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Welcome to Herbert Smith Freehills’ monthly private wealth industry updates in Asia.

Every month we survey ten Asian jurisdictions for legal developments concerning trust and estate planning which are of interest to the private wealth industry, and provide a succinct summary in a table format.  The jurisdictions covered in the update are Hong Kong, Singapore, China, Taiwan, Japan, India, Malaysia, Indonesia, Thailand and the Philippines. We hope that these updates will prove to be a useful resource to keep private clients, business people, and lawyers abreast of legal updates in the region.

Hong Kong

FATF statements and other sanctions updates

The SFC has published a circular to licensed corporations (LCs), licensed virtual asset service providers (VASPs) and associated entities (ACs) regarding recent updates from the Financial Action Task Force (FATF):

  • Statement identifying high-risk jurisdictions that are subject to a call for action – In light of the Covid-19 pandemic, the FATF has paused the review process for Iran and the Democratic People's Republic of Korea. While the FATF statement issued in February 2020 may not necessarily reflect the most recent status of such jurisdictions' anti-money laundering and counter-financing of terrorism (AML/CFT) regimes, the FATF’s call to apply countermeasures on these high-risk jurisdictions remains in effect.  Further, given the continued lack of progress (with the majority of the action items in relation to Myanmar’s strategic deficiencies still not addressed after a year beyond the action plan’s deadline), the FATF's has called on its members and other jurisdiction to apply enhanced due diligence measures proportionate to the risks arising from Myanmar since October 2022.
  • Updated statement on jurisdictions under increased monitoring – The FATF has added Cameroon, Croatia and Vietnam to this list of jurisdictions.  The FATF will continue to assess the progress made by the jurisdictions on the list in addressing the deficiencies in their AML/CFT systems, LCs, SFC-licensed VASPs and AEs are reminded to refer to the FATF's website for the latest information, including any updated statements.
  • Various outcomes of the FATF plenary held during 21 to 23 June 2023 – They include (among others) the finalisation of the fourth targeted update on the implementation of the FATF standards on virtual assets and VASPs, and the agreement on the release of the updated FATF Best Practices Paper on Combating the Abuse of Non-Profit Organisations and the potential revisions to the FATF Recommendation 8 for public consultation.

The Insurance Authority and the HKMA (to authorised institutions and stored value facility licensees) have also issued circulars regarding the above FATF updates.

The SFC has also issued a circular to provide an early alert regarding amendments to the details of 16 individuals by the United Nations Security Council in relation to its sanction list for Democratic People's Republic of Korea on 30 June 2023. LCs, SFC-licensed VASPs and AEs should update their screening databases with the above changes for sanctions screening of customers and payments. They are reminded to refer to the SFC's circular of 7 February 2018, which sets out the SFC's expectations in respect of the actions they should take regarding sanctions imposed by the UNSC (see our earlier update).

SFC provides further guidance on new Type 13 regulated activity and transitional arrangements and begins accepting licence/registration applications 

The SFC has begun accepting applications for Type 13 regulated activities under a new regime taking effect on 2 October 2024, which will bring depositories of SFC-authorised collective investment schemes under its direct supervision. Depositaries operating in Hong Kong need to submit their applications through WINGS (the SFC’s online submission platform) on or before 30 November 2023.  The SFC will endeavour to complete processing all licence or registration applications submitted by existing depositaries and their representatives by the time when the new regime comes into effect on 2 October 2024.

The SFC concluded its consultation in March 2023 on proposed amendments to subsidiary legislation and SFC codes and guidelines to implement the new regime, and the legislative process was completed on 17 May 2023 (see our previous update). The SFC has issued a circular (with appendix) to the industry to provide additional guidance on the scope of Type 13 regulated activity (in respect of corporate as well as individual practitioners), the regulatory requirements and transitional arrangements.  The HKMA has also issued a circular to bring the attention of authorised institutions to the SFC circular.

Corporate applications should be submitted together with applications for the firms’ proposed responsible officers (ROs) or executive officers (EOs), as the case may be.  All EO applications should be submitted directly to the HKMA according to its procedures.  Other than RO and EO applications, individual practitioners seeking to become licensed representatives of existing depositaries are required to submit their applications to the SFC through WINGS between 1 June 2024 and 31 July 2024.  Where there are individuals who are seeking to become "relevant individuals" upon the commencement of the new regime, authorised institutions should submit the specified particulars of such individuals to the HKMA within the same period for inclusion in the HKMA register.

