Fund firms struggle with SFC’s responsibility regime

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A number of firms are still finding it difficult to comply with Hong Kong’s manager-in-charge (MIC) regime.

The SFC introduced the MIC regime in December 2016. It requires fund managers and distributors operating in Hong Kong to identify key staff as responsible agents for certain areas, such as operations, risk management, information technology and compliance. The regime took effect in October 2017.

“The regulator’s goal was to ensure that people who were being paid for being responsible for a certain function took ownership of that function,” said Jane McBride, Hong Kong-based partner at law firm Deacons McBride at a recent media event.

Julia Leung, the SFC’s executive director for intermediaries, explained previously that before the MIC regime, firms appointed at least two responsible officers who were accountable for good governance and proper behaviour.

Some individuals are not licensed as representatives, for example those who manage functions in information technology or risk management. They may not be aware that they are subject to the SFC’s disciplinary powers, she said.

The managers-in-charge initiative should heighten the awareness of individuals of their obligations and liability under the law, regardless of whether or not they are licensed.

Still difficult

Although the MIC was implemented in 2017, a number of firms are still finding it difficult to comply with the new rules, according to Deacons’ McBride.

“Some firms are still pretty naïve when preparing for an SFC inspection, in which they actually prepare two organisational charts to show the SFC, which are the real organisational chart that shows everybody’s reporting lines, and the MIC chart.

“The advice that I am giving is to merge these two charts,” McBride said.

She explained that some firms are still struggling with the idea of the MIC. In some cases an individual is not considered senior within the firm but is actually responsible for a particular function.

“The tendency for financial institutions is pretty much only having the senior front office staff making management decisions. [With the MIC], some clients are struggling because certain individuals are [suddenly considered senior], and that is still not the way they think of it.”

McBride expects that the SFC will be publicly issuing MIC-related enforcement actions shortly.

“Once those hit the press, it will give us more clarity as to what the SFC has focused on in the early days of enforcement within the MIC regime, such as the types of firms [targeted] and the types of deficiencies.

“My view is that the enforcement actions that we will see will not be so much about someone not doing the right filing on time. It will be because the SFC has identified a deficiency in a particular area.”

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