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CSj
July 2020
ACRU 2020 review
Individual accountability
COVID-19 disclosure lessons
AML/CTF compliance
Good governance comes with membership July 2020
About The Hong Kong Institute of Chartered Secretaries
CSj, the journal of The Hong Kong Institute of
The Hong Kong Institute of Chartered Secretaries (HKICS) is an independent professional body dedicated to the promotion of
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of China (the Mainland). HKICS was first established in 1949 as an association of Hong Kong members of The Chartered students of The Hong Kong Institute of Chartered
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Gillian Meller FCIS FCS – President Audit Committee:
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Contents
Cover Stories
This month’s CSj reviews the Institute’s 21st Annual Corporate and Regulatory Update
(ACRU), held in webinar mode on 5 June 2020.
Individual accountability 06
A central theme to emerge from ACRU 2020 was that regulators in Hong Kong
will increasingly be holding individual executives, board members and professional
practitioners accountable for corporate misconduct.
Disclosure in times of crisis 12
The second part of our ACRU 2020 review looks at the insights into corporate
disclosure offered by regulators and practitioners speaking at the forum, in particular
the disclosure lessons to be learned from the COVID-19 pandemic.
AML/CTF compliance 18
The third and final part of our review of ACRU 2020 focuses on the insights shared
at the forum regarding anti–money laundering and counter–terrorist financing (AML/
CTF) compliance.
Mainland Report
The social credit system – are you prepared? 24
Carl Li, Senior Partner, AllBright Law Office, makes recommendations for meeting the
compliance requirements of the social credit system, which is scheduled to become fully
operational in the Mainland by the end of 2020.
In Focus
Bank culture reform in Hong Kong 28
Herbert Smith Freehills looks at a new report issued by the Hong Kong Monetary Authority
on its review of self-assessments on bank culture made by 30 authorised institutions.
Technical Update
Seeking immunity 32
Adelaide Luke, Partner, and Howard Chan, Associate, Herbert Smith Freehills, consider the HKICS News
recent updates to the Hong Kong Competition Commission’s Leniency Policy.
President’s Message 04
PRC Individual Income Tax reforms: anti-avoidance tax
provisions 36 Institute News 42
In the second of this two-part series, Henry Kwong, Tax Partner, and Matthew Cheung,
Tax Manager, Cheng & Cheng Taxation Services Ltd, assess the salient features of the anti- Student News 47
avoidance tax provisions introduced as part of the PRC Individual Income Tax reforms.
Careers in Governance
Dominic Wu ACIS ACS 40
This month sees the third instalment of our new Careers in Governance column, featuring
a personal and professional profile of Dominic Wu ACIS ACS, Managing Director, Senior
Risk Manager, Risk Management and Compliance, Asia Pacific, BNY Mellon.
President’s Message
ACRU – your guide to
good governance
behind vague, generalised disclosures. Integrity issues featured highly in the ACRU
Stakeholders need to know in as specific discussions, in particular the message that
detail as possible what impact the crisis is achieving ‘ethical governance’ goes beyond
having on company operations, and what just complying with the law. The benefits
the board and management are doing to for organisations that aim for ethical
mitigate the risks. governance, as well as legal compliance,
were eloquently argued by Anna Lam,
Another disclosure issue high on the Executive Director (Acting) of the ICAC’s
agenda in Hong Kong at the moment Hong Kong Business Ethics Development
is the latest HKEX upgrade of its ‘ESG Centre, in her ACRU presentation. She
Reporting Guide’. Since this latest didn’t stop there, however, because the
T his month’s edition of CSj reviews
our Annual Corporate and Regulatory
Update (ACRU) conference held in
upgrade became effective earlier this
month, listed companies need to be
already collecting data for their next
benefits of ethical governance are not only
felt by companies themselves but by the
entire Hong Kong market.
webinar mode on 5 June 2020. Over 1,900 ESG report in compliance with the key
participants attended this year’s ACRU and changes made to the guide. In particular, Our work often focuses on the minutiae of
the day’s discussions took in the issues HKEX has introduced a mandatory good governance – establishing effective
currently at the top of the governance requirement for disclosure of the internal controls, arranging board
agenda in Hong Kong – including board’s role in ESG governance and has meetings and taking minutes for example,
corporate disclosure lessons from the upgraded the disclosure obligations of but it is good to look up occasionally and
COVID-19 pandemic; new environmental, all ‘social’ key performance indicators see the bigger picture. I think Anna Lam’s
social and governance (ESG) reporting (KPIs) to comply or explain. In addition, presentation was a valuable reminder
requirements; and compliance listed issuers will be required to disclose that the work we do as governance
recommendations on anti-corruption and the significant climate-related issues professionals has wider implications.
Hong Kong’s two-year-old anti–money which have impacted or may impact We can be justly proud of our work
laundering and counter–terrorist financing them and to disclose relevant targets ensuring that the core principles of good
(AML/CTF) regime. relating to their ‘environmental’ KPIs. The governance – in particular transparency,
deadline for publication of ESG reports accountability and integrity – are
These diverse themes may seem to have has also been shortened to within five implemented by the organisations we
little in common, but every ACRU is an months after the financial year-end. work for, since this forms the basis upon
excellent guide to what good governance which our market, and indeed our society
should look like, whatever the type of Transparency needs to be backed as a whole, has built its success.
organisation and whatever the sector up by accountability and regulators’
of the economy you are working in. The determination to impose individual Before I go, I would like to invite readers
key messages, both of the regulators and accountability for corporate misconduct to join the next major event in our CPD
practitioners speaking at this year’s ACRU, was another key theme of ACRU 2020. calendar – our Corporate Governance
were all about implementing the core This year’s forum made it very clear Conference (CGC) to be held on 25 and
governance principles of transparency, that personal accountability is not only 26 September 2020. Further details on
accountability and integrity. an issue for directors – governance this year’s CGC, which will be exploring
professionals may also find themselves the theme – ‘Building the Modern Board:
Transparency is a starting point for effective the target of enforcement actions. A 20/20 Vision’, will be available on our
governance and it featured highly in the website and in future editions of
discussions at this year’s ACRU. Speakers The core principles of transparency and this journal. Book now to join this
from Hong Kong Exchanges and Clearing accountability reinforce each other, but important conference.
Ltd (HKEX) shared some lessons that have together they form two legs of a three-
emerged from listed issuers’ handling of legged stool. The third leg is provided
the COVID-19 pandemic – in particular the by the principle of integrity. To enforce
need for quality disclosure. Nothing tests accountability you have to have a sense
our corporate reporting processes quite of what is, and what is not, deemed to
like a major crisis and the key message be acceptable behaviour and that will
at this year’s ACRU was to avoid hiding not always be found in the rule book. Gillian Meller FCIS FCS
July 2020 04
President’s Message
企业规管最新发展研讨会（(ACRU)）-
良好治理指引
來，上市公司就已經需要根據指引的重
本 月《香港特許秘書公會會刊》回
顧 了 2020 年 6 月 5 日 我 們 通 過 網 大變更內容，為下一次 ESG 報告收集數
矚，了解大局很有裨益。我認為林總
幹事的演講是在提醒我們，公司治理
絡會議形式召開的企業規管最新發展 據，滿足合規要求。尤其是，港交所引 專業人員的工作有更廣泛的影響。我
研討會 （(ACRU)）。 1,900餘名參會人員 入了披露董事會在 ESG 治理中職責的強 們應該為自己的工作感到自豪，因為
參加了本年度 ACRU，當天討論了當前 制要求，並將所有“社會”關鍵績效 我們確保自己所服務的組織實施了良
香港治理議程中最重要的問題，包括 指標 (KPI)的披露義務升級為“不遵守就 好治理的核心原則，特別是透明度、
從新冠肺炎疫情中汲取的公司披露經 解釋”。此外，還要求上市發行人披露 問責和誠信，而這構成了市場乃至整
驗；新的環境、社會及治理 (ESG)報告 已經或可能會對上市發行人產生影響的 個社會的成功基礎。
要求；以及有關反腐敗和香港兩年前 重大氣候相關事宜，以及與其“環境”
頒布的“打擊洗錢與恐怖分子資金籌 KPI相關目標。 ESG 報告的刊發日期也 最後，我想邀請讀者們參加公會持續
集” (AML/CTF) 而訂定的製度。 縮短至報告期財政年度結束後五個月 專 業 發 展 ( C P D )日 程 中 的 下 個 重 要 活
內。透明度需要以問責為後盾，監管機 動 —— 將 於 2020 年 9 月 25日 至 26 日 舉
這些多樣化的主題之間似乎沒什麼共 構對企業不當行為進行個人問責的決心 行 的 公 司 治 理 研 討 會 (CGC)。 今 年 CGC
通點，但每一屆 ACRU都為良好治理的 是2020年ACRU的另一關鍵主題。今年的 的主題是“建立現代董事會： 20/20願
界定提供了絕佳指引，無論您任職於 ACRU非常清楚地指出，個人問責不僅是 景”，更多詳細信息請查看公會網站
什麼類型的機構及經濟領域。監管機 董事的問題，公司治理專業人員也可能 及本刊後續文章。請儘早報名，參與
構和從業人員在今年 ACRU上發言所傳 發現自己成為執法行動的目標。 這個重要的研討會！
遞的關鍵信息，都是踐行透明度、問
責和誠信的核心治理原則。 透明度和問責這兩項核心原則相互加
強，是治理“三駕馬車”中的兩輛。第
透明度是有效治理的起點，在今年 三輛是誠信原則。實施問責，要清楚區
ACRU的討論中得到了高度重視。香港 分“什麼是可接受的以及什麼是不可接
交易及結算所有限公司（港交所）的 受的行為”，而這並非照章行事就能實
發言人分享了上市發行人應對新冠肺 現。誠信問題在ACRU討論中異常激烈，
炎疫情的經驗教訓，特別是高質量披 特別是傳達出實現“誠信治理”不僅僅
露的必要性。重大危機是我們公司報 是遵守法律的理念。香港商業道德發展
告流程的試金石，今年 ACRU傳遞的關 中心（代理）總幹事林淑儀在其 ACRU
鍵信息是避免模糊、籠統的披露。利 演講中，富有說服力地論證了致力於誠
益相關者需要詳細了解危機對公司運 信治理和法律合規的組織所能獲得的好
營的影響，以及董事會和管理層為降 處，並進而強調，誠信治理的好處不僅
低風險所採取的措施。 公司本身可以感受到，整個香港市場都
能感受到。
對於在香港上市的公司而言，當前另
一重要披露問題是港交所近期對其 我們的工作通常側重於良好治理的細
《環境、社會及管治報告指引》的升 節，如建立有效的內控、安排董事
級。自本次最新升級於本月初生效以 會會議和作會議記錄，但偶爾高瞻遠 馬琳 FCIS FCS
July 2020 05
Cover Story Individual accountability ACRU 2020 review: part one A central theme to emerge from the Institute’s 21st Annual Corporate and Regulatory Update (ACRU) webinar, held on 5 June, was that regulators in Hong Kong will increasingly be holding individual executives, board members and professional practitioners accountable for corporate misconduct. July 2020 06
Cover Story
C ompanies act through individuals,
but ambiguity around the roles
and responsibilities of the people
Ignorance is no defence
Individuals sometimes claim ignorance
of the rules or the facts of the case. Mr
more readily. Where the executive
directors claim that the INEDs on a
particular board committee were given
within organisations has meant that Witts pointed out that this is no defence charge of the issue, Mr Witts pointed
enforcing individual accountability has at all since it is the responsibility of out that the board as a whole still has to
not been easy. However, the regulatory directors to know the rules and the facts maintain a requisite level of oversight.
environment, both in Hong Kong and of the case. A variant of this defence is ‘Delegation is permitted and is often
globally, is changing and regulators are the argument that the directors were essential, but our investigations will look
using every available power they have newly appointed and still unfamiliar with at whether the delegation was properly
to hold individuals accountable for their obligations. Mr Witts pointed out handled. If you have the right mindset
corporate misconduct. that there is no grace period for new and are questioning everything, you are
directors. This is where director induction on the right track,’ Mr Witts said.
Who is at risk of enforcement action? in the first weeks of their appointment
In Session 1 of this year’s ACRU, Jon plays a key role. Directors need in The question as to whether different types
Witts, Head of Enforcement, Listing particular to look at the robustness of of directors can be treated differently
Division, Hong Kong Exchanges and the company’s internal controls because, under the law was further explored in the
Clearing Ltd (HKEX), pointed out that if the controls are unsatisfactory, not Q&A at the end of Session 1. Edith Shih,
companies can only operate through only the company but the directors FCG(CS, CGP) FCS(CS, CGP)(PE), the then
their people. For every breach of rules themselves will be at risk. International President, The Chartered
by a company, there are individuals Governance Institute; former Institute
who have either caused or allowed Another defence relied on is that the President; Executive Director and
the company to fall into breach. He directors delegated responsibility for Company Secretary of CK Hutchison
emphasised that, while directors handling the issue in question. Where Holdings Ltd; and Chair of Session 1,
are obviously a key focus of HKEX the executive directors have engaged in asked whether it would be right for
enforcement work, the regulator will look malpractice and the independent non- professional practitioners to be penalised
at everyone who is at fault. executive directors (INEDs) have claimed for their special expertise – this after all
ignorance of the facts of the case, HKEX would be a deterrent for these people to
Senior management and professional will look at whether the INEDs failed become INEDs.
advisers have a responsibility to ensure to ask the right questions or failed to
that issuers are run effectively and in use their independent judgement, or Mr Witts said there was no intention to
compliance with the rules. He added had failed to put in place controls and pursue individuals simply because they
that company secretaries, advisers procedures that may reduce the risk of had particular qualifications. Where
and managers who work closely with malpractice or result in its detection a professional practitioner has been
directors, a category that applies to many
people in the ACRU audience of course, Highlights
have a key role in guiding directors to act
in a compliant manner. He urged ACRU
attendees to familiarise themselves with • the regulatory environment, both in Hong Kong and globally, is changing
directors’ fiduciary duties and duties of and regulators are using every available power they have to hold individuals
care, skill and diligence as set out in the accountable for corporate misconduct
listing rules.
• managers and professional practitioners are at risk of enforcement action
He then addressed some of the common • directors are expected to devote sufficient time and attention to understanding
defences or explanations put forward their business, maintaining an active interest in its affairs and applying a
by directors in HKEX enforcement questioning mind to the information provided by management
investigations.
July 2020 07
Cover Story
if you have the right mindset and
are questioning everything, you
are on the right track
Jon Witts, Head of Enforcement,
Listing Division, Hong Kong Exchanges
and Clearing Ltd
given the lead in looking at a matter, the the problems highlighted above. He Practitioners Sharing sessions of this
other directors still have a responsibility emphasised that having the right mindset year’s ACRU complemented many of the
to ensure that the matter is properly is the key starting point. Having the regulators’ presentations in the webinar.
handled. He emphasised that directors right mindset at the very least means
will be held accountable both for their devoting sufficient time and attention to Practitioners Sharing Session 1, chaired
collective and individual responsibilities. understanding the business, maintaining by Gillian Meller FCIS FCS, Institute
‘Some directors seem to have lost sight an active interest in its affairs and President and Legal and European
of the concept of collective responsibility. applying a questioning mind to the Business Director, MTR Corporation Ltd,
Whilst the case in respect of each person information provided by management. focused on the latest trends in regulation
will be looked at individually, the principle The listing rules might seem complex, he and enforcement by the Securities and
of collective responsibility means that suggested, but directors should above Futures Commission (SFC) in Hong Kong.
it will often be no real defence for one all bear in mind the very straightforward She was in conversation with Jill Wong,
director simply to point out that another requirements of Listing Rule 3.08 – namely Partner, Howse Williams, and Alva Lee,
director is more to blame,’ he said. the requirement for directors to have Head of Internal Audit & Risk Compliance
an active interest in the issuers affairs, a Services, Hong Kong, KPMG China.
Lastly, another common defence relied general understanding of its business and
on by directors is that the malpractice to follow up on anything untoward. Ms Wong warned practitioners that the
was successfully hidden and no controls SFC is just as keen as HKEX to enforce
could have stopped it from happening. Individual accountability – a individual accountability in Hong Kong.
Mr Witts pointed out that one of the jobs practitioners’ perspective She pointed out that this trend is not
of directors is to ensure that adequate Two years ago, the ACRU formula – in fact a new one. The SFC has had its
internal controls are in place. Malpractice which initially focused on facilitating Responsible Officer regime for a long
and fraud may flourish in an environment the regulator/regulatee dialogue – was time, at least since 2003, and brought
where checks and controls are weak, or expanded to include the new Practitioners in its Manager-in-Charge (MIC) regime
where the company culture creates an Sharing sessions. These sessions, in 2017. The MIC regime aims to ensure
environment in which breaches of the designed to provide participants with that there are named individuals with
rules are allowed to happen. insights from seasoned professionals responsibility for overseeing the core
on how to implement best practices, functions of licensed corporations.
