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GRC 2023 - Annual Check Up

A collection of housekeeping matters for regulated firms in Hong Kong


Cognitive GRC Limited (website) is a leading provider of Governance Risk and Compliance services to Hong Kong Firms. We focus on SFC requirements but also support international firms on their global needs through our network of service partners. The following should not be relied upon as regulatory advice but more a reminder of issues for your consideration. Please reach out to your relevant service provider/consultant to discuss your understanding of the relevant matters as required. There are links to third party websites included.


From a markets point of view, the year of the tiger was less roar and more meouch! But we are hoping (or hopping into the year of the rabbit) that we are in the bounce end of things rather than a false bottom.


Onwards and upwards, we fight together whatever is next in the infinite staircase of regulatory change. There is a lot of noise coming out of the US with respect to change. However, on deeper consideration that noise seems to be resonating a more harmonic note with what we have already seen here in Asia (e.g. Outsourcing, Cloud, Cyber reporting, BRMQ etc).


More on this and why this may be good news for Asia based firm's later this quarter.

Back from a short trip to Europe, reconnecting with some of our Hong Kong diaspora, and experiencing the first day of frictionless Hong Kong re-entry was a welcome yet surreal experience. Mask On/Mask Off will be the next sign of a return to the new normal, whatever that may be.


For your operational consideration there is not much of a change from what we included in last year's reminders so we will not repeat the analysis. Please find the headlines for your 2023 planning.


Priorities for most of our client types in the region (expand where relevant).

SFC Firms, Type 9 Semi-Annual FRR (in practice due a day earlier)

The FRR is due within 21 days of the period end and even though the 21st is on the Saturday before Chinese New Year, the SFC will expect the submission to be prior to the deadline, not after the bank holiday so bear in mind that the 20th is a Friday (office hours for Wings is Monday to Friday). As a reminder the SFC has implemented changes to the submission process as they can be submitted via WINGS (see Circular from last year). Please make sure that you have all the appropriate accounts set up to do so in advance of the deadline as it is likely to be a busy period when resources are likely to be stretched.

CFTC - Verification and Confirmation of CFTC De Minimus Exemption is expected to be complete within 60 days of the year end but check out the system

Managers with US Investments - Check out your 13F, G and H status to determine if you have any updated obligations.

SEC Registrants - ADV updates due by end of Quarter 1 (December Year Ends). Full Registrants to consider Form PF obligations and frequency as there are some changes being proposed for both Registered and Private Fund Managers (ERAs).

Annex IV Obligations - Firms with European Investors will have annual obligations.

SFC Survey Obligations - Joint Product Surveys 2022 - Type 1 and 4 Firms.

SFC to launch investor identification regime in March 2023.

CoSEC, Tax, Fund, FATCA, CRS, Accounting Deadlines

World Economic Forum - Annual Global Risk Report 2023

Annual SFC Obligations

If not already done, firms should be focusing on finishing off 2022 governance documents (MLRO risk review, Valuation Reviews, Annual Risk and Governance Reviews, Manager in Charge reviews, Bad Actor/Disciplinary Questions, Policy updates/Sign Off etc) and if not already completed in the last 12 months, you may be considering an annual review of third-party service providers, business continuity and electronic data providers. Generally, we would recommend keeping these reviews out of this quarter but if they have not been completed in 2022, now would be the time to catch up and close out before your Business Risk Management Questionnaire (BRMQ) which will be due alongside Audit and Annual Disclosure documents (i.e. 4 months after your year end).


Please do note the pre-Christmas present of an updated BRMQ, (Source: SFC) continuing an SFC theme of stealth regulation by questionnaire (discussed in last year's reminder). There are definitely a number of subtle amendments that will require regulated firms to give some additional consideration about how they might approach things differently or perhaps give more weight to previous best practice suggestions. As with last year, we will prepare a BRMQ change analysis and add it to our data repository.


Initial BRMQ considerations: Our long standing MLRO report should cover the institutional risk assessment requirement and we have prepared a fairly easy to follow exit plan (Source: SFC) production process for those who have not yet so prepared. It does not need to be an industry of its own (unless you have nothing else to do) but please request access to our operational resilience paper if you are seeking to embarking on this process. Putting together an exit plan should not be that challenging as long you understand your risk universe and are able to navigate your expense schedule in a way that understands service provider notice periods, and your wind down cost horizon (see paper/request a copy of our wind down table). Anyone with FCA experience will recognise it as a standard control exercise. It is obvious from the March Circular and the new questions in the BRMQ that the SFC is now more concerned over the financial status of licensed firms and their financial backers. Having spent years denying European style prudential regulation is required for the non-systemically important firms, it would seem that the core prudential requirements are being re-introduced through the back door. We see no harm in that admission as all firms should consider their contingency funding to help with crisis management scenario reviews.


As we did for the 2022 update, we will prepare on a more in depth analysis of the subtle changes (AML, Background Checks, etc) and will help clients prepare for the changes to the BRMQ in advance of next years deadline "To allow sufficient preparation time for LCs and AEs, the revised BRMQ shall be used for financial years ending on or after 30 November 2023."


For those concerned about the myriad of changes to US requirements for both SEC registered firms and exempt reporting advisers (covered in our October update (Source CGRC)), we have also been looking at ways in which we believe it will actually make life easier for Asia based firms. Given our experience with each regime, it is evident that the proposed rules are aligning with the standards that are already in place elsewhere (FCA, SFC, MAS, etc). As some of the new requirements have yet to be implemented, we are keeping our powder dry but we expect the outcome to be a source of competitive advantage for those who can navigate multijurisdictional requirements most efficiently.


ACA clients may refer to recent updates (Source: ACA Global) in particular the update on SEC FAQs relating to marketing (Source: ACA Global). Otherwise please refer our to October update (Source CGRC) and/or contact your US regulatory adviser.


ESG - It is becoming more difficult to argue that climate data is not available as we have seen a phenomenal growth in both data and expertise in each of the developing avenues of environment, sustainability and governance fields. The aroma of knowledge based experience is pervading the market with the whiff of possibilities that will make it more difficult for smaller firms to stay hush on their climate position no matter their current views on the quality or practicality of the expectations. Our participation in the annual regtech awards with Regulation Asia provided significant insight into the developing data market (see complete award schedule here, Source: Regulation Asia). Knowing what is available in the solution set is key to staying strategically ready for the next phase of development as the pendulum has swung from a dearth to an abundance of information. Also please refer to Redlinks article on latest thinking for SFC regulated managers here (Source; Redlinks).


Finally, some Cognitive GRC updates; Early in 2022 Ms. Cara Cheng was promoted to Consultant in recognition of her developing experience, knowledge and client service delivery. Ms. Tani Tong has more recently been promoted to Senior Compliance Analyst, following her completion of the Henley Executive Hedge Fund Course Programme and her contribution to the team and her client service. We are so grateful for all the efforts of the team in 2022 in keeping both our technical knowledge and client support standards to the high levels that our clients expect and look forward to continuing to grow through 2023 as a result.


Please contact us for any of your training (direct or through Inflection Point Intelligence) or project consulting needs. Clients can refer to the quarterly enforcement and regulatory updates which have been already published via datasite. Our MLRO Resources update will be published after the FATF plenary in February.


We would be grateful if you could also follow us on LinkedIn, and share our updates where you believe relevant. Please reach out to your consultant for any client queries or to one of the team at info@cognitivegrc.com. Let us know if you have any issues to add to this annual reminder.

Happy New Year 2023, Derek McGibney/Beate Ly Managing Directors, Cognitive GRC Limited.

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