Government establishes Task Force on Promoting Web3 Development

The Government has announced the establishment of the Task Force on Promoting Web3 Development, chaired by the Financial Secretary. The task force comprises 15 non-official members from relevant market sectors, as well as key government officials and heads of financial regulators (the SFC, the HKMA, the Insurance Authority and the HKEX). The market responded favourably to the Government's policy statement on the development of virtual assets published in October 2022 (see our previous update).  As virtual assets are an integral part of a vibrant Web3 ecosystem, the Financial Secretary announced the establishment of the task force in the 2023-24 Budget (see our previous update) to provide recommendations on the sustainable and responsible development of Web3 in Hong Kong.

SFC reprimands and fines licensed corporation HK$3.4 million for regulatory breaches and internal control failures relating to segregation of client money and provision of information to clients

The SFC has reprimanded and fined Changjiang Asset Management (HK) Limited (CJAM) HK$3.4 million over its regulatory breaches and internal control failings relating to segregation of client money and provision of statements of accounts to clients. The SFC found that at various times within the period from May 2015 to August 2017, CJAM had:

  • Under-segregated client money to the extent of HK$300 to HK$1.05 million on multiple occasions;
  • Failed to segregate client money it had received in amounts ranging from HK$651,518 to HK$8.5 million within the prescribed time limit on three occasions;
  • Failed to immediately notify the SFC after it became aware of its under-segregation of client money;
  • Issued inaccurate statements of accounts to three clients; and
  • Failed to provide statements of accounts to four clients within the prescribed time limit on 19 occasions.

The above constituted breaches of various requirements under the SFC's main code of conduct, the Securities and Futures (Client Money) Rules and the Securities and Futures (Contract Notes, Statements of Account and Receipts) Rules.

HKMA and SFC provide guidance on streamlined approach for compliance with suitability obligations when dealing with sophisticated PIs 

In light of questions and feedback from intermediaries, the HKMA and the SFC have issued a joint circular to provide guidance on compliance with suitability obligations when dealing with sophisticated professional investors (PIs) who possess higher levels of net worth and knowledge or experience.

Suitability assessment is a risk-based process which involves intermediaries matching investment products with the personal circumstances and risk tolerance of the client.  On 23 December 2020, the HKMA and the SFC updated their FAQs on investor protection measures and suitability obligations (see HKMA circular and FAQs / SFC circular and FAQs).  The HKMA and the SFC consider it useful to provide intermediaries with further guidance on applying a proportionate and risk-based streamlined approach when dealing with sophisticated PIs – see detailed guidance and FAQs.

  • To ascertain whether a client qualifies as a sophisticated PI, an intermediary may rely on information obtained during onboarding or know-your-client reviews.  If an intermediary is satisfied that the client exhibits the degree of sophistication and loss absorption ability of a sophisticated PI, it may apply the streamlined approach to allow the PI to set aside an appropriate amount for investment in a portfolio of investment products with various risk return profiles (including high-risk investment products).
  • Essentially, the streamlined approach means that the intermediary is not required at a transactional level to match the sophisticated PI's risk tolerance, investment objectives and investment horizon, or to assess his/her knowledge, experience and concentration risk.  Explanation of product characteristics, nature and extent of risks could also be provided to him/her upfront.
  • Intermediaries should ensure they have effective systems and controls in place to prevent misuse arising from the application of the streamlined approach.

HKMA Chief Executive discusses plans to further enhance Bond Connect in keynote speech 

The HKMA's Chief Executive, Mr Eddie Yue, gave a keynote speech (in Chinese) at the Bond Connect Anniversary Summit 2023 on 4 July 2023.

Mr Yue commented on the success of the Bond Connect and the enhancements made so far, and provided an overview of the HKMA's plans for further enhancements going forward:

  • Enriching the risk management toolbox for Northbound investors – The HKMA will work with Mainland regulators to study the launch of offshore government bond futures to attract more medium to long-term institutional investors to the Mainland bond market and promote Hong Kong's development as an international risk management centre.  It will also study the introduction of arrangements that are common in the bond market to improve liquidity, such as repurchase arrangements.
  • Enhancing the operation of Southbound Connect – The HKMA plans to expand the scope of market makers to further enhance secondary market liquidity.
  • Upgrading the Central Moneymarkets Unit (CMU) debt instrument settlement system and promoting its development into a major international central securities depository platform in Asia – This includes (among others) further strengthening cooperation with the Mainland with regard to financial infrastructures, and implementing a two-way automated docking system with the Shanghai Clearing House within the year to further enhance cross-border settlement efficiency.

