Hong Kong’s SFC issues circular regarding new measure for protection of client assets

Maria Nikolova

To strengthen the safeguarding of client assets, a standardised acknowledgement letter is to be adopted and signed by intermediaries and authorised institutions.

Hong Kong’s Securities and Futures Commission (SFC) has earlier today issued a circular to intermediaries reminding them of their obligations to comply with the requirements under the Code of Conduct when they are in possession or control of client assets. Paragraph 11.1(a) requires intermediaries to ensure that client assets are adequately safeguarded.

The SFC has become aware that in some cases the standard Terms and Conditions entered into between intermediaries and authorised institutions (AIs) with respect to current, deposit or securities accounts that are client or trust accounts contain clauses which grant AIs a right of set-off or lien. The regulator explains that such clauses are fundamentally incompatible with the requisite standard of protection afforded to client assets under the Code of Conduct.

To improve the safeguarding of client assets, a standardised acknowledgement letter is to be adopted and duly signed by both intermediaries and Ais.

The key elements of the acknowledgement letter include the notification of purpose clauses, the no-recourse clause and the conflict clauses.

The no-recourse clause in the letter template prohibits recourse against client assets in Client Asset Accounts. For the avoidance of doubt, in case of an issuer’s default, clawback by AIs of prepaid dividends or interest in respect of the issuer’s securities would not be considered as recourse against client assets for the purposes of this requirement. In addition, the no-recourse clause does not apply to any recourse against assets required by legislation or court order.

The letter template also clarifies that in the event of any conflict between the client asset acknowledgement letter and any other agreement between the parties in connection with the Client Asset Accounts, the client asset acknowledgement letter shall prevail.

The client asset acknowledgment letter is applicable to and required for the following types of Client Asset Accounts which are opened with AIs in the name of intermediaries:

  • (a) accounts for holding client money;
  • (b) accounts for holding client securities; and
  • (c) accounts for holding non-repledged clients’ securities collateral.

To comply with this requirement, intermediaries shall prepare and sign client asset acknowledgement letters, and then obtain countersignatures from the appropriate AI. Intermediaries are required to have the countersigned letters in place before depositing any client money or securities into any new Client Asset Accounts. The transition period for implementing this requirement ends on July 31, 2020, where the SFC expects the countersigned letters are in place for all applicable Client Asset Accounts.

Read this next

Digital Assets

DappRadar report: NFTs volume below $1 billion for the first time since June 2021

DappRadar’s July 2022 industry report found that blockchain games and their NFTs remain resilient amid a crypto winter accentuated by the debacle of Terra.

Digital Assets

Blockchain.com registers to operate crypto business in Italy

Blockchain.com had registered as a digital asset provider in Italy, following in the tracks of rivals who joined a special registry with brokerage regulator Organismo degli Agenti e dei Mediatori (OAM).

Digital Assets

Binance rolls out crypto card in Argentina with 8% cashback

Binance is launching its crypto debit card in Argentina, the first country in Latin America to have the product thanks to a partnership with Mastercard.

Digital Assets

Greece sends BTC-e operator Alexander Vinnik to US

Alexander Vinnik, an alleged Russian hacker accused of laundering $4 billion of criminal proceeds through BTC-e, has been extradited from Greece to the United States.

Retail FX

Saxo Bank reports weakest FX volume in 6 months

As many traders were away on annual summer leave, currency markets saw a relatively quiet period in July. Within that context, Copenhagen-based Saxo Bank has reported its monthly metrics, which showed a renewed decline month-over-month.

Market News

The Week Ahead: 5 August from David Madden, Market Analyst at Equiti Group

It has been an interesting week and despite a lot of negative news, equity markets enjoyed a positive run. US House Speaker, Nancy Pelosi, defied the warnings from the Chinese government and carried out a visit to Taiwan. The Beijing authorities moved military hardware close to the self-governed island to flex its muscles. Stock markets came under a little pressure as a result and risk-off assets like the Japanese yen and gold found themselves in high demand.

Opinion

Alina Strogonova of Muvon Payments: How Can Fintech Optimise Payments

Financial services in their conventional form are obsolete, according to fintech startups. New-age finance is constantly redesigning electronic money transactions and testing innovative solutions.

Digital Assets

No need for CFDs: BitMEX introduces leveraged FX perpetual swaps

Previously retail FX trading was mostly possible via CFDs (contract for difference). BitMEX’s FX perps allow both retail users and institutional traders to access FX markets through an exchange-traded contract.

Digital Assets

BEQUANT launches index measuring dollar against crypto

“Our research team has worked hard to quantify and capture the latest economic story into the broader crypto market.”

<