Hong Kong Corporate and Regulatory Insights - January 2021 - Hogan Lovells

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Hong Kong Corporate and Regulatory Insights - January 2021 - Hogan Lovells
1                             Hogan Lovells

    Hong Kong Corporate and
    Regulatory Insights
    January 2021
Hong Kong Corporate and Regulatory Insights - January 2021 - Hogan Lovells
Contents

Equity Capital Markets                                                                              3

•   The Stock Exchange of Hong Kong Limited (SEHK) publishes results of latest review of issuers'
    annual report disclosure.

•   SEHK publishes revised Listing e-Forms and guidelines for Main Board and GEM issuers and
    new applicants.

•   The Listing Committee of SEHK (Listing Committee) takes disciplinary action against
    Sandmartin International Holdings Limited (Stock Code: 482) and eight of its current and
    former directors for breaches.

•   SEHK publishes Listing Newsletter.

•   The Listing Committee criticizes Xinming China Holdings Limited (Stock Code: 2699) and its
    executive director Mr. Chen Cheng Shou for breaches.

Financial Services Regulation                                                                       8

•   Inland Revenue (Amendement) (Tax Concessions for Carried Interest) Bill 2021 gazetted.

•   Report on "AML/CFT Regtech: Case Studies and Insights."

•   Mutual recognition of funds (MRF) between Thailand and Hong Kong.

•   Consultation conclusions on the Insurance (Special Purpose Business) Rules.

•   Profits tax concessions for insurance-related businesses to commence on 19 March 2021.

•   Revised form for application for approval to become an Executive Officer of a Registered
    Institution under section 71C of the Banking Ordinance (Cap. 155).

•   Prescribed scenarios for long term insurance business in relation to Guideline on Enterprise
    Risk Management (GL21).

•   Self-assessment of compliance with the Code of Banking Practice 2020.

•   Applications for new insurance intermediaries licenses by deemed licensees.

•   The Process Review Panel in relation to the regulation of Mandatory Provident Fund
    Intermediaries publishes 2020 Annual Report.

Data Protection                                                                                    133

•   Privacy Commissioner urges users to carefully consider new terms of use in instant messaging
    apps.

                                                                                   Hogan Lovells
Hong Kong Corporate and Regulatory Insights - January 2021 - Hogan Lovells
Hong Kong Corporate and Regulatory Insights January 2021                                          2

•    Privacy Commissioner reports on work of the Privacy Commissioner for Personal Data in 2020.

Contacts                                                                                     15
3                                                                                         Hogan Lovells

    Equity Capital Markets

The Stock Exchange of Hong Kong                         such needs in a timely manner. Where
Limited (SEHK) publishes results of                     there are material changes in the reporting
                                                        items, issuers should develop appropriate
latest review of issuers' annual report                 and supportable estimates for these items,
disclosure                                              document key judgments made, and
                                                        consider retaining experts if necessary.
SEHK published a report on the findings and
                                                        They should also engage in early
recommendations from its annual review of
                                                        discussions with their auditors and agree in
issuers' annual reports for the financial years
                                                        advance the timing, form, and approach of
ending between 1 January and 31 December
                                                        the assessment of these estimates as early
2019.
                                                        as practicable.
As part of its strategic technology-empowered
                                                    •   Continuing connected transactions –
initiatives, SEHK has recently introduced
                                                        Independent       nonexecutive     directors
artificial intelligence, including machine
                                                        (INEDs) play an important role in
learning, pattern recognition, and natural
                                                        providing checks and balances over the
learning processing, to assist in reviewing
                                                        issuers'    corporate   affairs,   business
issuers' annual reports and their compliance
                                                        operations and transactions, and in
with the Rules Governing the Listing of
                                                        particular, in the monitoring of continuing
Securities on the Stock Exchange of Hong Kong
                                                        connected transactions (CCTs). Issuers
Limited (Listing Rules) governing annual
                                                        should have in place appropriate internal
report disclosure vetting.
                                                        controls and mechanisms to monitor and
SEHK    has      made       the        following        assist INEDs in overseeing their CCTs, and
recommendations to issuers:                             their    INEDs      should    review     the
                                                        appropriateness of these internal control
•    Disclosure on the impact of the                    procedures.
     COVID-19 pandemic in issuers'
     business review and Management                 •   Material intangible assets – Issuers
     Discussion and Analysis (MD&A)                     should perform proper analysis and
     section – Issuers should disclose in their         carefully consider the impact of the
     next annual reports (i) the effect of the          COVID-19 pandemic on impairment tests
     COVID-19 pandemic on their operations,             and update the assumptions used to reflect
     and the relevant risks or uncertainties that       the latest available information and
     will materially affect their future                evidence.
     performance; (ii) quantitative measures of
                                                    •   Material level three financial assets –
     the financial or operational impact of the
                                                        Issuers should develop robust disclosure on
     COVID-19 pandemic; (iii) assessments of
                                                        level three fair value measurements, in
     the liquidity positions and working capital
                                                        particular providing the qualitative and
     sufficiency with reference to their
                                                        quantitative information to the extent
     operations and capital commitments; and
                                                        necessary for an understanding of the
     (iv) measures to manage the impact of the
                                                        valuation techniques and the underlying
     COVID-19 pandemic.
                                                        unobservable inputs.
•    Financial statements with auditors'
                                                    Click here to view the report.
     modified opinion – Issuers should
     continuously review their          liquidity   HKEx, 29 January 2021
     positions and funding needs, and formulate
     and implement action plans to address
Hong Kong Corporate and Regulatory Insights January 2021                                                           4

