On 28 November 2024, the Hong Kong Monetary Authority (“HKMA”) has officially launched the Digital Bond Grant Scheme (“DBGS”), a key initiative announced in the 2024 Policy Address. The scheme aims to accelerate the development of the digital securities market and encourage the adoption of tokenisation technology in capital market transactions. By providing financial incentives to eligible issuances, the DBGS seeks to position Hong Kong as a global leader in digital finance.

1. Financial Support for Digital Bond Issuances

The DBGS offers funding to cover 50% of eligible expenses for digital bond issuances, up to:

To ensure a broad distribution of resources, each issuer and its associates can receive subsidies for a maximum of two digital bond issuances.

2. Basic Eligibility Requirements

To qualify for the scheme, digital bonds must meet the following criteria:

(1) The bond must be issued in Hong Kong, with at least 50% of the lead arrangers recognised as Hong Kong-based; and
(2) The issuance must either:
– involve a digital team with substantial operations in Hong Kong (assessed based on factors such as team size, composition, and seniority); or
– take place on a distributed ledger technology (“DLT”) platform operated by the Central Moneymarkets Unit (“CMU”).

3. Additional Criteria for Full Grant

Issuances seeking the Full Grant must meet the following additional requirements:

(1) DLT Platform: The bond must be issued on a distributed ledger technology platform independent of the issuer.
(2) Issuance Size: The bond must have a minimum issuance size of HK$1 billion.
(3) Investor Distribution: The bond must be distributed to at least five investors unaffiliated with the issuer or the platform provider.
(4) Listing Requirements: The bond must be listed on either (i) The Stock Exchange of Hong Kong Limited (“SEHK”); or (ii) a virtual asset trading platform (“VATP”) licensed by the Securities and Futures Commission (“SFC”).

4. Reimbursement of Eligible Expenses

The scheme also provides reimbursement for various issuance-related costs, including fees paid to DLT platform providers, arrangers, legal advisers, auditors, accountants, and rating agencies, provided these service providers are based in Hong Kong and are independent of the issuer. Listing fees for SEHK or SFC-licensed VATPs, as well as lodging and clearing fees charged by the CMU, are also covered under the scheme.

5. Coordination with Green and Sustainability Bonds

For issuances classified as green, social, sustainability, or transition bonds, the DBGS may work in conjunction with the GSF Grant Scheme to cover issuance costs. However, issuers must ensure that the same expenses are not claimed under both schemes, as dual funding for identical cost categories is prohibited.

6. Application Process and Oversight

Applications for the DBGS are now open and will be accepted for the next three years. Detailed guidelines have been published by the HKMA, outlining the eligibility criteria, application process, and reimbursement procedures. The HKMA has also indicated that it will monitor market developments closely and may refine the scheme’s structure if necessary. All decisions regarding eligibility and subsidy amounts will be at the sole discretion of the HKMA.

7. Conclusion

The launch of the DBGS underscores Hong Kong’s commitment to advancing its position as a global leader in digital securities. By fostering innovation and promoting tokenisation technology, the scheme is expected to attract issuers and investors, contributing to the long-term development of the city’s capital markets.

Please contact our Partner Mr. Rodney Teoh for any enquiries or further information.

This news update is for information purposes only. Its content does not constitute legal advice and should not be treated as such. Stevenson, Wong & Co. will not be liable to you in respect of any special, indirect or consequential loss or damage arising from or in connection with any decision made, action or inaction taken in reliance on the information set out herein.

A. Introduction
The Securities and Futures Commission (“SFC”) has released a circular (the “Circular”) detailing expectations for licensed corporations (“LCs”) adopting generative artificial intelligence language models (“AI LMs”). While being supportive of the use of AL and AL LMs by LCs, the SFC also acknowledges that AI LMs are susceptible to risk and require necessary safeguards. In particular,  the uses of AL LM for providing investment recommendations, investment advice or investment research to investors are considered to be high-risk use cases.

B. Scope of the Circular
The scope of the Circular is intended to cover LCs offering services or functionality provided by AI LMs or AI LM-based third-party products in relation to their regulated activities, irrespective of whether the AL LM is developed by the LC itself, its group company, an external service provider or sourced from open platforms.

C. Core Principles for Managing AI LMs
The SFC emphasises four core principles to guide LCs in the responsible adoption of AI LMs:

1. Senior Management Oversight
Senior management is responsible for ensuring proper governance throughout the AI LM lifecycle, from development and deployment to decommissioning. They should establish effective policies, procedures, and internal controls to manage risks and oversee the implementation of AI systems.

