Asia Risk and Compliance Newsletter - Issue 7

Asia Risk and Compliance Newsletter - Issue 7

Welcome to the latest edition of Protiviti’s Asia-Pacific Risk and Compliance Insights. In this bimonthly newsletter, we provide a summary of some of the important risk and compliance developments across the Asia-Pacific financial services sector.

Recent developments include Hong Kong’s Securities & Futures Commission enforcement action resulting from regulatory misconduct and a regulatory market update related to bitcoin futures; Singapore’s consultation on the new regulatory framework for payments; Japan’s moves towards reforming its regulatory approach; and Australia’s establishment of the Australian Financial Complaints Authority.

Round-up of Regional Updates in Asia-Pacific


HSBC Private Bank (Suisse) was fined HK$400 million (US$ 51.2 million) by the Securities and Futures Commission (SFC) for material systemic failures relating to the sale of structured products linked to Lehman Brothers notes. In addition to the substantial financial penalty, the SFC suspended the bank’s license to advise on securities and to deal in certain securities for one year.
The bank’s systems and controls for selling structured products fell significantly short of the standards set by the SFC. In combination with flawed practices and intrinsically high-risk products, the bank’s failures allegedly magnified the risk and occurrence of significant losses for customers.

The Hong Kong Monetary Authority (HKMA) has issued a circular informing authorized institutions (AIs) of two updated statements from the Financial Action Task Force (FATF) regarding the Democratic People’s Republic of Korea (DPRK) and Iran.

The FATF remains concerned by the DPRK’s failure to address the significant deficiencies in its anti-money laundering (AML) and counter- terrorist financing (CFT) regime and the threat posed by the DPRK’s illicit activities related to the proliferation of weapons of mass destruction and related financing. HKMA advised AIs to give special attention to business relationships and transactions associated with the DPRK and subject them to increased scrutiny and enhanced due diligence. AIs are also advised to terminate correspondent relationships with DPRK banks where required by relevant United Nations Security Council Resolutions.

In light of Iran’s demonstration of its political commitment and the steps it has taken to address its strategic AML/CFT deficiencies, the FATF decided to continue the suspension of counter- measures in June 2017. The FATF will assess the progress made by Iran and take appropriate actions at the FATF meeting in February 2018. The task force remains concerned with the terrorist financing risk and threat emanating from Iran. HKMA has advised AIs to continue to apply enhanced due diligence to business relationships and transactions with natural and legal persons from Iran.

Meanwhile, in January 2018, Sigal Mandelker, under secretary of the US Treasury for terrorism and financial intelligence, warned Hong Kong officials that they should tighten rules to deter people from areas such as North Korea, from setting up shell companies in the territory in a bid to avoid sanctions.

As Hong Kong investors may soon be able to trade bitcoin futures contracts (bitcoin futures) through certain well-established futures and commodities exchanges in the United States, the SFC issued a circular to remind intermediaries of their legal and regulatory requirements for providing financial services in relation to bitcoin futures.

Bitcoin futures share the features of a conventional “futures contract, ” which means that although the underlying assets in bitcoin futures are not regulated under the Securities and Futures Ordinance (SFO), bitcoin futures that are traded on and subject to the rules of those exchanges are regarded as “futures contracts” for the purposes of the SFO.

The SFC reminded parties dealing in bitcoin futures that business are required to be licensed for Type 2 regulated activity (dealing in futures contracts) under the SFO. The SFC also expects intermediaries to observe suitability requirements and conduct requirements in relation to providing services in derivative products to clients.

The SFC has fined Standard Chartered Securities (Hong Kong) HK$2.6million (US$330,000) for internal control failures concerning short selling orders and for breach of the securities and futures (financial resources) rules.

The SFC maintained that Standard Chartered was in breach of the code of conduct as well as management, supervision and internal controls guidelines.

SFC took into account the duration of the failures and the firm’s cooperation when setting the financial penalty. Standard Chartered has already taken steps to rectify the financial resources rules breach and has improved its short selling internal control systems.

The HKMA has engaged a service provider to conduct a mystery shopping program to assess whether authorized institutions are in compliance with HKMA guidance and requirements during the account opening processes. The program will focus on the firms’ interaction with the customer when opening accounts for small and medium-sized enterprises and ethnic minority customers. It will help assess the adequacy and effectiveness of the measures adopted by authorized institutions to improve customer interfacing.


The Monetary Authority of Singapore (MAS) and the China Securities Regulatory Commission (CSRC) agreed to strengthen supervisory cooperation and facilitate the development of their capital markets, during the 2nd MAS- CSRC Supervisory Roundtable held in Singapore on 31 October 2017.
The roundtable is one of the key outcomes of President Xi Jinping’s state visit to Singapore in 2015, which called for securities regulators from both sides to hold regular high-level dialogue sessions. This second edition builds on the success of the inaugural roundtable held in Chongqing, China in April 2016.