Mr Witts devoted the final part of have subsequently become a major draw Ms Wong emphasised the need for
his presentation to the solutions to for ACRU participants and the three licensed corporations to train their MICs,
July 2020 08Cover Story
the controlling minds may stay
in the shadows in the hope of
escaping accountability, but the
SFC will use the full extent of its
enforcement powers to ensure
that they are held accountable
Jill Wong, Partner, Howse Williams
especially those in IT, Operations and use the full extent of its enforcement Ms Wong and Ms Lee with a fictional
HR, to understand their obligations and powers to ensure that they are held scenario whereby, late on a Friday
liabilities under the regime. ‘They might accountable,’ she said. afternoon, a company secretary receives a
have no idea of what accountability to a letter from the SFC asking for information
regulator will really mean,’ she said. While the SFC has continued to pursue relating to an inside information case that
its ‘front-loaded’ philosophy – combining they are investigating.
She added that all market participants, early regulatory intervention in listing
not only those directly liable under the matters and enhanced supervision The discussion emphasised the need to,
MIC regime, need to understand the aims of intermediaries – it has backed this firstly, cancel any plans you may have
of the MIC regime. The people running up with focused enforcement actions had for the weekend. You would then be
the company set the tone from the top against firms with important gatekeeping well advised to read the letter in detail –
but often they are not in the front line functions and individuals in senior roles. in particular to ascertain whether your
for accountibility. ‘The controlling minds organisation is suspected of malpractice
may stay in the shadows in the hope of Ms Wong recommended that – and consult your head of legal on who
escaping accountability, but the SFC will practitioners monitor the public can be informed of the investigation in
interest statements and the compliance with statutory requirements
announcements of disciplinary for secrecy. This will usually include
actions issued by regulators in whoever has responsibility for inside
Hong Kong. ‘These statements information compliance within your
are useful since they help to organisation, as well as the CEO, the board
educate the market – giving chairman and the board committee with
practitioners a good idea of what responsibility for inside information.
the regulators expect in terms of
compliance,’ Ms Wong said. You should then get back to the SFC
to let them know you are handling the
Handling SFC investigations matter – often a phone call is preferable
The panel discussion at the end since you can ask for further details of
of Practitioners Sharing Session 1 the case. You can then look at your legal
looked at how to handle regulatory obligations for making any necessary
investigations. Ms Meller presented disclosures (taking into account any
July 2020 09Cover Story
confidentiality requirements) and finding investigation of the matter The panel discussion also addressed
whether a halt in trading will be needed. and securing all documents relating to the procedures to be followed if the
the investigation. This might include letter accuses a specific director. For
Subsequent steps should include ensuring that relevant documents don’t example, the director in question
appointing an officer, usually the head get destroyed as part of a routine record should be excluded from any internal
of legal, company secretary or head of destruction policy – even if the usual enquiries and any board discussions
compliance to lead a thorough fact- retention period has expired. of the matter, but what information
can be shared with that director?
ACRU: the new format Should the director be suspended if
evidence of malpractice is found?
Moreover, should the organisation pay
The Institute’s Annual Corporate and Regulatory Update (ACRU) is the largest- for independent legal advice for the
scale event, in terms of attendance figures, in its CPD calendar. Holding this accused director?
year’s ACRU in the midst of a global pandemic clearly called for a change to
the format and, in keeping with the Institute’s current policy for its CPD events, Ms Meller added that it is useful to
ACRU was held as a webinar. have guidelines on what legal support
will be provided for directors who
The change of format did not result in a significant fall in the number of become the subject of investigations.
attendees – the event attracted over 1,900 participants – neither did it result in Another best practice recommendation
any reduction in the number of questions in the webinar’s Q&A sessions. This is is to have the question: ‘Is this inside
testimony both of the degree to which online learning and communication, and information?’ at the end of all board
the technology which makes this possible, has become the new normal, but also papers to prompt directors into a
of the abiding popularity of the dialogue that ACRU facilitates. consideration of the inside information
implications of all issues considered by
Gillian Meller FCIS FCS, Institute President, pointed out in her welcoming the board.
address that holding the forum as a webinar does not mean losing any of the
functionality it would have in an in-room setting. ‘Crucially, participants can ask The 21st Annual Corporate and
questions in the Q&A sessions from whatever device they are using to attend,’ she Regulatory Update (ACRU) of
said. ‘For this reason, I believe that COVID-19, far from being a setback, will have The Hong Kong Institute of
a positive legacy for ACRU that will widen the accessibility of the forum.’ Chartered Secretaries was held
on 5 June 2020.
July 2020 10The Hong Kong Institute of Chartered
Secretaries is proud to present:
Corporate Governance Week 2020
The Hong Kong Institute of Chartered Secretaries (HKICS) is a professional
body that qualifies and trains Chartered Secretaries and Chartered Governance
Professionals in Hong Kong and the Mainland.
19-26 September 2020 HKICS is hosting its 3rd Corporate Governance Week (CG Week) from
19 to 26 September 2020 with the following activities:
Corporate Governance Paper
Competition and Presentation Awards
Governance Professionals
Information Session
Annual Convocation 2020
Corporate Governance Conference
2020 – Building the Modern Board:
A 20/20 Vision
Building the Modern Board:
A 20/20 Vision Corporate Governance Conference
Corporate Governance Conference 2020
2020 – Corporate Visits
Please join the above activities and engage with company
secretaries, governance leaders and aspiring talent on key
corporate governance issues from new perspectives!