Senior management should also ensure qualified staff from business, risk, compliance, and technology functions are involved in overseeing AI LM adoption. Staff should possess competence in AI, data science, and regulatory compliance to address risks effectively. For high-risk use cases, such as investment recommendations or financial advice, heightened governance and additional risk controls are required to protect clients and investors.

While LCs may delegate certain functions, such as model validation, to their group companies, ultimate responsibility for compliance with legal and regulatory requirements remains with the LC.

2. AI Model Risk Management
An LC should implement a robust AI model risk management framework to ensure AI LMs remain fit for purpose. Key measures include conducting thorough validation before deployment and when significant changes are made to the model’s design or inputs, testing the model’s performance across all processes, including input, output, and any related systems and regularly monitoring and reviewing AI LM performance to address potential drifts or degradations over time.

For high-risk applications, LCs should adopt additional safeguards, such as human oversight of AI outputs and testing for consistency across variations in input prompts. Comprehensive documentation of all testing, validation, and monitoring activities is required.

The SFC distinguishes between off-the-shelf AI LM products and models developed or customised by LCs. While off-the-shelf products also require proper model management, customised models demand more rigorous oversight.

3. Cybersecurity and Data Risk Management
AI LMs are susceptible to adversarial attacks, data breaches, and other cybersecurity threats. LCs should implement robust controls, such as periodic adversarial testing, encryption of sensitive data, and measures to prevent data leakage through browser extensions or user inputs.

To ensure data integrity, LCs should mitigate biases in training data and comply with data protection laws. Particular care should be taken to protect sensitive information, such as client data, from being inadvertently exposed or exploited through AI LM training or use.

4. Managing Risks of Third-Party Providers
The SFC advises LC to exercise due skill, care and diligence to assess third party providers’ expertise, controls, and risk management frameworks.

The LC should evaluate the whether the third party provider itself has an effective model risk management in place and if the performance of the AL LM is appropriate for the LC’s specific use. The LC should also assess the third-party providers’ data management and consider if a breach by the third party provider of applicable personal data privacy or intellectual property laws could have a material adverse impact on the LC.

LCs should also prepare contingency plans to address service disruptions or operational failures stemming from third-party dependencies. Supply chain vulnerabilities and data leakage risks should be carefully monitored.

D. Notification and Compliance Requirements
LCs intending to use AI LMs for high-risk applications are reminded to comply with the notification requirements under the Securities and Futures (Licensing and Registration) (Information) Rules. Notifications are required significant changes in the LC’s nature of business and types of services provided. Early engagement with the SFC during the planning and development stages is recommended to address potential regulatory implications.

The SFC expects LCs to review and update their existing policies to comply with the circular’s requirements. Although immediate compliance is required, the SFC acknowledges that some LCs may need time to fully implement the necessary measures.

E. Conclusion
The SFC’s guidance underscores the importance of balancing innovation with responsibility in adopting AI LMs. By implementing robust governance, risk management, and cybersecurity measures, LCs can harness the benefits of AI while safeguarding against potential legal, operational, and reputational risks.

LCs are encouraged to engage proactively with the SFC to ensure alignment with regulatory expectations.

Please contact our Partner Mr. Rodney Teoh for any enquiries or further information.

This news update is for information purposes only. Its content does not constitute legal advice and should not be treated as such. Stevenson, Wong & Co. will not be liable to you in respect of any special, indirect or consequential loss or damage arising from or in connection with any decision made, action or inaction taken in reliance on the information set out herein.

The Issuer is a state-owned company which is indirectly controlled by Xichang Finance Bureau and ultimately controlled by Xichang People’s Government. The main business scope of the Issuer includes building materials sales, scenic spot operation and maintenance services, urban transportation services, house rental and management services, travel services and other services.

Our team was led by Partner Rodney Teoh, supported by Associate Angela Lau, Paralegal Austin Kot (pending admission), Trainee Solicitor Trendy Leung and Paralegal Jay Lee.

Please contact our Partner Rodney Teoh for any enquiries or further information.

Enhanced Application Timeframe

The Enhanced Application Timeframe is designed to give applicants more certainty regarding the timeline for reviews. For applications that fully meet all applicable requirements, both the SFC and the Exchange will provide their regulatory assessments within 40 business days, after a maximum of two rounds of comments. Applicants are expected to take around 60 business days to address all comments and complete the application process within the six-month validity window.

