Extended period for visiting professionals
The Securities and Futures Commission (SFC) has announced in its circular of 15 July 2025 an enhanced measure to facilitate visiting professionals from overseas group companies of licensed corporations or virtual asset service providers to conduct regulated activities or provide virtual asset services (VA services) in Hong Kong.
These professionals can apply for an itinerant professional (ITP) representative licence to conduct regulated activities as defined under the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong) or to provide VA services as defined under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (Chapter 615 of the Laws of Hong Kong) in Hong Kong for a limited period. Previously, ITPs were allowed to conduct regulated activities or provide VA services for up to 30 days annually and their licences will be imposed with a condition to this effect, but the SFC has extended this to 45 days per calendar year to offer greater flexibility. Existing ITPs will have their relevant licence condition updated to reflect this extended period. Other requirements, exemptions and features and the applicable process shall remain unchanged, as outlined in the Licensing Handbook or the Licensing Handbook for Virtual Asset Trading Platform Operators as applicable.
We welcome this development which offers greater flexibility for overseas professionals to conduct the regulated activities or provide VA services in Hong Kong, fostering increased collaboration within the financial services sector and supports Hong Kong’s position as a global financial hub.
Disciplinary action against substandard conduct in fund management practice
The SFC has once again sent a strong deterrent message to the industry that substandard fund management practices will not be tolerated, by taking an enforcement action against a former responsible officer (RO) of a former Type 9 licensed corporation (LC), banning him from returning to the industry from nine years and fining him for HK$350,000.
The SFC found that the LC recommended and procured a fund under its management (Fund) to enter into three loan transactions at the material times, in breach of its duties to act in the best interests of the Fund and to manage actual or potential conflicts of interests. Such breaches were found to be attributable to the RO’s failure to discharge his duties as an RO and a member of the LC’s senior management, as summarised below:
- Insufficient due diligence: for one of the loans, the LC did not obtain finalised valuation report for the collateral or seek legal advice regarding enforceability of the pledge. The ownership of the asset for which the loan proceeds were intended to be used to invest in was not verified. The individual appointed to conduct due diligence on the asset and the collateral following loan default was connected to the borrower.
- Significant conflicts of interests: for one of the loans, the loan proceeds were diverted to the LC and its affiliates to cover their operational expenses and obligations. In effect, the RO orchestrated a scheme that shifted the default risk of the borrower on record, which was controlled by the Fund’s sole management shareholder that has the authority to remove the directors of the Fund, on the loan from the LC’s affiliate controlled by the RO, to the Fund.
- Unfair treatment to investors: the Fund entered into a stock lending agreement to lend its entire portfolio of listed shares to the borrower, which was controlled by an individual who was a unitholder of the Fund. All the individual’s interests in the Fund were pledged as collateral for the arrangement. The borrower either sold the loaned shares or transferred them to third parties, and the sale proceeds were distributed to the individual and others. In effect, this arrangement allowed the individual to redeem his interests in the Fund before the expiry of the applicable lock up period.
All three loans ultimately defaulted, resulting in significant losses to the Fund amounting to approximately 86% of its net asset value.
The issues highlighted above are not new as similar issues have been identified in the SFC’s circular of 9 October 2024 regarding deficiencies and substandard conducts noted in certain intermediaries’ management of private funds and discretionary accounts. In light of the circular and this disciplinary action, it is apparent that the SFC has taken a ‘zero-tolerance’ approach and will not hesitate to take enforcement action against such substandard conducts. Intermediaries should review the private funds or discretionary accounts managed by it and its internal controls timely and regularly to ensure compliance with the regulatory requirements and the expected regulatory standards.
For further information, please contact:
Lilian Lai, Deacons
lilian.lai@deacons.com