For more information, please visit the Institute’s website or contact: 2881 6177 or email: ask@hkics.org.hk.
The Hong Kong Institute of Chartered Secretaries 香港特許秘書公會 (Incorporated in Hong Kong with limited liability by guarantee) www.hkics.org.hkCover Story Disclosure in times of crisis ACRU 2020 review: part two Corporate disclosure issues featured highly in the discussions at this year’s Annual Corporate and Regulatory Update (ACRU). This second part of our ACRU review looks at the insights into corporate disclosure offered by regulators and practitioners speaking at the forum, in particular the disclosure lessons to be learned from the COVID-19 pandemic. July 2020 12
Cover Story
C orporate disclosure issues have been
high on the agenda of companies in
Hong Kong, particularly in the context
Newsletter’ (published April 2020) which
makes useful recommendations on how
listed issuers should approach the task of
2. Disclose your judgements and
estimates
Making specific disclosures in a fast-
of the COVID-19 outbreak. Two speakers publishing announcements and providing moving situation such as a global
from Hong Kong Exchanges and Clearing business updates to investors. pandemic is not easy, particularly when
Ltd (HKEX) – Kenneth Chan, Senior it comes to non-financial assets. Mr Ong
Vice-President, Listed Issuer Regulation The key message is the need to be as emphasised in his ACRU presentation
Listing Division, and Steve Ong FCA FCPA specific as possible in such announcements that issuers should disclose their critical
Senior Vice-President, Head of Accounting and updates. ‘The more specific you are, judgements and estimates and be
Affairs, Listing Division, devoted their the more helpful the disclosure will be to particularly vigilant in areas such as any
ACRU presentations to corporate shareholders,’ Mr Chan pointed out. Issuers impairment assessments of non-financial
disclosure issues – in particular sharing should: assets, including goodwill.
insights on the lessons to be learned from
the COVID-19 outbreak. • include quantitative measures of the Mr Ong pointed out that intangible assets
financial impact such as goodwill are often significant assets
Disclosure lessons from COVID-19 and any impairment of these assets remains
1. Be as specific as possible • provide an assessment of cost a key area of concern for investors. Issuers
The measures taken in Hong Kong measures and liquidity positions should take into account all of the relevant
to minimise the impact of COVID-19 factors and disclose the key judgements
coincided with busiest time of the year • review their current liquidity position made by the management in determining
for listed issuers – that is, when they and expected financial resource needs the useful life of an intangible asset. ‘It
were making final preparations for their is critical for issuers to make sufficient
annual reports and AGMs. The restrictions • disclose principal risks and disclosure with reference to Hong Kong
on travel and social distancing measures uncertainties arising from the Financial Reporting Standards (HKFRS),
meant that the staff of many companies pandemic particularly information on management’s
couldn’t get to the office and auditors judgements and estimates in the
were not able to travel to complete their • continuously assess and update preparation of the financial statements,’ Mr
field work. In this context, Mr Chan said it investors of material developments, Ong said. He added that investors are likely
was a credit to those involved in corporate and to disregard companies whose assumptions
disclosure over the last few months in are perceived to be inaccurate.
Hong Kong that only five issuers (0.3%) • disclose new business opportunities
had to be suspended due to their failure with factual information in a clear and The impact of COVID-19 will differ of
to publish preliminary results/material balanced manner. course depending on issuers’ specific
financial information due to matters
related to the pandemic. ‘We should be Highlights
proud of ourselves that we did as well as
we did and that the integrity of the market
was not compromised,’ Mr Chan said. • issuers need to be as specific as possible when publishing announcements and
providing business updates to investors
Nevertheless, there have been disclosure
lessons from the COVID-19 crisis. Mr • issuers should disclose their critical judgements and estimates and be
Chan urged ACRU attendees to read particularly vigilant in areas such as any impairment assessments of non-
the guidance issued by HKEX and the financial assets
Securities and Futures Commission (SFC) • the board and/or board committees should consider climate-related issues
on the impact of COVID-19. He referred in when reviewing business strategy and policies
particular to the ‘Listed Issuer Regulation
July 2020 13Cover Story
the more specific you
are the more helpful
the disclosure will be to
shareholders
Kenneth Chan, Senior Vice-President,
Listed Issuer Regulation Listing Division,
Hong Kong Exchanges and Clearing Ltd
circumstances, and Mr Ong pointed Acquisitions or Disposals’ (issued in July for issuers to better identify their
out that issuers are obliged to apply 2019), and the guidance on corporate counterparties in notifiable transactions.
the relevant accounting standards to transactions and the use of valuations
their particular situations. This means (issued in May 2017). HKEX was concerned that some issuers
that issuers preparing their financial were taking a ‘form over substance’
statements need to consider, with their Finally, Mr Ong thanked all of the company approach to disclosures with regard to
audit committee and auditors, how secretaries who collated the information notifiable transactions. Mr Chan urged
COVID-19 may affect their financial to enable the FSRP to be compiled. He issuers to consider what shareholders
results and key balances in their pointed out that company secretaries are need to know to fully understand what
statements of financial position. an important conduit between the board is being proposed. ‘We highly encourage
and shareholders and play a key role companies to disclose the identity of the
Mr Ong also addressed the key themes to ensure that financial disclosures are beneficial owners of their counterparties,
of the latest HKEX Financial Statements properly managed. ‘You have a great role particularly where they are investment
Review Programme (FSRP), published in to play in ensuring that the ecosystem holding vehicles. There are cases where
January 2020. The report highlights the relating to financial reporting works for issuers have followed the letter of the
need for listed issuers to ensure proper listed issuers,’ Mr Ong said. rule but shareholders have not been
assessment of recognising ‘gains on provided with sufficient information to
bargain purchase’. Mr Ong said there was New listing rule disclosure requirements assess the transaction,’ Mr Chan said.
