The year 2020 was like no other – a new and very different business environment emerged which required a swift adaptation from all stakeholders of regulated businesses. Notwithstanding this, the expectations on regulated entities were very much to maintain a “business as usual” stance, with the SFC vowing to take all reasonable measures to keep Hong Kong’s markets open for business. Our full briefing is here, and key insights are set out below.
Record fines, but fewer enforcement actions
Against this backdrop, the SFC imposed a record total of approx. HK$2.8bn in fines for 2020 (more than double 2019’s total which was, in itself, more than the preceding four years combined). The record tally was dominated by a single fine of approx. HK$2.7 billion imposed on a global bank relating to AML issues. It will certainly be interesting to see how 2021 will fare on this front, given the unprecedented back-to-back highs.
Tech and data
Tech and data continued to be a focus, as can be seen from regulators’ efforts to regulate the use, storage and surveillance of data, as well as their leading role in bringing virtual assets under the regulatory umbrella. With the pandemic irrefutably establishing the importance of tech and data to the resilience of firms and market infrastructures, both the SFC and the HKMA continued to refine their supervisory approach to data ethics, data processing, data storage and cybersecurity.
Stopping the “rolling bad apples”
Regulators also continued to focus on tackling culture and competence. Amidst the “new normal” of remote working, it is perhaps timely that the HKMA has proposed measures to address the “rolling bad apples” phenomenon. The HKMA’s consultation proposals on this front saw the exploration of the “mandatory reference checking” scheme, which may well end up being a first step towards a shift in hiring practices. The SFC too has taken steps to update its competency requirements.
Insurance Authority – expected ramp-up on the horizon
Since taking over the direct supervision of insurance intermediaries in 2019, the IA has taken clear steps to refine its enforcement toolkit, with the confirmation of appointments for the Disciplinary Panel Pool (tasked with determining proposed disciplinary action) and the Expert Advisor Panel (tasked with providing technical advice and market intel). The publication of its “Overview of Disciplinary Process” in October 2020 was a clear sign that the platform for the IA to exercise its extensive enforcement powers is now firmly in place, and a ramp-up in enforcement activity can certainly be expected.
We expect the SFC to maintain its focus on “high impact” cases and “front-loaded regulation”, with a priority on prevention and early resolution, as the industry continued to navigate the aftermath of the “new normal”. With the HKMA and IA also having a more extensive toolkit to draw on for its regulated subjects.
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We expect the SFC to maintain its focus on “high impact” cases and “front-loaded regulation”, with a priority on prevention and early resolution, as the industry continued to navigate the aftermath of the “new normal”.