                                                                               and
SEHK publishes revised Listing e-                                              Acknowledgem
                                                                               ent
Forms and guidelines for Main Board                                 DU004G     Director's
                                                                               Declaration,
                                                                                                      ✓      ✓

and Growth Enterprise Market (GEM)                                             Undertaking
                                                                               and
                                                                               Acknowledgem
issuers and new applicants                                                     ent        (PRC
                                                                               issuer)
                                                                    DU005G     Supervisor's           ✓      ✓
The revised Listing e-Forms for Main Board                                     declaration,
                                                                               undertaking
issuers (MB), GEM issuers (GEM), and new                                       and
                                                                               acknowledgem
applicants (NA) are as follows:                                                ent in respect
                                                                               of an issuer
                 Content             MB       GEM          NA                  incorporated
 e-Forms                                                                       in the PRC
 CF006           Size Tests for      ✓        ✓                     FF004      (see above)        ✓   ✓      ✓
                 Notifiable                                         FF201G     Application            ✓
                 Transactions                                                  Form – Equity
                 and Connected                                                 Securities (of
                 Transactions                                                  an issuer part
                                                                               of whose share
 FF004           Contact details     ✓        ✓            ✓                   capital       is
                 form          for
                                                                               already listed)
                 Director/
                                                                    FFD001M    Formal             ✓
                 Supervisor/
                                                                               Application
                 Authorised
                                                                               (for     Equity
                 Representative
                                                                               Securities)
                 s/    Company
                 Secretary/
                 Compliance
                 Officer                                        HKEx, 23 January 2021
 SE001           Sponsor                                   ✓
                 Engagement

 M103
                 Notification
                 Main Board –                              ✓
                                                                The Listing Committee of SEHK
                 IPO – Form A1
                 –        Listing                               (Listing Committee) takes disciplinary
                 Application
                 Form         (for                              action      against         Sandmartin
                 Equity
                 Securities
                 Debt
                                &                               International Holdings Limited (stock
 G103
                 Securities)
                 GEM Board –                               ✓
                                                                code: 482) and eight of its current and
                 IPO – Form 5A
                 –        Listing                               former directors for breaches
                 Application
                 Form (Equity
                 Securities of an                               The Listing Committee censures:
                 issuer no part
                 of whose share
                 capital
                 already listed)
                                is                              Company
 Guidelines
 M103            (see above)                               ✓    •      Sandmartin       International      Holdings
 G103            (see above)                               ✓
 CF006           (see above)         ✓        ✓                        Limited (Company) for failing to announce
 CF093           Trading
                 Arrangement
                                     ✓        ✓
                                                                       a connected transaction in a timely manner
 DU003M
                 Form
                 Declaration         ✓                     ✓
                                                                       pursuant to Rules 14.34, and 14A.35 of the
                 and
                 Undertaking
                                                                       Listing Rules, and for disclosing inaccurate,
                 with regard to                                        incomplete, misleading, and/or deceptive
                 Directors
 DU004M          Declaration         ✓                     ✓           information in announcements and
                 and
                 Undertaking                                           circulars pursuant to Rule 2.12(2) of the
                 with regard to
                 Directors of an                                       Listing Rules.
                 issuer
                 incorporated
                 in the PRC                                     Relevant Directors
 DU005M          Declaration         ✓                     ✓
                 and
                 Undertaking                                    •      Mr. Hung Tsung Chin (Mr. Hung),
                 with regard to
                 Supervisors of                                        executive director (ED) of the Company,
                 an        issuer
                 incorporated                                          and Ms. Chen Mei Huei (Ms. Chen), former
                 in the PRC
 DU003G          Director's                   ✓            ✓           ED of the Company, for failing to (i) fulfill
                 Declaration,
                 Undertaking                                           their fiduciary duties expected of them of
5                                                                                           Hogan Lovells