An illustration of the Enhanced Application Timeframe is extracted from the joint statement and set out as follows:

1. The business days taken for each round of comments may be subject to slight adjustments, but overall it is expected that the time taken by each regulator will be no more than 40 business days.
2. It refers to the acknowledgement of listing application.
3. If the SFC shares the same regulatory concerns as those included in the Exchange’s comment letters, it will issue a letter via the Exchange to notify the applicant through its sponsor, which will be counted as one round of comments from the SFC.
4. Upon confirmation of no material regulatory concerns, the Exchange will issue a Hearing Bundle Letter (HBL) setting out the matters to be dealt with or addressed by the applicants and their sponsors to finalise the disclosure in the listing document. When the applicants and their sponsors have a listing document that is ready for Listing Committee Hearing, and having obtained all requisite approvals from other authorities or regulators, where applicable, the application will proceed to the Listing Committee Hearing.

Accelerated Timeframe for A-share Listed Companies

A company may qualify for an accelerated process if it has already been listed in Mainland China (A-share listed) with a market capitalisation of at least HK$10 billion, and complied, in all material respects, with the laws and regulations applicable to it’s A-share listing for the past two full financial years. In this case, the review process will be completed in just one round of comments, with the regulators completing their assessments within 30 business days.

Applications Requiring Longer Review

For applications where material regulatory concerns arise, or where responses are incomplete, the review process may take longer. In such circumstances, the regulators will engage closely with the applicant and their advisers, offering further guidance to address concerns. If problems persist after two rounds of comments, a formal requisition letter may be issued, lengthening the process.

Strengthening Hong Kong’s Capital Markets

Both the SFC and the Exchange are confident that the Enhanced Application Timeframe will improve the listing experience by offering greater predictability for applicants. The new process will help Hong Kong maintain its competitive edge as a top destination for companies seeking to go public. Regulatory leaders emphasise their commitment to working with applicants and their advisers to ensure efficient, high-standard listings.

Please contact our Partner Mr. Rodney Teoh for any enquiries or further information.

This news update is for information purposes only. Its content does not constitute legal advice and should not be treated as such. Stevenson, Wong & Co. will not be liable to you in respect of any special, indirect or consequential loss or damage arising from or in connection with any decision made, action or inaction taken in reliance on the information set out herein.

The Issuer is a directly wholly-owned company of Renshou County State-owned Assets and Financial Work Bureau. The Issuer is an important investment and management entity of state-owned property and a main operation entity for production and sales of electronic products and wire and optical cable, transfer of own land, water affairs, agent construction service fees, and engineering product in Renshou.

Our team was led by Partner Rodney Teoh, supported by Associates Angela Lau and Audrey Ng, Paralegal Austin Kot (pending admission), Trainee Solicitor Trendy Leung and Paralegal Jay Lee.

Please contact our Partner Rodney Teoh for any enquiries or further information.

The main areas of focus in the Consultation Paper are: (i) board effectiveness, (ii) independence of INEDs, (iii) board and workforce diversity, (iv) risk management and internal controls, and (v) dividends.

Board Effectiveness
Enhancing board effectiveness is essential for strengthening corporate governance. This involves ensuring that the board composition reflects a well-balanced blend of skills, experience, and diverse perspectives, enabling it to function effectively in an ever-changing market environment.

Independence of INEDs
The proposed amendments aim to promote periodic board refreshment and strengthen independent voices on issuers’ board. This is intended to bring in fresh perspectives and maintain the objectivity of INEDs.

Board and Workforce Diversity
In order to facilitate unique perspectives, robust discussions and resilient decision-making, the Exchange focuses on improving diversity and inclusion in the boardroom as well as all levels of the company.

Risk Management and Internal Controls
The proposed amendments aim to improve market quality and corporate governance through continuous monitoring, periodic reviews and reporting on risk management and internal controls (“RMIC”).

 
Dividends 
The Exchange proposes imposing an enhanced disclosure requirement in the CG Report on an issuer’s dividend policy (or an explanation as to the reasons for not having such policy) and its board’s dividend decisions, in order to promote transparency and facilitate shareholders and investors in making informed investment decisions.

Analysis and takeaways
The Consultation Paper reflects the Exchange’s dedication to fortifying corporate governance practices across multiple key areas. The focus on board effectiveness, INED independence, and diversity indicates a strong commitment to enhancing governance structures. Furthermore, the proposals on the review of RMIC systems and the enhanced disclosures in relation to RMIC and dividend policies signal a move towards greater transparency in these vital areas, underscoring the importance of investor and shareholder protection and market quality.

Overall, these proposed amendments demonstrate a proactive approach to promoting robust corporate governance practices that prioritize transparency, accountability, diversity, and sustainability in Hong Kong’s listed companies.

Please contact our Partner Mr. Rodney Teoh for any enquiries or further information.

This news update is for information purposes only. Its content does not constitute legal advice and should not be treated as such. Stevenson, Wong & Co. will not be liable to you in respect of any special, indirect or consequential loss or damage arising from or in connection with any decision made, action or inaction taken in reliance on the information set out herein.