In the event the hazard positions aren’t booked into Hong Kong, PBs should still have adequate controls and procedures in place to stick to the appropriate compliance criteria established by their own group businesses.
While PBs usually embrace the risk control framework set out in the team level, they’re expected to take reasonable measures to make sure they operate within a solid risk management framework, with reporting and accountability procedures clearly defined and suitably integrated across the different jurisdictions involved. PBs also have to overlay their risk management applications with applicable local regulatory demands and operational should ensure the criteria are not less strict than the applicable regional rules.
PBs will also be reminded that if PBs or their group businesses are affected by breaches or acute control failures originating from operations in Hong Kong, the SFC will assess the implications of these cases on the fitness and properness of the PBs in Hong Kong.
- Preserve effective policies and processes for good risk management and ensure adequate information is provided to permit management to take appropriate and timely actions to contain or control risks.
- Establish appropriate risk limits for continuing monitoring and assess them occasionally for appropriateness.
- Conduct routine pressure testing, which should also be tailored to specific scenarios, by way of example, in cases of danger mismatches or if customer portfolios maintain illiquid places or products with complex features and hazard profiles. Stress testing methodologies should be suitably defined and periodically examined.
If an intermediary is the contracting thing where the threat positions for prime services are reserved, PBs are advised to follow the applicable regulatory requirements, including those associated with over-the-counter (OTC) derivative transactions, securities margin financing as well as the Securities and Futures (Financial Resources) Rules.
The SFC noted that the operating models for prime services are fragmented by character with numerous legal entities of a financial institution engaged with various areas of a client connection. Hence, PBs are reminded that if customers are serviced in Hong Kong or should PBs are carrying out their prime services in Hong Kong, PBs are expected to obey the relevant rules and regulations in Hong Kong irrespective of where the threat positions are all booked.
PBs are expected to:
- A questionnaire was delivered to 17 chosen financial institutions working from Hong Kong to gather details regarding whether they provided prime providers, their practices in relation to the range of services provided, their front-to-back industry procedures and risk management frameworks for prime providers and their related equity derivatives actions.
- At the next stage, PBs with distinct business models were chosen for prudential visits to additional confirm their responses to the survey or on-site inspections to estimate their primary risks and verify their controls for the provision of prime services activities.
Also today, at an report, the SFC given an overview of the prime solutions sector scene in Hong Kong and shared observations along with good industry practices reported by the SFC’s recent thematic review of their internal controls and risk management processes of chosen Pbs.
Hong Kong’s Securities and Futures Commission (SFC) has earlier today released a circular directed at prime brokers (Pbs) – monetary institutions supplying prime services and running related equity derivatives activities at Hong Kong, reminding them about the need to obey Hong Kong regulations.
The thematic review has been conducted in 2 phases:
The Committee cautions that crypto-assets pose a number of risks for banks, including liquidity risk; credit threat; market threat; operational risk (including fraud and cyber risks); money laundering and terrorist financing threat; and legal and reputation risks. Accordingly, the Committee anticipates that if a lender is authorised and makes the decision to obtain crypto-asset exposures or offer related services, then it must implement a raft of steps.
Furthermore, a lender is expected to publicly disclose any substance crypto-asset ailments or associated services as part of its routine financial disclosures and specify the accounting treatment for such exposures, consistent with domestic laws and regulations.
Finally, banks are expected to notify applicable supervisory authorities of planned and actual crypto-asset vulnerability or activity in a timely manner and supply assurance that they have fully assessed the permissibility of their action and the risks associated with the intended exposures and solutions, and the way in which they’ve mitigated these risks.
Moreover, banks need to have a clear and strong risk management framework that’s appropriate for the risks of its crypto-asset exposures and associated services. A risk management platform for both crypto-assets ought to be fully integrated into the overall risk management processes, including those related to anti-money laundering and combating the financing of terrorism and the evasion of sanctions, and increased fraud monitoring. Board and senior management ought to be provided with timely and appropriate information related to the bank’s crypto-asset risk profile.
First, before acquiring exposures to crypto-assets or providing related services, a lender should conduct comprehensive analyses of the related risks Banks also must be sure they have the relevant and requisite technical experience to adequately assess the dangers stemming from crypto-assets.
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Though crypto-assets continue to spark regulatory concerns, recent research commissioned by the UK Financial Conduct Authority (FCA) has demonstrated that although some injury to person cryptoasset users is potential, but didn’t imply a huge effect on broader society. The FCA quotes only 3% of customers surveyed had bought cryptoassets. Of the little sub-sample of consumers who had purchased cryptoassets, around half spent under #200.
The Committee continues to track improvements in crypto-assets, such as banks’ direct and indirect exposures to such assets. The Committee plans to describe that the prudential treatment of these exposures to suitably reflect the high level of danger of crypto-assets.