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SFC to launch investor identification regime in March 2023

The investor identification regime for the securities market in Hong Kong (“HKIDR“) will be launched on 20 March 2023. The purpose of the HKIDR is to enhance market surveillance and monitoring in order to achieve better investor protection.

Relevant licensed corporations and registered institutions (collectively referred to as “Relevant Regulated Intermediaries”) will have the following main obligations under the HKIDR upon its implementation:

  • ensure that a unique identification code, namely the “Broker-to-Client Assigned Number” (“BCAN”), be assigned to “Relevant Clients” (as defined in the Consultation Conclusions) who have placed or propose to place (i) an on-exchange order or (ii) an off-exchange trade  reportable to the Stock Exchange of Hong Kong (“SEHK”) under its rules, in securities listed or traded on SEHK’s trading system (except for odd lots traded on SEHK’s odd lot/special lot market);
  • ensure that up-to-date client identification data (“CID”) has been collected from each Relevant Client and is submitted along with the client’s BCAN (by way of putting the BCAN and CID into a “BCAN-CID Mapping File”) to a data repository to be maintained by SEHK by a prescribed time;
  • ensure that the Relevant Client’s BCAN has been included in the order information for each on-exchange order as well as each off-exchange order and included in all reporting of off-exchange trades to SEHK, and report any BCAN error of a matched and executed trade as soon as possible to SEHK by submitting a prescribed error notification form; and
  • adopt relevant data privacy and security measures to safeguard the data collected, transmitted and stored, including obtaining express consent from clients for the collection and handling of their personal data in compliance with data privacy laws.

Before the HKIDR commences on 20 March 2023, Relevant Regulated Intermediaries are reminded to complete the following as part of their preparation for the implementation:

  • Seeking appropriate client consent. Relevant Regulated Intermediaries will need to obtain necessary consent from Relevant Clients who are individuals (i.e. natural persons) to the collection, storage, processing and use of personal data under the HKIDR.  In general, consent may be obtained by written and signed acknowledgment on paper, or by electronic means including by email or instant messaging applications.
  • Updating individual and corporate clients’ CID. Relevant Regulated Intermediaries should collect from the Relevant Clients or update as appropriate the following information: the full name of the client as shown in the client’s identity document, the issuing country or jurisdiction of the identity document, the identity document type and the identity document number.
  • Submitting the BCAN-CID Mapping File. Relevant Regulated Intermediaries can submit BCAN-CID Mapping File to SEHK via its Electronic Communication Platform and are strongly encouraged to submit the BCAN-CID Mapping File as early as possible to ensure that their clients’ BCANs are registered in preparation for any trading by such clients upon the launch of the HKIDR.

For further information, SFC’s guidelines and circulars can be found here.


20 January 2023
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The SFC fined a brokerage firm for Regulatory Breaches caused by “Technical Bugs”

A brokerage firm (the “Firm“) has recently been publicly reprimanded and fined HK$2.8 million by the Securities and Futures Commission (“SFC“) for (i) repledging clients’ securities collateral with a bank as collateral for financial accommodation provided to the Firm without a valid standing authority and (ii) providing monthly statements with incomplete and incorrect information to its clients.

From January to early March 2021, the Firm repledged the securities collateral belonging to 1009 clients with a market value of over HK$200 million with a bank as collateral for financial accommodation provided to the Firm, relying on standing authority which had already expired in 2020. This was caused by a technical bug in the Firm’s operating system, which omitted to automatically generate and send notices to clients for renewal of standing authority which expired on 31 December 2020.

Further, between May and November 2020, the Firm provided monthly statements with incomplete and incorrect information to a total of 930 clients, failing to include details of the contracts entered into on the last trading day of the month. This was caused by another technical bug in the office system which was upgraded in May 2020, which had not been identified in the user acceptance test conducted earlier on.

In light of the above, the Firm has breached:

  • sections 7 and 10 of the Securities and Futures (Client Securities) Rules;
  • section 11(3) of the Securities and Futures (Contract Notes, Statements of Account and Receipts) Rules; and
  • General Principles 7 (Compliance) and 8 (Client assets) and paragraphs 11.1 (a) (Handling of client assets) and 12.1 (Compliance: in general) of the Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission.

This case serves as a good reminder to all licensed firms that it is important to establish a comprehensive information technology risk management policy which includes good practices and effective controls over software adoption and upgrade. Comprehensive testing, with test cases covering all critical functions, must be conducted before production deployment to ensure reliability of the system and to avoid breaching regulatory requirements due to technical failures.

17 January 2023
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Statutory Interest Rate Cap for loans lowered from 60% to 48%

A person carrying on business as a money lender in Hong Kong must obtain a money lender licence and operate in compliance with the licensing conditions and the Money Lenders Ordinance (Cap. 163) (“MLO“). The number of licensed money lenders has grown quickly in recent years, and there are more than two thousand licensed money lenders in Hong Kong.

Following a recommendation by the Consumer Council and having studied practice and development of money lending business, the Hong Kong government decided to amend the MLO to lower the statutory interest rate cap and the extortionate rate, which have not been revised since 1980. In October 2022, the Legislative Council passed the amendments to sections 24(1) and 25(3) of the MLO.

