Hong Kong or elsewhere.