    their knowledge and experience and                MyHD
    holding their office within the Company
    under Rule 3.08(f) of the Listing Rules, and      MyHD is owned by a friend and business
    (ii) comply to the best of their abilities with   associate of Mr. Hung and Ms. Chen. The
    the Listing Rules, and (iii) use their best       Company acquired MyHD and made a series of
    endeavors to procure the Company's                loans to MyHD. MyHD became a 51 percent
    compliance with the           Listing Rules       owned subsidiary of the Company when certain
    pursuant to their Declaration and                 loans were capitalized. However, the Company
    Undertaking with regard to Directors              failed to announce the acquisition, which is a
    (Undertaking).                                    connected transaction, in a timely manner.

•   Mr. Liao Wen I Tiger (Mr. Liao), former ED        Emiratinvest
    of the Company, for failing to (i) cooperate
                                                      Emiratinvest is solely owned by a former non-
    with SEHK's investigation and (ii) use his
                                                      executive director of the Company, who is also
    best endeavors to procure the Company's
                                                      a sibling of the owner of MyHD. Emiratinvest
    compliance with the Listing Rules pursuant
                                                      became a connected person of the Company
    to his Undertaking.
                                                      when MyHD became a subsidiary of the
    And criticizes:                                   Company, due to the sibling relationship
                                                      between the owners. The Company made a
•   Mr. Frank Karl-Jeinz Fischer (Mr. Fischer),       series of loans to Emiratinvest but failed to
    former ED of the Company, for failing to (i)      announce the loans in a timely manner.
    use his best endeavors to procure the
    Company's compliance with the Listing             In addition, Emiratinvest owns 80 percent of
    Rules in respect of independent third party       Simple Media Network Pvt Ltd. (Simple
    disclosures and (ii) ensure that the              Media). Mr. Hung's son and daughter-in-law
    Company had adequate and effective                were directors of Simple Media, which also
    internal    control    pursuant   to    his       makes Simple Media a connected party to the
    Undertaking.                                      Company.

•   Mr. Chen Wei Chun (Mr. Chen), ED of the           The Company disclosed in subsequent
    Company, Mr. Wu Chia Ming (Mr. Wu),               announcements that (a) "to the best knowledge
    independent       non-executive    director       of the Company, [Emiratinvest] is not related
    (INED) of the Company, Mr. Han Chien              to [MyHD]"and (b) "Emiratinvest is an
    Shan (Mr. Han), former INED of the                independent third party not connected with the
    Company, and Mr. Lee Chien Kuo Thomas             Group." The Company further disclosed in a
    (Mr. Lee), former INED of the Company,            circular in respect of expected sales that "as
    for failing to use their best endeavors to        advised by the management of Emiratinvest,
    ensure that the Company had adequate and          Simple Media plans to place order of 55,000
    effective internal control pursuant to their      units to 80,000 units of set-top-box in the sum
    Undertakings.                                     of US$1.1 million to US$1.6 million from the
                                                      Group in the second half of 2017."
This case involves the Company's relationship
and transactions with MyHD Media FZ LLC               Such disclosures were inaccurate because Mr.
(MyHD)       and     Emiratinvest    Limited          Hung and Ms. Chen were aware of the sibling
(Emiratinvest).                                       relationship between the owners of MrHD and
                                                      Emiratinvest. Mr. Hung, Ms. Chen, and Mr.
                                                      Fischer were also aware of the positions held by
                                                      Mr. Hung's son and daughter-in-law within
Hong Kong Corporate and Regulatory Insights January 2021                                                  6

