|Nicholas Chang||Linette Zhang Xiao Lin|
One of the key changes made by the central bank is the extension of the statutory obligations to ensure effective control and segregation of duties to mitigate conflicts of interest that may arise from the operations of a capital markets services (CMS) licence holder or a licensed financial adviser to the CMS licence holder or financial adviser, respectively. Under the present law, these statutory obligations are imposed on a director and chief executive officer of a CMS licence holder or a financial adviser only. The central bank found that the control failures are often not solely attributable to chief executive officers and directors. The proposed amendments therefore seek to extend these statutory obligations to CMS licence holders, together with their directors and senior management to ensure proper institutions and implementation of risk management and compliance systems.
The securities law requires financial institutions dealing in securities, trading in futures contracts and carrying out leveraged foreign exchange trading to maintain certain written records upon receiving a customer's order, such as records of the particulars of the customer's instructions and the time of receipt of the order. The proposed amendments seek to strengthen the level of record keeping in respect of orders made over internet-based trading platforms by requiring the recording and maintaining of the internet protocol address from which orders are received. The recording of such details will help in maintaining a proper audit trail of orders received by the financial institutions, and may be useful in resolving issues or disputes concerning orders placed in the customer's accounts. This requirement will serve to protect the interests of the customers and financial institutions.
The proposed amendments also seek to tighten the scope of exemption from the requirement to hold a CMS licence when providing fund management services to a so-called 'connected person'. This exemption is only available for individuals managing funds on behalf of their immediate family members. It is noted by the central bank that some persons have been operating under the current exemption to conduct fund management services on behalf of non-family members, which is not in conjunction with the intent of the exemption.
The central bank also intends to enhance disclosures relating to an offer of asset-backed securities, which are relevant to investors' investment decisions. The proposed amendments require disclosures in any form of due diligence (including any review, verification or assessment in relation to underlying assets undertaken by the issuer, sponsor, originator, underwriter or any third party) and disclosure of the use of derivative contracts.
The central bank will have greater power and flexibility under the proposed amendments in offering compositions for breaches of certain business conduct requirements. A public consultation in response to the proposed amendments was conducted between December 6 2012 and January 4 2013.
Nicholas Chang and Linette Zhang Xiao Lin
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