Effective from 30 December 2022, the statutory interest rate cap for lending has been lowered from 60% to 48% per annum, and the extortionate rate has been lowered from 48% to 36% per annum.

A person commits an offence if the person lends or offers to lend money at an effective rate of interest which exceeds the interest rate cap (which is now 48% per annum). Further, an agreement for the repayment of a loan or for the payment of interest on a loan in respect of which the effective rate of interest exceeds the extortionate rate (which is now 36% per annum) shall be presumed to be an extortionate transaction. Where the court is satisfied that the transaction is extortionate, the court may reopen the transaction so as to do justice between the parties having regard to all the circumstances.

It is to note that the reduced rates apply to loan agreements or lending arrangements subject to the MLO which are entered into on or after 30 December 2022.

10 January 2023
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Hong Kong Court of Appeal rules that Arbitral Tribunal is to determine whether pre-arbitration conditions have been fulfilled

Many contracts provide that before a dispute is to be resolved by arbitration, certain conditions are to be first fulfilled, such as a requirement to mediate before commencing arbitration.  The Hong Kong Court of Appeal in the recent decision in C and D (Arbitration) [2022] 3 HKLRD 116 held that where the parties have agreed for a dispute to be referred to arbitration, the court will presume that the parties also agreed that the arbitral tribunal, and not the court, is to determine whether pre-arbitration conditions have been fulfilled, unless the arbitration agreement provided otherwise.

C and D (Arbitration)

The decision concerned an arbitration agreement which stated that prior to any reference to arbitration, there should be a request in writing for negotiation between the parties (the condition precedent to arbitration).

The parties agreed that the relevant dispute fell within the scope of the arbitration agreement, but disagreed on whether the condition precedent was satisfied in the circumstances, and on whether the court or the arbitral tribunal should determine whether the pre-arbitration conditions were fulfilled (the procedural issue).

The Court of First Instance of the High Court decided that the procedural issue was an issue of admissibility of claim, rather than an issue of jurisdiction of the arbitral tribunal.  Overseas case law has defined an issue of admissibility to be whether a claim is admissible before the arbitral tribunal and is to be decided by it, and an issue of jurisdiction to be whether the arbitral tribunal has jurisdiction at all to hear the claim, such that the claim is to be decided instead by the court.

The main ground of appeal was that the learned Judge erred in two respects.  First, the court ought not adopt the distinction between ‘admissibility’ and ‘jurisdiction’, because such distinction is not found in Article 34(2)(a)(iii) of the UNCITRAL Model Law (adopted in Hong Kong by Section 81 of the Arbitration Ordinance).  The argument was the statute only provided that an arbitral award may be set aside if ‘the award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration’.  Second, even if such a distinction existed, the pre-arbitration conditions in question were jurisdictional in nature, because in contract law, where an agreement is subject to a condition precedent, before the occurrence of such condition, there is no duty on either party to perform as agreed.

The Court of Appeal held that, although the distinction between ‘admissibility’ and ‘jurisdiction’ is not found in Article 34(2)(a)(iii), it is a concept rooted in the nature of arbitration itself and may properly be relied upon for the interpretation and application of Section 81.  The distinction can be given proper recognition through statutory construction, namely, that a dispute which goes to the admissibility of a claim rather than the jurisdiction of the tribunal should be regarded as a dispute ‘falling within the terms of the submissions to arbitration’ under Article 34(2)(a)(iii).  Ultimately, the test is whether or not the parties intended the question of fulfilment of the condition precedent is to be determined by the arbitral tribunal.

The Court of Appeal further held that whether the pre-arbitration procedural requirement has been fulfilled is usually to be decided by an arbitral tribunal, to give effect to the parties’ presumed intention to have any dispute arising out of their relationship to be decided by the same tribunal, and to achieve a quick, efficient and private determination of their dispute by arbitration.  Such presumed intention is only rebutted if the language makes it clear that certain questions were intended to be excluded from the arbitrator’s jurisdiction.

The full judgment can be found here.


Whether an issue went to the ‘admissibility of claim’ or ‘jurisdiction of the arbitral tribunal’ is to be decided by whether the parties intended for the issue to be determined by the arbitral tribunal.  If the parties intend to restrict the scope of disputes to be referred to arbitration, that needs to be written clearly in the dispute resolution provision.

Our trainee solicitor Adrian Luk assisted in preparing this article.



28 November 2022
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Presentation for members of The Hong Kong Federation of Insurers on “The Insurance Authority’s Power of Inspection and Investigation”

On 4 November 2022, our Senior Associate Iris Cheng presented a webinar for the members of The Hong Kong Federation of Insurers on “The Insurance Authority’s Power of Inspection and Investigation”.  The session was attended by nearly 80 participants including Board members, C-suite executives and legal and compliance functions from various insurers.

We are pleased to have received feedback that the webinar has provided practical tips, was very useful and that the speaker is very well-prepared and knows the subject well.

7 November 2022
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