Simple Media. Mr. Hung, Ms. Chen, and Mr.                  •   Mr. Hung, Mr. Chen, and Mr. Wu to attend
Fischer failed to appreciate the importance of                 26 hours of training on regulatory and legal
such relationships with connected party                        topics including Listing Rule compliance
implications, and failed to report such                        and directors' duties.
relationships to the Company.
                                                           •   As a prerequisite of any future
Further, Mr. Hung and Ms. Chen failed to                       appointments as director of any listed
ensure that certain figures relating to expected               company, Ms. Chen, Mr. Fischer, Mr. Han,
sales used in the circular were accurate and up-               and Mr. Lee to attend 26 hours of training
to-date. They were both aware that no set-top                  on regulatory and legal topics including
boxes had been sold by the Company to Simple                   Listing Rule compliance and directors'
Media in 2016 or in 2017 and that the expected                 duties.
figure of 55,000 to 80,000 units had been
provided by Emiratinvest six months before                 Click here to view the statement of disciplinary
the publication of the circular. The Company               action.
actually only sold 100 units of set-top boxes to
                                                           HKEx, 22 January 2021
Simple Media for the whole of 2017.
                                                           SEHK publishes Listing Newsletter
As a result, Mr. Hung and Ms. Chen failed to
discharge their directors' duties and                      SEHK published the second issue of the Listing
Undertakings to comply with the Listing Rules              Newsletter (Newsletter). The Newsletter covers
to the best of their ability. Mr. Hung, Ms. Chen,          various topics, including SEHK's efforts in
and Mr. Fischer failed to use their best                   digitalizing the initial public offering
endeavors to procure the Company's                         settlement process (such as e-listing forms and
compliance with the Listing Rules.                         new listing subscriptions through electronic
                                                           channels only), market consultation to raise
The Listing Committee also found that the
                                                           the profit requirement for entry into the Main
Relevant Directors failed to take an active role
                                                           Board, and the implementation of artificial
in implementing, reviewing, and monitoring
                                                           intelligence to review disclosures in issuers'
the effectiveness of the Company's internal
                                                           annual reports.
control procedures and placed excessive
reliance upon the company secretary for                    Click here to view the Newsletter.
Listing Rule compliance.
                                                           HKEx, 14 January 2021
Directors are expected to be familiar with the
connected transactions provisions of the                   The Listing Committee criticizes
Listing Rules, including the identification of             Xinming China Holdings Limited (stock
connected parties. These rules are designed to             code: 2699) and its executive director
protect the investing public, safeguard
minority shareholders, and to dispel any                   Mr. Chen Cheng Shou for breaches
conflict or perception of conflict in respect of
                                                           The Listing Committee criticizes:
transactions entered into by the Company.
                                                           •   Xinming     China    Holdings    Limited
The Listing Committee further directed:
                                                               (Company) for failing to comply with the
•    The Company to retain an independent                      announcement, reporting, circular, and
     professional adviser to review and make                   shareholders'   approval    requirements
     recommendations      to    improve  the                   applicable to a major transaction carried
     Company's internal controls.                              out by its subsidiary pursuant to Rules
7                                                    Hogan Lovells

    14.34, 14.38A, 14.40 and 14.41 of the
    Listing Rules.

•   Mr. Chen Cheng Shou (Mr. Chen),
    executive director, chairman, and chief
    executive officer of the Company, for failing
    to fulfil his fiduciary duties expected of him
    of his knowledge and experience and
    holding his office within the Company
    under Rule 3.08(f) of the Listing Rules, and
    failing to comply to the best of his ability
    with the Listing Rules and to use his best
    endeavors to procure the Company's
    compliance with the Listing Rules pursuant
    to his Declaration and Undertaking with
    regard to Directors.

This case involves Mr. Chen, on behalf of a
subsidiary of the Company, entering into a
guarantee agreement with an independent
third party. Following the guarantee
agreement, Mr. Chen on behalf of the relevant
subsidiary entered into seven pledge contracts
with a bank to facilitate the independent third
party's application for a letter of credit. By
reason of the failure of the independent third
party to settle the payments as agreed, the
pledge contracts were terminated. The pledge
contracts constituted a major transaction.

Mr. Chen entered into the pledge contracts
without notification to or authority form the
board of directors of the Company. He did not
take steps to ensure the Company would
comply with the applicable procedural
requirements under the Listing Rules after the
pledge contracts were entered into. Further,
the pledge contracts exposed the Company to
substantial financial risk and Mr. Chen did not
take adequate steps to safeguard the assets of
the relevant subsidiary that were pledged.

Click here to view the statement of disciplinary
action.

HKEx, 8 January 2021
Hong Kong Corporate and Regulatory Insights January 2021                                                   8