SFC CEO delivers keynote address on significance of ISSB's IFRS Sustainability Disclosure Standards for Hong Kong

The SFC has published a synopsis of a keynote discussion involving its CEO, Ms Julia Leung, at the CPA Congress hosted by the Hong Kong Institute of Certified Public Accountants (HKICPA) on 15 July 2023. Ms Leung examined the significance of the International Sustainability Standards Board (ISSB)'s new International Financial Reporting Standards Sustainability Disclosure Standards (see our previous updates here and here) for Hong Kong as an early mover in sustainable finance and an international financial centre.

  • Hong Kong has made a first move in adopting the ISSB standards, with The Stock Exchange of Hong Kong Limited's recent consultation on proposed climate-related reporting requirements for listed companies. The proposals aim to align the requirements with the ISSB standards and also provide proportionality measures for adoption (these were proposed even before the ISSB finalised its standards).
  • Transition finance is another reason why the ISSB standards are significant for Hong Kong.  Enabling local financial institutions and listed companies to be well-versed in the ISSB standards would be important for strengthening Hong Kong's role in intermediating capital from the West.
  • Ms Leung welcomed the HKICPA's initiative to become the local sustainability disclosures standard setter.  A local standard-setter with a robust governance framework and proper oversight would provide accountability and credibility to standard-setting.  A key part of the standards’ implementation will be an assurance framework to increase the trust and credibility of the information disclosed. To establish this framework, Hong Kong should take into account the International Auditing and Assurance Standards Board's profession-agnostic assurance standards. The most difficult and important last piece to support the standards’ implementation would be enriching the local data infrastructure and accelerating the use of technology.
  • Data availability and quality are a common concern for companies worldwide, but the reporting journey must start somewhere. Once the SEHK's proposed disclosure requirements are finalised, they will help get ISSB standards adoption off to a good start. The integration of technology into sustainability reporting is one area that needs to be built into the ecosystem.
  • The future of finance will have many technology-enable elements.  The SFC strives to ensure that Hong Kong has both the financial infrastructure and policy framework to enable responsible innovation.  The recently implemented virtual asset trading platform licensing regime comes with rigorous requirements to ensure investor protection.  The accounting and auditing profession plays a crucial role in verifying the existence of virtual assets and auditing smart contracts and other technologies in the virtual space.

SFC welcomes IOSCO endorsement of IFRS Sustainability Disclosure Standards 

The SFC has welcomed the endorsement by the International Organisation of Securities Commissions (IOSCO) of the International Financial Reporting Standards (IFRS) Sustainability Disclosure Standards published by the International Sustainability Standards Board (ISSB). The Sustainability Disclosure Standards were published by the ISSB on 26 June 2023, and aim to serve as a global framework for investor-focused corporate sustainability disclosures (see our previous update).  IOSCO's membership comprises securities regulators in over 130 jurisdictions, and its endorsement signals to its members to adopt, apply or make reference to the standards in addressing sustainability-related risks and opportunities.The SFC will work with relevant Government bureaux, other financial regulators and The Stock Exchange of Hong Kong Limited (SEHK) to develop a comprehensive roadmap for the adoption of the ISSB standards in Hong Kong.  The SEHK has already made a start – its proposed disclosure requirements for listed companies in its April 2023 consultation (see our previous update) made reference to the ISSB’s exposure draft for climate-related disclosures and its further deliberations.  The final SEHK requirements will take account of the ISSB consultation responses and the final standards.


MAS proposes framework for Digital Asset Networks

MAS has published a report proposing a framework for designing open, interoperable networks for digital assets. The report was jointly developed with subject matter experts at the Bank for International Settlements’ (BIS) Committee on Payments and Market Infrastructure (CPMI), with contributions from participating financial institutions. The report is part of MAS’ effort to ensure that emerging digital asset networks are underpinned by international standards which promote safe and efficient financial market infrastructure.

MAS publishes investor protection measures for DPT services

Following an October 2022 consultation on regulatory measures to enhance investor protection and market integrity in Digital Payment Token (DPT) services. The Monetary Authority of Singapore (MAS) has announced new requirements for DPT service providers to safekeep customer assets under a statutory trust before the end of the year. The new measures aim to mitigate the risk of loss or misuse of customers’ assets, facilitate the recovery of customers’ assets in the event of a DPT service provider’s insolvency and restrict DPT service providers from facilitating lending and staking of DPT tokens by their retail customers. Additionally, MAS has published a consultation, closing on 3 August 2023, on the draft legislative amendments to the Payment Services Regulations (PSR) to put these requirements into effect. It also intends to publish guidelines in due course to support consistent implementation by the industry.

MAS: Management of ML/TF and sanctions risks from customer relationships with nexus to digital assets

MAS has published a paper produced by the Digital Assets Risk Management Group, a working group established under the AML/CFT Industry Partnership (ACIP) for the purpose of defining and sharing best practices on the management of money laundering and terrorism financing (ML/TF) and sanctions risks arising from customer relationships with a nexus to digital assets. The paper aims to provide financial institutions with a foundational framework to advance understanding and management of ML/TF and sanctions risks in the Singapore context by:

  • presenting a high-level overview on the classes of digital assets and proposing risk factors for assessing relevance of digital assets from the AML/CFT perspective;
  • identifying the possible types of customer nexus to digital assets such as cryptocurrencies and analysing the underlying risk profiles; and
  • clarifying risk management objectives and assessing incremental risk management capabilities required to manage these associated risks.

MAS consults on code of conduct for providers of ESG ratings and data products

MAS has launched a consultation on an industry code of conduct for providers of ESG ratings and data products. The proposed code of conduct, co-created by MAS with industry, aims to establish minimum industry standards of transparency in methodologies and data sources, governance, and management of conflicts of interest. ESG ratings help provide an assessment of the impact of ESG factors on an entity. ESG data products provide information on the various ESG factors, customised to specific needs. Responses to the consultation are requested by 22 August 2023.

MAS releases toolkit for use of AI in Financial Sector

MAS has announced the release of an open-source toolkit for the responsible use of AI in the financial industry. The Veritas Toolkit 2.0, developed by an MAS-led consortium of 31 industry players, aims to help financial institutions (FIs) carry out the assessment methodologies for the Fairness, Ethics, Accountability and Transparency (FEAT) principles. The FEAT principles provide guidance to firms offering financial products and services on the responsible use of AI and data analytics. The consortium also published a white paper detailing the key lessons learnt by seven FIs which piloted the integration of Veritas methodology with their internal governance framework.

SGX RegCo and ACRA consult on climate reporting

Singapore Exchange Regulation (SGX RegCo) and the Accounting and Corporate Regulatory Authority (ACRA) have launched a consultation on the recommendations by the Sustainability Reporting Advisory Committee (SRAC) to advance climate reporting in Singapore. The recommendations require listed issuers to lead the way and report International Sustainability Standards Board (ISSB)-aligned climate-related disclosures (CRDs) starting from FY2025. Large non-listed companies with annual revenue of at least $1 billion will follow suit in FY2027. Responses to the consultation are requested by 30 September 2023.


MAS proposes framework for Digital Asset Networks

MAS has published a report proposing a framework for designing open, interoperable networks for digital assets. The report was jointly developed with subject matter experts at the Bank for International Settlements’ (BIS) Committee on Payments and Market Infrastructure (CPMI), with contributions from participating financial institutions.

The report is part of MAS’ effort to ensure that emerging digital asset networks are underpinned by international standards which promote safe and efficient financial market infrastructure.


SEBI Master Circulars – InvITs, REITs, Debenture Trustees

SEBI has issued a number of Master Circulars; Master Circulars typically consolidate applicable circulars released by SEBI over time into a single document. The Master Circulars issued on 6 July are:

EBI circulars – preferential issue and institutional placement of units by listed InvITs and REITs

SEBI has issued circulars setting out amendments to guidelines for preferential issue and institutional placement of units by listed InvITs and REITs. Both circulars are applicable with immediate effect.

SEBI: New category of mutual fund scheme for ESG investing

SEBI has issued a circular addressed to all mutual funds, all asset management companies and all trustee companies / boards of trustees of mutual funds, among others, regarding the introduction of a new sub-category for  ESG  investments under  the  thematic  category  of  equity  schemes.

SEBI: Mandating LEI for non-individual FPIs

The Securities and Exchange Board of India (SEBI) has issued a circular on the requirement of providing legal entity Identifier (LEI) details for all non-individual foreign portfolio investors (FPIs). All existing FPIs, including those applying for renewal, that have not already provided their LEIs to their designated depository participants must do so within 180 days from the date of issuance of the circular, failing which their account will be blocked from further purchases until LEIs are provided.


BOT and SECT announce released of Thailand Taxonomy Phase 1

The Bank of Thailand (BOT) and the Securities and Exchange Commission, Thailand (SECT) as co-chairs of the working group to drive the definition and classification of projects or activities in the sustainable economic sector have released the standard for grouping economic activities that take into account the environment (Thailand Taxonomy), Phase 1.