a tendency to overestimate the ‘bargain Before the arrival of COVID-19, HKEX
purchases’ in M&A transactions, but was in the process of upgrading the The 2019 listing rule changes also seek
that investors need to know the true disclosure requirements of the listing to enhance the transparency of material
value of such assets. Mr Ong reminded rules. Rule amendments made in 2019, connected transactions. In particular,
ACRU attendees that the SFC has issued for example, were designed to help issuers are now required to disclose
guidance in relation to valuations in issuers to communicate more effectively the identity and activities of the parties
corporate transactions such as the and meaningfully with shareholders. to such a transaction, as well as their
‘Statement on the Conduct and Duties Mr Chan highlighted some of the ultimate beneficial owners, in both
of Directors when Considering Corporate key changes such as the requirement announcements and circulars.
July 2020 14Cover Story
company secretaries
should be focusing
on the board’s role in
managing ESG risks
Katherine Ng, Chief Operating Officer
and Head of Policy and Secretariat
Services, Listing Division, Hong Kong
Exchanges and Clearing Ltd
In addition, Mr Chan pointed out that statements which fairly present their ACRU attendees to read the TCFD
the latest HKEX ‘Review of Issuers’ financial position and performance and recommendations since they have
Annual Report Disclosure’ highlights are free from material misstatements. become a bible for what best climate
some weaknesses in current disclosure This means providing additional change-related disclosure looks like. She
practices. For example the 2019 review information if the financial statements added that it is particularly relevant for
found that around one-half of issuers do not give a true and fair view. Where governance professionals since it places
assessed provided no or limited disclosure issuers have included a modified audit a lot of emphasis on governance – the
relating to ‘other expenses’ in their opinion, they should take prompt actions processes companies need to have in
annual reports. Moreover, in a number of to actively engage auditors on the action place to govern ESG and the board’s role
cases the unexplained ‘other expenses’ plans at the earliest instance and take in overseeing this area.
were material with reference to the actions to address the modifications.
issuer’s total costs and expenses for She pointed out that the latest HKEX
the year. He emphasised the principle ESG disclosure ‘Analysis of Environmental, Social and
that listed issuers need to provide In her ACRU presentation, Katherine Governance Practice Disclosure’ published
a full discussion and analysis of the Ng, Chief Operating Officer and Head of in December 2019 found that many
material factors underlying their results Policy and Secretariat Services, Listing listed issuer ESG reports contained little
and financial position. Issuers should Division, HKEX, gave an overview of or no description of board involvement.
therefore be disclosing meaningful the latest developments relating to ‘Company secretaries should be focusing
information by providing a breakdown environmental, social and governance on the board’s role in managing ESG
of ‘other expenses’ to enhance (ESG) reporting and performance of risks,’ she said. She shared a slide (see
shareholders’ understanding of their Hong Kong listed issuers. ‘ESG governance: assessing the board’s
financial performance. readiness’) listing a number of questions
Ms Ng started by sketching the latest testing the board’s readiness for ESG
Mr Chan also reiterated the principle that, international developments in ESG, governance. ‘If you take one slide
to enable investors to make informed including the recommendations of the takeaway from my presentation, let it
investment decisions, issuers should Task Force on Climate-related Financial be this one,’ she said. ‘Please bring these
provide shareholders with financial Disclosures (TCFD). Ms Ng encouraged questions to your board.’
July 2020 15Cover Story
ESG governance: assessing the board’s readiness
Yes No
1 The board is involved in evaluating and determining the ESG risk
2 We know the ESG issues that are material to the business and can talk about the ESG strategy to a
certain level of detail
3 We know what ESG issues our key investors want to know about
4 We have regular access to the information needed to evaluate ESG risks
5 We are looking to the future and evaluating how different ESG scenarios will impact the financials
6 We have a diverse board so that we have good perspectives and understanding on ESG and other areas
Ms Ng urged ACRU attendees to monitor relevant guidance materials available on together and it is an absolute no brainer
the frequency by which the board and/ the HKEX website. for companies to improve their ESG
or board committees are informed about performance and disclosure, she said.
climate-related issues, whether the ESG – a practitioner’s perspective
board and/or board committees consider Ms Ng’s presentation was complemented The discussion also addressed how to
climate-related issues when reviewing by the practitioner’s perspective on ESG engage with boards not yet convinced
business strategy and policies, and disclosure provided by Practitioners about the need for better ESG disclosure
how the board monitors and oversees Sharing Session 2, chaired by David and performance. Ms Wang suggested
progress against goals and targets for Simmonds FCIS FCS, Institute Vice- that getting boards to understand
addressing climate-related issues. President and Group General Counsel, how a poor record on ESG will impact
Chief Administrative Officer and their share price is often a persuasive
Ms Ng also addressed the latest upgrade Company Secretary, CLP Holdings Ltd. argument. ‘Try to get your board
to the HKEX ‘ESG Reporting Guide’. Mr Simmonds was in conversation members to hear directly from investors
New disclosure requirements, effective with Flora Wang, Director, Sustainable about why ESG is important – let them
for financial years commencing on or Investing, Fidelity International. do it for you,’ she suggested.
after 1 July 2020, include mandatory
requirements to disclose the board’s Ms Wang pointed out that ESG concerns She shared a story a board secretary of
consideration of ESG matters; the are now mainstream and not only one of the biggest Chinese state-owned
application of the reporting principles confined to investors. For example, the enterprises told her about the effect
‘materiality’, ‘quantitative’ and ability of companies to attract and retain that a road show had on the chair of
‘consistency’; and an explanation of the talent will depend increasingly on how the company. Being grilled on ESG
reporting boundaries used in ESG reports. they manage ESG issues. Moreover, issues by investors at the road show
consumers are more aware of ESG issues had a strong impact on him and this
She emphasised that early preparation and less willing to buy products from led to a marked improvement in their
before the changes become effective will companies that have a poor record approach to ESG.
be key. She urged company secretaries on ESG. Companies that do not adopt
to familiarise themselves with the new sustainable practices will also incur The 21st Annual Corporate and
requirements, implement any necessary increasingly high costs, whether through Regulatory Update (ACRU) of
changes to their reporting infrastructure, fines or inefficient operations and that The Hong Kong Institute of
and gather the necessary information. will have a very tangible impact on Chartered Secretaries was held
She also pointed ACRU attendees to the their bottom lines. Put all these factors on 5 June 2020.
July 2020 16Cover Story July 2020 17
Cover Story AML/CTF compliance ACRU 2020 review: part three This third and final part of our review of ACRU 2020 focuses on the insights shared at the forum regarding anti–money laundering and counter–terrorist financing (AML/CTF) compliance. July 2020 18
Cover Story
T wo years on from the implementation
of Hong Kong’s new anti–money
laundering and counter–terrorist
New AML/CTF requirements for TCSPs
In addition to highlighting the licensing
requirements for TCSPs under the AMLO,
relationship, if a business
relationship is to be established,
and
financing (AML/CTF) regulatory regime the Companies Registry also reminded
for trust or company service providers practitioners of the ongoing AML/CTF • identify the person purporting to
(TCSPs), uncertainties still exist requirements TCSPs need to comply with. act on behalf of the customer, and
among market participants about the For example, TCSPs are required to carry out take reasonable measures to verify
interpretation of the new requirements. customer due diligence (CDD) measures, the person’s identity and verify the
Session 2 of ACRU provided a useful keep records of customers and transactions, person’s authority to act on behalf
opportunity to hear from the Companies and comply with the statutory requirements of the customer.
Registry, the regulator for TCSPs in Hong relating to financial sanctions, terrorist
Kong, about compliance expectations financing and the proliferation of weapons She emphasised that these CDD
going forward. of mass destruction. TCSPs are also expected measures must be carried out:
to file suspicious transactions reports with
The new licensing regime for TCSPs the Joint Financial Intelligence Unit (JFIU). • before establishing a business
Roger Wong, Deputy Registry Manager, relationship with the customer
Registry for Trust and Company Service Christy Yiu, Senior Solicitor, Registry for
Providers, Companies Registry, focused Trust and Company Service Providers, • before carrying out an occasional
his ACRU presentation on compliance Companies Registry, focused her ACRU transaction involving HK$120,000
with the licensing requirements for TCSPs. presentation on the CDD measures relevant or above
He pointed out that the majority of to TCSPs. These include requirements to:
prosecutions of TCSPs by the Companies • when the TCSP licensee suspects
Registry under the Anti–Money Laundering • identify customers and verify their that the customer or the
and Counter–Terrorist Financing Ordinance identity customer’s account is involved
(AMLO) (Cap 615) have related to TCSPs in money laundering or terrorist
carrying on trust or company service • identify the beneficial owner and take financing (ML/TF), and
business without a licence. reasonable measures to verify the
beneficial owner’s identity • when the TCSP licensee doubts
Carrying on such business without a the veracity or adequacy of the
licence is an offence under Section 53F • obtain information on the purpose information obtained during the
of the AMLO, and can result in fines of and intended nature of the business CDD process.
up to HK$100,000 and imprisonment
for up to six months. Mr Wong urged Highlights
practitioners to familiarise themselves
with the licensing requirements of the
AMLO. In particular, he clarified that • the majority of prosecutions of trust or company service providers (TCSPs) by
TCSPs cannot carry on trust or company the Companies Registry since the implementation of Hong Kong’s new anti–
service business while waiting for the money laundering and counter–terrorist financing (AML/CTF) regime relate to
Companies Registry to grant a licence. TCSPs carrying on trust or company service business without a licence
Where the Companies Registry comes
across cases of applicants providing TCSP • having the right corporate culture and internal controls are key to an effective
services after making an application AML/CTF compliance programme
but before a licence has been granted, • making a suspicious transaction report (STR) can give practitioners protection
the Companies Registry will reject the from prosecution, but they need to refrain from informing third parties about
application and may take prosecution the STR since this might be considered a tipping-off offence
action as appropriate.
July 2020 19Cover Story
If the CDD requirements cannot be
complied with, TCSPs cannot establish
a business relationship or carry out
an occasional transaction with that
customer. If a business relationship has
been established, it must be terminated
as soon as reasonably practicable.