 Financial Services Regulation

Inland Revenue (Amendment) (Tax                            banking sector. The report comprises examples
Concessions for Carried Interest) Bill                     of how banks of different sizes and business
                                                           scopes used AML/CFT Regtech, and aims to
2021 (the Bill) gazetted                                   help identify an adoption process that is
The Bill was published in the Gazette on 29                applicable to the particular circumstances of an
January 2021. The purpose of the Bill is to                institution.
amend the Inland Revenue Ordinance (Cap.                   Stored Value Facility (SVF) licensees and
112) to provide tax concessions for carried                Authorised Institutions (AIs) are encouraged
interest distributed by eligible private equity            to study the report and draw insights from the
(PE) funds which operate in Hong Kong.                     use of AML/CFT Regtech as a way to enhance
According to the Financial Services and                    effectiveness and efficiency in light of evolving
Treasury Bureau (FSTB), the proposed tax                   risks, and to develop appropriate approaches to
concessions for carried interest in the Bill are           the wider use of technology in their conduct of
expected to attract more PE funds to operate               business and risk management.
and be managed in Hong Kong, and at the same               Click here to view the HKMA circular to SVF
time to boost more investment management                   licensees and here to view the HKMA circular
and related activities which will create business          to AIs.
opportunities in relation to professional
services.                                                  Click here to view the report.

Broadly speaking, carried interest refers to a             HKMA, 21 January 2021
return linked to the performance of an
investment of a PE fund, typically upon the                Mutual recognition of funds (MRF)
disposal of the investment after it has been held          between Thailand and Hong Kong
for a period of time. For tax concessions under
the Bill to apply, qualifying carried interest             The Securities and Futures Commission (SFC)
recipients     must       provide     investment           and the Securities and Exchange Commission
management services in Hong Kong and fulfill               of Thailand entered into the Memorandum of
substantial activities requirements, and carried           Understanding        concerning        Mutual
interest must arise from eligible transactions in          Recognition of Covered Funds and Covered
private companies and be distributed by a fund             Management        Companies     and    related
certified by the Hong Kong Monetary Authority              cooperation (MOU) on 20 January 2021, which
(HKMA) or the Innovation and Technology                    is subject to amendment from time to time. The
Venture Fund Corporation set up by the                     MOU allows eligible Hong Kong and Thai
government.                                                public funds to be distributed in each other's
                                                           market through a streamlined process.
Click here to view the FSTB news.
                                                           The MOU establishes a framework for
FSTB, 29 January 2021                                      exchange of information, regular dialogue, as
                                                           well as regulatory cooperation in relation to the
Report on "AML/CFT Regtech: Case                           cross-border offering of eligible Hong Kong
Studies and Insights"                                      and Thai funds. The two regulators have also
                                                           agreed to expedite the approval process of local
The HKMA issued a report that promotes                     feeder funds which invest in MRF-eligible Thai
regulatory technology (Regtech) adoption in                or Hong Kong master funds and to clarify how
the anti-money laundering and counter-                     they may be operated in a streamlined manner.
financing of terrorism (AML/CFT) area in the
9                                                                                           Hogan Lovells

The cooperation arrangements set out in the          IA, 19 January 2021; FSTB, 15 January 2021
MOU have already come into effect since 20
January 2021, except for the mutual                  Profits tax concessions for insurance-
recognition of funds scheme which is expected        related businesses to commence on 19
to be implemented within six to twelve months        March 2021
from 20 January 2021.
                                                     The Inland Revenue (Amendment) (Profits Tax
Click here to view the SFC circular and here to      Concessions for Insurance-related Business)
view the annex to the circular.                      Ordinance 2020 (the Ordinance), which was
SFC, 20 January 2021                                 enacted in July 2020, reduces the profits tax
                                                     rate by 50 percent for all general reinsurance
Consultation conclusions on the                      business of direct insurers, selected general
Insurance (Special Purpose Business)                 insurance business of direct insurers, and
                                                     selected insurance brokerage business. For the
Rules (SPB Rules)                                    purpose of effecting the profits tax concessions,
                                                     the government gazetted the following
The Insurance Authority (IA)           published
                                                     subsidiary legislations on 15 January 2021:
consultation conclusions on the       draft SPB
Rules in respect of restrictions on   the sale of       •   The Inland Revenue (Amendment)
insurance-linked securities (ILS)      issued in            (Profits Tax Concessions for Insurance-
Hong Kong.                                                  related Businesses) Ordinance 2020
                                                            (Commencement)        Notice,    which
The draft SPB Rules impose restrictions on the
                                                            appoints 19 March 2021 to be the date
sale of ILS, which are useful and effective risk
                                                            for the ordinance to become effective.
management tools that enable insurers and
reinsurers to offload insured risks to the capital      •   The Inland Revenue (Profits Tax
markets by way of securitization but unsuitable             Concessions for Insurance-related
for ordinary retail investors. The said                     Businesses) (Threshold Requirements)
restrictions include the requirement to spell               Notice, which prescribes threshold
out the scope of eligible ILS investors, a                  requirements for determining whether
minimum investment sum, and penalties for                   the relevant activities of the specified
contraventions of sales restrictions.                       insurance-related business are, or are
                                                            arranged to be, conducted in Hong
Respondents of the public consultation were
                                                            Kong.
generally supportive of the draft SPB Rules but
proposed a lower minimum investment sum to           Click here to view the FSTB news.
facilitate market development, maintain
liquidity in the secondary market, and make          FSTB, 15 January 2021
Hong Kong a competitive ILS domicile.
Considering the response received, the IA            Revised form for application for
proposes to change the threshold to                  approval to become an Executive
US$250,000.                                          Officer (EO) of a Registered Institution
Click here to view the IA circular, here to view     under section 71C of the Banking
the consultation conclusions, and here to view       Ordinance (Cap. 155)
the consultation paper.
                                                     The HKMA has recently revised the application
Click here to view the FSTB news.                    form and supplemental forms (collectively,
Hong Kong Corporate and Regulatory Insights January 2021                                                 10

Application Form) for consent to become an                 the next ORSA Report and may revise some of
EO of a Registered Institution with a view to              the scenarios in the future having regard to
enhance the efficiency of the application                  market conditions.
process.
                                                           The Prescribed Scenarios are designed for a
The information requested in the revised                   long term insurer to consider in its ORSA
Application Form remains largely the same as               Report the risk to its capital position of
those in the old form. Major changes include:              multiple severe events or stresses happening at
                                                           the same time, and the management actions it
     •    A new feature that requests applicants           would take in such extreme events or stresses.
          to indicate their acceptance of certain          The IA may request insurers to test scenarios in
          standard condition(s) which would be             addition to the Prescribed Scenarios. Details of
          attached to a consent being applied for          the Prescribed Scenarios, namely the market
          where given circumstances apply.                 risk scenario, life insurance risk scenario,
                                                           market risk with life insurance risk scenario
     •    A new requirement for applicants who
                                                           and compound scenario, together with the
          intend to apply for conditional
                                                           reporting and other relevant requirements, are
          exemption(s) from taking relevant local
                                                           set out in the appendix to the circular.
          regulatory framework paper(s) under
          paragraph 10 of Appendix E to the                Click here to view the IA circular and here to
          "Guidelines on Competence" issued by             view the appendix to the circular.
          the SFC to enclose a letter of
          undertaking.                                     IA, 11 January 2021

The HKMA also reminded AIs to provide                      Self-assessment of compliance with
complete, relevant, and accurate information,              the Code of Banking Practice 2020
and specifically to refer to the relevant SFC
guidelines and statutes when completing the
                                                           (Code)
Application Form. The HKMA will continue to                The HKMA published a circular on 11 January
accept the old form until 11 February 2021,                2021 to remind AIs to submit electronically the
after which any application will have to be                annual self-assessment of compliance with the
made with the Application Form.                            Code by 30 April 2021, covering the period
Click here to view the HKMA circular.                      from 1 January 2020 to 31 December 2020.
                                                           The electronic file of the reporting template
IA, 12 January 2021                                        and submission instructions will be sent to AIs
                                                           via the HKMA's Submission Through
Prescribed scenarios for long term                         Electronic Transmission system (also known as
insurance      business    (Prescribed                     the STET system).
Scenarios) in relation to Guideline on                     The reporting requirements specified in the
Enterprise Risk Management (GL21)                          reporting template are the same as those from
                                                           last year. AIs are required to commission their
The Prescribed Scenarios in relation to GL21               internal audit department, compliance
were published on 11 January 2021, which shall             department, or other equivalent unit to
be adopted for the first Own Risk and Solvency             conduct the self-assessment and issue a self-
Assessment (ORSA) Report that is required for              assessment report. The self-assessment report
the financial year ended 31 December 2021.                 should be approved and signed by the chief
The IA will review the Prescribed Scenarios for            executive of the AI. Where an instance of
11                                                                                        Hogan Lovells