In late November, the MAS launched a second consultation on its proposed payments regulatory framework, known as the Payment Services Bill. The bill proposes to streamline the regulation of payment services under a single legislation, expand the scope of regulated payment activities to include virtual currency services and other innovations, and calibrate regulation according to the risks posed by these activities.

The MAS has clarified that European investors in Singapore-listed stocks that are dual-listed in Europe can continue to transact without being affected by the European Union's new financial markets regulation, the Markets in Financial Instruments Directive II (MiFID II), which entered into force on 3 January 2018.

Bitcoin is not a currency, says MAS
(Published 20 December 2017)

As bitcoin continues its high volatility trading, the MAS has issued a strong warning to would-be investors to act with "extreme caution" and understand the significant risks of choosing to invest in cryptocurrencies.

This follows similar warnings issued by other regional regulatory bodies against bitcoin and other forms of cryptocurrency coin offerings.


The JFSA has published points from its “Strategic Directions and Priorities 2017-2018” document, which summarizes the key policy goals the agency aims to attain during the 2017–2018 period. The outlook provides details all on covered regulated entity types and shares comments on the planned approach for elements of global regulatory reform.
Also included is an overview of future aspirations and new supervisory approaches the JFSA intends to utilize going forward in achieving the outlined priorities.

The Commonwealth Treasury of Australia has proposed that APRA be granted new regulatory powers to disqualify individuals (from APRA- regulated institutions), greater authority in shaping remuneration policies of authorized deposit-taking institutions (ADIs) and the ability to levy civil penalties of up to $200 million for ADIs with total liabilities of greater than $100 billion ($50 million for smaller ADIs).

Public submissions in response to this consultation paper closed on August 3, 2017. APRA will now review these responses and determine whether it will make any changes to the regime as proposed. 


The Australian Prudential Regulation Authority (APRA) has released its submission to the Senate Economics Legislation Committee’s Inquiry into the Treasury Laws Amendments (Banking Executive Accountability and Related Measures) Bill 2017, which will apply to all Authorized Deposit- taking Institutions (ADI) from 1 July 2018.

The submission focused on how the Banking Executive Accountability Regime (BEAR) “enhances and builds upon existing pillars of APRA’s prudential framework.” APRA expressed the following key points in the submission:

  • The BEAR has the potential to streamline the existing Fit and Proper Framework (CPS 520) to avoid duplication
  • The BEAR requirements are to be met by all ADIs by 1 July 2018
  • Desire exists to extend aspects of the BEAR to other APRA regulated entities
  • APRA reconfirmed that it will not be responsible for vetting proposed accountable persons for ADIs

On 14 September 2017, the Australian Government introduced new legislation to establish a new body called the Australian Financial Complaints Authority (AFCA).

AFCA will deal with financial system complaints that have been previously dealt with by the Financial Ombudsman Service, Credit and Investments Ombudsman and the Superannuation Complaints Tribunal.

A consultation paper was released by the AFCA Transition Team and closed on 20 November 2017. The consultation feedback will provide the basis for any further advice to the Minister for Revenue and Financial Services on the authorization of AFCA. The AFCA will commence from 1 July 2018.

All providers of financial and credit services are required to become members of the AFCA and pay the associated fees by the commencement date. The providers should start hosting internal discussions and be prepared to revisit existing complaint handling policies and procedures when AFCA’s draft terms of reference are finalized.

The Australian Government announced a Royal Commission into misconduct in the banking, superannuation and financial services industry in order to provide assurance on the integrity of Australia’s financial services. The Royal Commission will also consider how well equipped regulators are to identify and address misconduct.

The Royal Commission will provide an interim report by September 2018 and final report within 12 months.

On 20 December 2017, the Australian Government issued a paper for public consultation in relation to the rules governing the early release of superannuation benefits, which have not changed substantially since 1997. The review is undertaken to ensure that Australia’s superannuation arrangements remain fit for purpose and serve the interests of consumers.

Key issues under consideration include, but are not limited to: the rapid increase in the use of superannuation for medical treatment; whether the mortgage foreclosure ground should be extended to rental eviction; whether the current rules for release on grounds of severe financial hardship appropriately balance between the need for simplicity and consistency with fairness; and whether an offender’s superannuation should be available to pay compensation or restitution to victims of crime.

The submission deadline is 12 February 2018. The Treasury will make recommendations to the Australian Government in early 2018.

Australian Transaction Reports and Analysis Centre (AUSTRAC) has issued a consultation to amend AML and CTF Act to include regulation covering digital currency exchange providers. This regulation will be in the form of mandatory registration and compliance obligations, including.

  • Customer identification and due diligence
  • Adopt and maintain an AML/CTF program, which includes requirements to identify, manage and mitigate money laundering and terrorism financing (ML/TF) risk
  • Suspicious matter reporting
  • Threshold transaction reporting
  • Record-keeping requirements

The expansion of the legislation shows the Australian government recognizes the increasingly important role digital currencies play in the modern economy. The public consultation closes on 13 February 2018.


Mark Burgess
[email protected]
Mike Purvis
[email protected]
Ronita Dutta
[email protected]

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