The BOT and the SECT are scheduled to hold a seminar on Thailand Taxonomy: New Rules for a Sustainable World on Wednesday, July 5, 2023 which will be live broadcast on the BOT's and the SEC's Facebook channels.


OJK rolls out new regulation on anti-money laundering (AML), counter-terrorism financing (CTF) and counter-proliferation financing (CPF) in the financial services sector

On 14 June 2023, the Financial Services Authority (Otoritas Jasa Keuangan or "OJK") issued OJK Regulation No. 8 of 2023 on the Implementation of AML, CTF and CPF Program in the Financial Services Sector ("OJK Regulation 8/2023"), revoking OJK Regulation No. 12/POJK.01/2017 on the same subject (as amended, "OJK Regulation 12/2017") (both in Indonesian language). Set out below are the key changes introduced by OJK Regulation 8/2023.

  • Reporting financial institutions ("reporters") are now itemised. OJK Regulation 12/2017 previously categorised reporters into 3 broad categories (i.e. banking, capital markets and non-bank financial institutions). Now, OJK Regulation 8/2023 lists out all 18 types of reporters. See the end of this write-up for the full list.
  • Reporters are required to prepare annual individual risk assessment (IRA) on AML, CTF and CPF risks.
  • Reporters can block a customer's account without prior notice in the event that such customer's (or its beneficial owner's) information matches a blocked person's. This is in order to mitigate sanction evasion.
  • Reporters must engage third-party professionals that implements AML, CTF and CPF and registered in the Indonesian Financial Transaction Reports and Analysis Centre (INTRAC).
  • failure to comply with the various obligations set out under OJK Regulation 8/2023 are subject to sanctions such as written reprimands, administrative fines, a downgrade of financial soundness assessment, limitation and/or suspension of certain activities, as well as the prohibition to become a key person of a financial institution.
  • OJK Regulation 8/2023 no longer imposes dismissal of financial institutions management and/or the inclusion of key persons of financial institutions in OJK’s blacklist.

A full list of reporters can be seen below. Notable additions are trustees and IT-based crowdfunding platform operators.

Banks 10. Multifinance companies
Securities companies 11. Venture capitals
Investment managers 12. Infrastructure financing companies
Custodians 13. Indonesian Eximbank
Trustees 14. Pawnshops
IT-based securities crowdfunding companies 15. Micro financial institutions
Insurance companies 16. IT-based P2P lending companies
Insurance brokerages 17. other IT-based financial institutions
Pension funds 18. other persons under the OJK's purview that accept funds, provide funding, manage funds

OJK 8/2023 enters into full force and effect as of 14 June 2023. Existing reporters must adjust their AML, CTF and CPF program to comply with OJK Regulation 8/2023 within 6 months thereafter.


BSP issues first Sustainability Report

The BSP has released its inaugural Sustainability Report. The Report details how the BSP, consistent with its primary mandates of maintaining price stability and promoting financial stability, is working to integrate environmental, social and governance (ESG) considerations into its strategic objectives and functions. The Report also outlines the BSP's engagement in national and international dialogues on sustainable finance, as well as setting out initiatives in the pipeline and future plans in pursuing the sustainability agenda. These include the development of a taxonomy, grant of regulatory incentives to promote financing to sustainable projects and investments, and enhancements to stress testing guidelines, prudential reports, and disclosure requirements. The BSP will also build up initiatives promoting inclusive green finance as it recognizes the benefits to vulnerable sectors such as the micro, small, and medium enterprises in line with the interrelated objectives of promoting sustainable finance, digitalization, and financial inclusion.

The Report was prepared with reference to the Task Force on Climate-Related Disclosures (TCFD) recommendations and the Network for Greening the Financial System (NGFS) Guide on Climate-related Disclosures for Central Banks.

The contents of this document are for reference purposes only. Some of the information comes from public sources and this may not be comprehensive, accurate or up to date; where we have relied on third party information and sources, this has not been verified by us. The document does not constitute legal advice, and should not be relied upon as such. Specific legal advice about your specific circumstances should always be sought separately before taking any action based on this publication, and any facts in this document should be checked for your specific circumstances at the time you wish to use or refer to them.

Key contacts

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Richard Norridge

Partner, Head of Private Wealth and Charities, London

Richard Norridge
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Anna Sutherland

Managing Partner, Disputes, Sydney

Anna Sutherland