noncompliance is identified that is a              The Process Review Panel in relation to
recurrence of similar instances identified in      the regulation of Mandatory Provident
previous exercises, a full account should be
provided.
                                                   Fund Intermediaries (PRP) publishes
                                                   2020 Annual Report
Click here to view the HKMA circular and here
to view the annex to the circular.                 The PRP published its 2020 Annual Report
                                                   which covered work of the PRP from 1 May
HKMA, 11 January 2021                              2019 to 30 April 2020. The PRP is an
                                                   independent panel established by the Chief
Applications for new insurance                     Executive of Hong Kong, which is tasked to
intermediaries licenses by deemed                  review and advise the Mandatory Provident
licensees                                          Fund Schemes Authority (MPFA) on the
                                                   adequacy and consistency of its internal
Since 23 September 2019, the IA has taken over     procedures and operational guidelines
the regulation of insurance intermediaries.        governing the actions taken and operational
Under the new regime, all insurance agents and     decisions made by the MPFA and its staff in the
brokers are required to be licensed with the IA.   performance of its regulatory functions in
Insurance agents and brokers who were              relation to the regulation of Mandatory
previously registered with the self-regulatory     Provident Fund (MPF) intermediaries and
bodies prior to 23 September 2019 are              associated matters. Its work focuses on
considered "deemed licensees" for a period of      procedural propriety in the regulatory regime
three years, until 22 September 2022               rather than the merits of the MPFA's decisions
(Transitional Period). During the Transitional     and actions.
Period, each deemed licensee needs to apply
for a new license from the IA if they wish to      The PRP reviewed the follow-up actions
continue to carry on regulated activities after    undertaken by the MPFA in light of the PRP's
22 September 2022. Further details can be          recommendations made in the previous year. It
found in our August issue of the Hong Kong         also reviewed 5 out of 13 closed conduct cases
Corporate Insights.                                relating   to   allegations    against     MPF
                                                   intermediaries including inadequate internal
On 8 January 2021, the IA officially announced     control, failure to provide necessary
in a circular the launch of the licence            information clearly and accurately to the client,
application process for deemed licensees. The      and unauthorized transfer of MPF account
IA explained in the circular that it expects       information or collection of such information
significant progress to be made in processing      by impersonating a client. The PRP made
licence applications during the course of 2021.    observations and recommendations to the
It is expected that in early 2022, the IA will     MPFA as follows:
announce a cut-off date and if an application is
not submitted by an intermediary by the cut-off    •   To set up and make available to the
date, the IA will not be able to guarantee the         industry a defined set of guidelines to
processing of such licence application before          determine the type of actions and level of
22 September 2022.                                     penalties based on the severity and nature
                                                       of the substantiated allegations, and to list
Click here to view the IA circular.                    the relevant factors that will be considered
                                                       when making decisions in relation to these
IA, 8 January 2021                                     actions and penalties.
Hong Kong Corporate and Regulatory Insights January 2021   12

•    To streamline the clearance process for
     revising draft reports and issuing reminder
     letters and closure letters to improve
     overall efficiency in case handling.

•    To devise ways to speed up investigation
     findings, devote further efforts to
     improving key performance indicators
     (KPIs) by developing internal operating
     protocols and special communication
     protocols, and to keep a formal record of
     reasons why KPIs were not met in cases.

Click here to view the FSTB news and here to
view the 2020 Annual Report.

FSTB, 6 January 2021
13                                                                                     Hogan Lovells

 Data Protection

Privacy Commissioner reports on work              inadvertent disclosure, and accidental erasure
of the PCPD in 2020                               of personal data, etc.

                                                  Survey results
The Privacy Commissioner for Personal Data
(PCPD) reported on work of the office of the      The PCPD commissioned the Social Science
PCPD in 2020 and released the results of a        Research Centre of the University of Hong
survey to gauge attitudes and views of the        Kong to conduct a survey to gauge public
public and organizations on the protection of     awareness on the protection of personal data
personal data privacy in a media briefing held    privacy.
on 28 January 2021.                               The survey found that:
Summing up 2020, the PCPD said "2020 was a        •      The public were prudent in protecting
year fraught with challenges. To address the             their personal data, 80 percent of
personal data privacy issues arising from the            respondents are aware of their privacy
COVID-19 pandemic, the PCPD had striven to               settings on social media accounts, of
provide comprehensive views, opinions or                 which 80 percent checks their privacy
guidance to our stakeholders in a timely                 settings.
manner."

Doxxing                                           •      Out of the population that installs
                                                         instant messaging apps on their mobile
The handling of doxxing cases continued to be
                                                         phones, a large majority were aware
an important task for the PCPD in 2020. Over
                                                         that the apps had access to the contact
1,190 cases were handled, of which around
                                                         information on their phone, a large
1,000 cases were discovered in 2020. The
                                                         majority of this population considers
PCPD stresses, "It is saddening to see the harm
                                                         this privacy invasive, and 34 percent
caused by doxxing. Other than being morally
                                                         considers this a serious invasion of
wrong, doxxing acts may also lead to serious
                                                         privacy.
legal consequences." In 2020, five defendants
were convicted of doxxing offenses, two of        •      Respondents     show      support for
whom were sentenced to immediate                         amendments to the PDPO to introduce
imprisonment for contravention of the                    administrative fines and a mandatory
Personal Data (Privacy) Ordinance (Cap. 486)             data breach notification.
(PDPO).
                                                  Looking forward, the PCPD will continue to
Going forward, the PCPD will step up its          take a multi-pronged approach, to enhance
publicity and educational efforts, and continue   enforcement and strengthen cooperation with
to conduct proactive online patrols and           educational institutions. The PCPD will also
collaborate with the Hong Kong police to          work with the Hong Kong government to
combat doxxing behavior. The PCPD has set up      formulate concrete proposals in amending the
a hotline to answer enquiries and complaints      PDPO, and will strive to provide necessary
relating to doxxing.                              input to the government in the legislative
Data breach incidents                             amendment exercise.

