Hong Kong SFC registers 9.6% drop in license applications in Q4’2017

Maria Nikolova

In the quarter, the SFC received 1,924 licence applications, down 9.6% from the preceding quarter and up 7.7% year-on-year.

The Hong Kong Securities and Futures Commission (SFC) has earlier today released its quarterly report for the three-month period to December 31, 2017, showing that the number of new license applications fell in quarterly terms.

In the final quarter of 2017, the regulator received 1,924 licence applications, down 9.6% from the preceding quarter and up 7.7% year-on-year. The number of corporate applications rose 50.8% from the last quarter to 98, up 18.1% year-on-year.

As at 31 December 2017, the number of licensees and registrants totalled 44,169, up 3.5% from last year. The number of licensed corporations grew 10.3% to 2,660. Both were record highs.

The highlights for the quarter include the Guidelines for Reducing and Mitigating Hacking Risks Associated with Internet Trading, which will apply to Forex brokers too. The new rules require all licensed or registered entities engaged in online trading to implement 20 baseline requirements to boost their cybersecurity and to minimize hacking risks.

A key requirement is to implement two-factor authentication for login to clients’ online trading accounts. In addition, the entity should implement monitoring and surveillance mechanisms to detect unauthorised access to clients’ Internet trading accounts. Other requirements concern data encryption of sensitive information such as client login credentials (ie, user ID and password) and trade data during transmission between internal networks and client devices.

The deadline for the implementation of two-factor authentication is April 27, 2018, while all other requirements will take effect on July 27, 2018.

The SFC has come under fire in the latest Annual Report of the Process Review Panel into the regulator’s activities in 2016/17. The regulator was criticized over its clumsy procedures for reviewing license applications and complaints, for lack of appropriate fintech training of staff and poor communication with complainants.

For instance, PRP reviewed nine licensing applications for different types of regulated activities in the year. The processing time of the cases ranged from seven months to seven years and one month. For all these cases being reviewed, PRP raised concerns about how the case officers, their supervisors and the senior management had monitored the case progress.

PRP recommended that the SFC enhances its monitoring of the processing of licensing applications. Specifically, the senior management should be informed of the status of the outstanding applications so that they could provide timely guidance to the case officers if necessary, and ensure that appropriate resources were allocated for effective processing of the applications.

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