SFC’s Consultation Conclusions on Proposals to (1) Implement an Investor Identification Regime and (2) Introduce an Over-The-Counter Securities Transactions Reporting Regime

SFC’s Consultation Conclusions on Proposals to (1) Implement an Investor Identification Regime and (2) Introduce an Over-The-Counter Securities Transactions Reporting Regime

SFC’s Consultation Conclusions on Proposals to (1) Implement an Investor Identification Regime and (2) Introduce an Over-The-Counter Securities Transactions Reporting Regime 1401 789 Louise

Further to our article on the Securities and Futures Commission’s (the “SFC”) consultation on the investor identification regime and an over-the-counter securities transactions reporting regime, on 10 August 2021, the SFC published its Consultation Conclusions on proposals to (1) implement an investor identification regime at trading level for the securities market in Hong Kong and (2) introduce an over-the-counter securities transaction reporting regime for shares listed on the Stock Exchange of Hong Kong (the “HKEx”) (the “Consultation Conclusion”). In summary, the Consultation Conclusion sets out the following proposals that the SFC will implement.

Investor Identification Regime (“IDR”)

The SFC proposed that licensed corporations (“LCs”) and registered institutions (“RIs”, and collectively referred to as “Regulated Intermediaries”) are required to:

  1. assign a “Broker-to-Client Assigned Number” (“BCAN”), a unique identification code to “relevant clients” who have placed or propose to place (i) an on-exchange order or (ii) an off-exchange order reportable to the HKEx in securities listed or traded on HKEx’s trading system. The term “relevant client” generally refers to a direct client of a Regulated Intermediary;
  2. 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 to a data repository to be maintained by SEHK by a prescribed time;
  3. ensure that the relevant client’s BCAN has been included in the order information for each on-exchange and off-exchange order and obtain HKEx’s prior approval where a BCAN needs to be revised in exceptional circumstances; and
  4. 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.

Over-the-counter Securities Transactions Reporting Regime (“OTCR”)

The SFC also proposed that Regulated Intermediaries would be required to report to the SFC certain dealings in ordinary shares and real estate investment trusts listed on the HKEx:

  1. when a Regulated Intermediary, whether as principal or agent, makes a transfer of shares which is effected by a transaction not recorded by HKEx as an on-exchange order or required to be reported to HKEx as an off-exchange trade in respect of which stamp duty is chargeable in Hong Kong;
  2. when there is a deposit to or withdrawal from the Regulated Intermediary, whether as principal or agent, of physical certificates of shares; and
  3. both the delivering and receiving Regulated Intermediaries need to report, by one Hong Kong trading day after the transfer, deposit or withdrawal day.

The SFC will issue an information paper to provide technical details including file specifications, reporting templates and submission channels for the OTCR submission portal by the end of 2021.

To find out more about SFC’s proposals on IDR, OTCR or other SFC regulatory requirements, please contact us today.

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