Update guidance
With regard to KYC, AML, and suitability regulations; the FSDC has recommended that the Securities and Futures Commission (SFC) consolidate and update its guidance.
“Appropriate guidance could include a suggested pro-forma investor risk profiling questionnaire, guidance on non-face-to-face on-boarding, guidance on execution only transactions, and prescriptive guidance on good and poor practice in relation to automated adviser tools,” the report said.
Central repository
Hong Kong should consider creating a central repository for effecting KYC and AML procedures, similar to those launched in India. A central registration agency could create a centralised pool of investor details, meaning that due diligence processes would only have to be carried out once and all market intermediaries could access it.
This would result in greater efficiencies and allow greater AML supervision by the regulators.
Cross-border initiatives
The final recommendation is for the government and regulators to continue to develop new cross-border initiatives that will ultimately facilitate fund distribution in Asia.
The report stated: “Initially, the key focus should be on the development and expansion of mutual recognition of funds (MRF).”
Launched in July 2015 and exclusive to Hong Kong, MRF enables funds to be sold into China (and vice versa) laying the foundation for the strengthening of financial and regulatory ties between the two, leading towards greater integration of the Hong Kong and mainland asset management industry.
“This initiative is expected to secure Hong Kong’s future as a financial centre by making it the preferred location from which international fund managers could market funds into the mainland and for mainland fund managers to distribute funds internationally,” the report added.
The FSDC has also urged the government to continue to participate in the development of the Asian Region Fund Passport debate, as Hong Kong should also look in future to become a fund distribution gateway for the rest of Asia.
