This latest example of strategic coordination between Hong Kong regulators confirms a broader regulatory mission and shared objectives.

By Dominic Geiser, Truman Mak, Evangeline Tsui, and Charlotte Wong

On 5 March 2024, the Hong Kong Stock Exchange (HKEx) issued a Statement of Disciplinary Action (Statement) against two former directors (the Former Directors) of a company listed on the Growth Enterprise Market (GEM) of the HKEx for misappropriating company funds during the listing process. The disciplinary action followed efforts by the HKEx and the Securities and Futures Commission (SFC) to investigate the directors, and highlights strategic coordination on enforcement actions on IPO-related misconduct. The Monetary Authority of Singapore (MAS) also provided assistance.

Implementation of Basel Committee cryptoassets standard to provide additional clarity for banks looking to engage in cryptoassets business.

By Simon Hawkins and Adrian Fong

On 7 February 2024, the Hong Kong Monetary Authority (HKMA) released a consultation paper on its proposal for implementing new regulations on the prudential treatment of cryptoasset exposures (Consultation Paper).

The Consultation Paper comes shortly after the Financial Services and the Treasury Bureau and the HKMA issued a consultation paper in December 2023 outlining their legislative proposal for a regulatory regime governing stablecoin issuers in Hong Kong (see this Latham blog post). On 20 February 2024, the HKMA also published guidance on digital asset custody services and sale and distribution of tokenised products conducted by banks. Together, these papers offer guidance and greater certainty to banks interested in providing digital asset services (including digital asset issuance, custody, and dealing services).

Hong Kong’s highest court confirms that its financial markets regulator may serve proceedings on foreign defendants for restoration orders as of right.

By Dominic Geiser, Simon Hawkins, Truman Mak, and Adrian Fong

The Hong Kong Court of Final Appeal (CFA) held in a recent judgment that the Securities and Futures Commission (SFC) does not need to seek leave of the Hong Kong court to serve false trading proceedings against defendants out of the jurisdictions for restoration orders.

The ruling confirms that courts will consider substance over form when assessing collective investment scheme arrangements and exemptions under securities law.

By Simon Hawkins and Adrian Fong

On 2 August 2023, the Hong Kong Court of Appeal handed down judgment in the case of 律政司司長 (Secretary of Justice) v. IPFUND Asset Management Limited [2023] HKCA 925 (Judgment), a case which has been the subject of litigation since 2014. The court considered the issue of whether certain commercial property investment arrangements marketed and operated by the defendants constituted “collective investment schemes” (CIS) and “securities” under the Securities and Futures Ordinance (SFO).

The Judgment provides additional guidance on the factors to be considered when assessing whether arrangements constitute CIS under the SFO, and how an exemption from the definition of “securities” should be interpreted.

Insurance Ordinance amendments would create a risk-based capital regime aligned with international standards.

By Simon Hawkins and Adrian Fong

On 6 April 2023, the Hong Kong government introduced the Insurance (Amendment) Bill 2023 into the Legislative Council to amend the Insurance Ordinance (Cap. 41, Laws of Hong Kong) (IO) and implement a risk-based capital (RBC) regime for insurers in Hong Kong.

Hong Kong long-term and general business insurers are subject to a rule-based capital adequacy regime, meaning that an insurer’s capital adequacy is based on its solvency margin (which is linked to the amount of premium income or level of insurance liabilities). The existing regime does not take into account factors related to the business and risk management practices of an individual insurer, such as the products offered or the investments made. The prescribed rules on asset and liability valuation also lack consistency in certain areas.