In 2020, the PCPD received 103 personal data      Click here to read the media statement.
breach notifications from organizations. These
                                                  PCPD, 28 January 2021
involved hacking, system misconfiguration,
unauthorized access, loss of documents,
Hong Kong Corporate and Regulatory Insights January 2021                                                14

Privacy Commissioner urges users to                        with the messaging app's parent company and
carefully consider new terms of use in                     its subsidiary to help operate, provide,
                                                           improve, understand, customize, support and
instant messaging apps                                     market its services and related products.
The PCPD noted that a widely used instant                  According    to    the    messaging   app's
messaging app in Hong Kong had recently                    announcement, the information which will be
announced changes to its Terms of Service and              shared include:
Privacy Policy (the Terms). Users will need to             •      Account registration information (i.e.
agree to share certain information with the                       users' phone number).
parent company of the messaging app and its
subsidiaries, otherwise they cannot continue               •      Transaction data.
using the app.
                                                           •      Service-related data.
The PCPD is concerned that the data to be
shared includes a substantial amount of
                                                           •      Information on how users interact with
personal data, and urges users to be aware of
                                                                  others (including businesses) when
the changes in the Terms. The PCPD reminds
                                                                  using their services.
users to carefully consider the new Terms and
take note of the type of data which will be                •      Users' mobile device information.
shared and how they will be used.

The PCPD said users should "consider, in                   •      Users' IP address.
particular, whether they are willing to transfer
                                                           •      Other information to be collected as
their personal data to companies associated
                                                                  identified in the Privacy Policy or
with the messaging app for storage and use. If
                                                                  obtained upon notice to users or based
users choose not to give their consent, they
                                                                  on users' consent.
should make preparations to back up their
data."                                                     •      Information about users provided by
Given the wide usage of the messaging app by                      third parties, third party service
the general public in Hong Kong, the PCPD                         providers and/or other associated
appeals to the messaging app to, amongst other                    companies.
things:                                                    Following the original media statement
•         Clearly     explain    to   users     the        released by the PDPO on 11 January 2021, the
          arrangement for sharing of personal              PCPD released a follow-up statement on 16
          data, the type of personal data involved,        January 2021 noting that the instant
          and how the data will be used.                   messaging app had announced to extend the
                                                           deadline for users to accept to its new Terms
•         Extend the period for to allow users             from 8 February 2021 to 15 May 2021. The
          ample time to consider the new Terms.            PCPD welcome the new arrangement as it
                                                           allows users more time to consider the new
•         Consider providing practical alternative         Terms.
          to users who do not agree to the new
                                                           Click here to view the media statement dated 11
          Terms so they can continue using the
                                                           January 2021, and click here to view the media
          service of the messaging app.
                                                           statement dated 16 January 2021.
According to the updates announced by the
                                                           PCPD, 16 January 2021
messaging app, user information will be shared
15                                                                                                                                                                   Hogan Lovells

 Contacts

                                Mark Parsons                                                                                Laurence Davidson
                                Partner, Hong Kong                                                                          Partner, Hong Kong
                                T +852 2840 5033                                                                            T +852 2840 5034
                                mark.parsons@hoganlovells.com                                                               laurence.davidson@hoganlovells.com

                                Sammy Li                                                                                    Andrew McGinty
                                Partner, Hong Kong                                                                          Partner, Hong Kong
                                T +852 2840 5656                                                                            T +852 2840 5004
                                sammy.li@hoganlovells.com                                                                   andrew.mcginty@hoganlovells.com

                                                                                                                            Stephanie Tang
                                Nelson Tang                                                                                 Head of Private Equity – Greater China,
                                Partner, Hong Kong                                                                          Hong Kong
                                T +852 2840 5621                                                                            T +852 2840 5026
                                nelson.tang@hoganlovells.com                                                                stephanie.tang@hoganlovells.com

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