SFC’s implementation of the Investor Identification Regime and OTC Securities Transaction Reporting Regime
Introduction
The Securities and Futures Commission (the
“SFC”) has taken steps to enhance its
surveillance and enforcement functions in respect of the securities market in
Hong Kong. In August 2021, the SFC issued consultation conclusions on its
proposals to introduce an investor
identification regime (“HKIDR”) and
an over-the-counter securities transaction reporting regime (“OTCR”) for shares listed on the Stock
Exchange of Hong Kong Limited (the “Stock
Exchange”), in order to let the SFC to identify investors who make
suspicious orders or trades and enhance its surveillance function. It is expected
that HKIDR and OTCR will be launched in March 2023 and the second quarter of
2023, respectively.
Requirements of the HKIDR
The HKIDR requirements apply to listed
securities (including listed derivatives) traded on the Stock Exchange at the
trading-level (but not the holding-level). The HKIDR requirements do not apply
to derivatives traded on the Hong Kong Futures Exchange or unlisted structured
products (such as equity-linked instruments,
equity-linked notes, etc.), nor the delivery of Stock Exchange-listed
securities in accordance with the terms of these unlisted structured products.
Pursuant to the requirements of the HKIDR,
Relevant Regulated Intermediaries (including licensed corporations and
registered institutions) (“RRI(s)”)
are required to assign a unique Broker-to-Client Assigned Number (“BCAN”) to direct clients who have placed
or proposes to place an order through a securities account registered with the
RRI.
The BCAN should identify a
specific client of the RRI, but should not bear any obvious link to a client’s
identity and must remain confidential. RRIs would be expected to put in place
automated order management systems to ensure correct and valid BCANs are tagged
to the relevant securities orders.
An RRI will also be required to ensure
that up-to-date client identification data has been collected from each direct
client and that it is submitted together with the client’s BCAN to a data repository maintained by the Stock Exchange by a prescribed time.
The relevant client’s BCAN should be included in the order information for each
on-exchange order as well as off-exchange orders.
Requirements of the OTCR
Under the
OTCR, RRIs, whether acting as principal or agent, are required to report the
following two types of
share-related activities to the SFC via a designated portal within three trading dates
after the transaction day:
1.
the transfer of ordinary shares and
interests in real estate investment trusts that are (a) listed on the Stock
Exchange; (b) made in connection with an OTC securities transaction; and (c)
transactions under which stamp duty is chargeable in Hong Kong; and
2.
deposit or withdrawal of physical share
certificates.
Obtaining
consent from individual clients
under the HKIDR and OTCR
Pursuant to
both HKIDR and OTCR, consents must be obtained from individual clients before
transferring any personal data to the Stock Exchange and/or the SFC, providing
that the personal data shall not be used for a new purpose. This applies to
both new and existing clients. Consents must be obtained in relation to the
following matters:
1.
disclosure and transfer of personal data
to the Stock Exchange and/or the SFC;
2.
allowing the Stock Exchange to:
a.
collect,
store, process and use their personal data for market surveillance and
monitoring purposes and enforcement of the Listing Rules;
b. disclose and transfer such information to the relevant regulators and law enforcement agencies in Hong Kong so as to facilitate the performance of their statutory functions with respect to the Hong Kong financial markets; and
c.
use such information for conducting analysis for the purposes of market
oversight.
3.
allowing the SFC to:
a.
collect, store,
process and use their personal data for the performance of its statutory functions
including monitoring, surveillance and enforcement functions with respect to
the Hong Kong financial markets; and
b. disclose and transfer such information to the relevant regulators and law enforcement agencies in Hong Kong in accordance with applicable laws or regulatory requirements.
Individual clients
who have not
provided their consent will only be able to sell their securities but will not
be able to purchase securities until they provide their consent.
Purpose of
implementing the HKIDR and OTCR
The purpose
of implementing the HKIDR and OTCR is to enhance the market surveillance
function of the SFC, which can in turn help maintaining market integrity and
strengthen investors protection as the SFC can efficiently obtain information
about the identity of investors who placed orders. However, compliance with the HKIDR and
OTCR will involve the collection, use and transfer of personal data. Therefore,
the SFC has reminded the RRIs to comply with certain requirements relating to
the collection, use, storage, disclosure and transfer of personal data of
individual clients.
Conclusion
It is recommended
that RRIs should (i) ensure the current systems in place are compatible with
the reporting requirements as stipulated by the SFC; (ii) revamp the internal
policies and procedures in order to comply with the HKIDR and OTCR regimes;
(iii) assess the existing client documentation to check whether the client
consents in respect of personal data usage have sufficiently covered the
requirements under the HKIDR and OTCR; and (iv) enhance internal control system
to ensure that the confidential personal information obtained is protected from
unauthorized or inappropriate access.
For enquiries, please feel free to contact us at: |
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E: regcom@onc.hk T: (852) 2810 1212 19th Floor, Three Exchange Square, 8
Connaught Place, Central, Hong Kong |
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Important: The law and procedure on this subject are very
specialised and complicated. This article is just a very general outline for
reference and cannot be relied upon as legal advice in any individual case.
If any advice or assistance is needed, please contact our solicitors. |
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Published by ONC Lawyers © 2022 |