Ms Yiu reminded practitioners that
TCSPs are expected to continuously
monitor their business relationships with
customers. They should review from time
to time documents, data and information
relating to the customer to ensure they
are up-to-date and relevant. They should
scrutinise customer transactions to implement AML/CTF policies, procedures Jeremy Birch, Partner, Corporate Crime
ensure that they are consistent with the and controls. TCSP licensees should and Investigations, Herbert Smith
licensee’s knowledge of the customer establish and implement adequate Freehills, first addressed the issue of
and its business, risk profile and source and appropriate AML/CTF systems the market uncertainty surrounding the
of funds. They should also identify taking into account factors including licensing of nominee entities. When Hong
transactions that are complex, unusually the products and services offered, the Kong’s licensing regime for TCSPs was
large or of an unusual pattern and which types of customers they serve and the implemented in 2018, market participants
have no apparent economic or lawful geographical locations involved. The were uncertain how to interpret the
purpose, and examine the background senior management of any TCSP licensee requirement for nominee entities to apply
and purposes of those transactions and should appoint a director or senior for a licence if they were carrying on TCSP
set out their findings in writing. manager as a compliance officer and a work ‘by way of business’. Some took the
senior member of the licensee’s staff as view that their nominee entities could
Moreover, in situations that present a high the Money Laundering Reporting Officer. not be deemed to be providing trust or
risk of ML/TF, enhanced due diligence (EDD) company services ‘by way of business’ and
must be carried out. This would include Ms Yiu was followed at the podium by did not apply for licenses.
where the customer is not physically Wendy Ma, Registry Manager, Registry
present for identification purposes, where for Trust and Company Service Providers, The Companies Registry subsequently
the customer or the beneficial owner of Companies Registry, who gave an update prosecuted a number of nominee entities
the customer is a politically exposed person of the latest developments relating to the of TCSPs for carrying on TCSP work
(PEP), or where the customer is from, or the Companies Registry’s e-Services. without a licence. Mr Birch referred ACRU
transaction is connected with, a higher-risk participants to the Companies Registry
jurisdiction. The EDD measures required AML/CTF compliance – a practitioner’s FAQ of 9 May 2018 (available on the
are set out in Sections 9, 10 and 15 of perspective Companies Registry website) which gives
Schedule 2 to the AMLO. Complementing the Companies Registry guidance on how the Companies Registry
presentations of ACRU Session 2, interprets the question of whether a
Ms Yiu emphasised that the best way Practitioners Sharing Session 3, chaired person or entity will be deemed to be
to stay compliant with the above by Natalia Seng FCIS FCS(PE), Council providing a trust or company service by
compliance requirements is to ensure Member and Institute Past President, way of business.
robust AML/CTF internal controls. TCSPs and Senior Advisor, Tricor Services Ltd,
must assess the ML/TF risks they are provided practitioner perspectives on Mr Birch also looked at how the
exposed to, and they should develop and AML/CTF compliance. Companies Registry’s enforcement
July 2020 20Cover Story
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2020
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cgc.hkics.org.hk Corporate Governance Conference 2020
25
September 2020
Guest of Honour:
The Honourable Christopher Hui Ching-yu JP
Secretary for Financial Services and the Treasury,
8.45am-5.00pm The HKSAR Government
26 September 2020
optional site visits
Silver Sponsor Bronze Sponsors
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For more information,
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July 2020 21
or email:
The Hong Kong Institute of Chartered Secretaries 香港特許秘書公會
cpd@hkics.org.hk (Incorporated in Hong Kong with limited liability by guarantee) www.hkics.org.hkCover Story
The Companies Registry has shown itself
to be very serious about enforcement.
This underscores the fact that it is worth
investing time and resources to get AML/
CTF compliance right.
Jeremy Birch, Partner, Corporate Crime and Investigations,
Herbert Smith Freehills
work will evolve in the future. While door’ policy whereby employees are Ms Chiu stressed the importance of
the focus has been on enforcing the welcome to go to any senior manager training to ensure that staff recognise
licensing regime, Mr Birch expects the with queries or information relating to the red flags that might lead to a
Companies Registry to increasingly this area. suspicion of money laundering. These
focus on enforcing the substance of might involve a client asking to open
the ongoing AML/CTF requirements. He In the Q&A session following the many bank accounts without commercial
added that TCSPs will be well advised Practitioners Sharing, there were reasons, or creating vehicles and selling
to focus on their AML/CTF policies, many questions about how to handle them very quickly. Training can also
procedures, systems and controls. ‘The suspicious transaction reports (STRs). familiarise staff with the procedures
Companies Registry has shown itself to In cases of suspicions of money for making an STR. In addition to the
be very serious about enforcement. This laundering, TCSP licensees are required issues discussed by Mr Birch, it is also
underscores the fact that it is worth to make an STR to the JFIU. Mr Birch good practice, for example, to maintain a
investing time and resources to get AML/ emphasised that making an STR can be a record of all STRs.
CTF compliance right,’ he said. ‘get out of jail free card’ in a sense since,
if handled properly, TCSPs cannot be A question from the floor related to the
The second speaker in Practitioners prosecuted for dealing in the proceeds procedures involved with terminating the
Sharing Session 3 was Katherine Chiu, of crime if they have made an STR. relationship with a client after making an
Managing Director, Trust & Corporate Handling the STR properly, however, STR. Mr Birch pointed out that filing an
Services, Sino Corporate Services Ltd. requires TCSPs to understand the STR doesn’t necessary mean you have to
She gave a practical introduction to the protocols attached. terminate the relationship, but, if that is the
corporate culture and internal controls appropriate course, you need to be careful
needed to ensure good AML compliance. ‘STRs are a powerful intelligence about how you explain to a client your
In terms of corporate culture, she gathering tool for the JFIU, which is reasons for terminating the relationship to
emphasised, among other things, the why the obligation exists. Filing an STR ensure you don’t inadvertently tip them off
need to have a group policy that is can give you some protection, but one about filing an STR.
consistent internationally and to have important point to bear in mind is the
a Group Compliance Officer or Money need to manage the confidentiality of The 21st Annual Corporate and
Laundering Reporting Officer looking the STR since disclosure to a third party, Regulatory Update (ACRU) of
after this area. Another best practice which poses the risk of undermining The Hong Kong Institute of
is to encourage employees’ input. Sino an investigation, will be considered a Chartered Secretaries was held
Corporate Services operates an ‘open tipping-off offence,’ Mr Birch said. on 5 June 2020.
July 2020 22You can also read
