Sourced from: https://financefeeds.com/hong-kongs-sfc-reminds-prime-brokers-regulatory-obligations/

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.

FinanceFeeds –

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: