We are delighted to announce that our Partner and Head of Banking and Finance Department Mr. Eric Lui has been reappointed by Secretary for Security Mr. John K. C. LEE as an observer of The Independent Police Complaints Council (“IPCC”) in November for a further term of two years. “It is my honor to be an Observer. I will keep my promises and do my best to perform the official duties.” Mr. Lui said.

Under the Observers Scheme, Observers who are appointed by the Secretary for Security may attend interviews and observe the collection of evidence in connection with CAPO’s investigation of Reportable Complaints. The observations can be carried out on a pre-arranged or surprise basis. The role of an IPCC Observer is primarily to observe and report. Through observations, observers will advise IPCC whether or not the interview or collection of evidence was conducted in a fair and impartial manner.

Please contact Mr. Eric Lui for any enquiries for further information.

Introduction
Financial technology, better known as Fintech, is making headlines around the world, especially with technologically conscious Chinese customers and businesses. Recently, regulators in Hong Kong have announced sandbox and other related initiatives aimed at Fintech firms. In general, the sandbox initiatives involve offering a more controlled regulatory regime for participating firms on the condition of having more clarity on the timing, scope and volume of services it can offer, making appropriate safeguards for customers, and accepting more supervision from the relevant regulators.

HKMA – Fintech Supervisory Sandbox
The Hong Kong Monetary Authority (“HKMA”) has already launched its own Fintech Supervisory Sandbox (“FSS”) initiative in September 2016, which allows banks and their partner Fintech firms to conduct pilot trials on new financial services.

Having gained experience operating the FSS, the HKMA intends to enhance FSS, with the following new features under consideration:

• Fintech Supervisory Chatroom – HKMA can now provide feedback to banks and Fintech firms at an early stage of product development, to facilitate the rollout of new products and services.
• Direct Access for Fintech Firms – With the chatroom in place, Fintech firms may now access FSS directly without having to go through a bank.

SFC Regulatory Sandbox
The Securities and Future Commission (“SFC”) launched the SFC Regulatory Sandbox in September 2017 to provide a confined regulatory environment for Qualified Firms to operate regulated activities under the Securities and Futures Ordinance (Cap. 571) (“SFO”) before Fintech is used on a fuller scale.

The establishment or activities of these Qualified Firms should increase the range and quality of products and services for investors and benefit the Hong Kong financial services industry. To be a Qualified Firm, the firm shall:

• be fit and proper;
• utilise innovative technologies; and
• have a genuine and serious commitment to carry on regulated activities through the use of Fintech.

Under the SFO, no person shall carry on a business in a regulated activity unless the person is licensed by the SFC to conduct such regulated activity. Accordingly, a Qualified Firm should also be licensed (in the case of a start-up, it will need to apply for and obtain the appropriate licence) and comply with the applicable finanicial resources and other requirements).

At the same time, the SFC also released a circular to clarify the “relevant industry experience” requirement for responsible officers (“ROs”), who are appointed to supervise the business of a regulated activity in a licensed corporation. The SFC may recognise the RO applicant’s technology experience as “relevant industry experience” if (i) the applicant has been a key person in developing, or ensuring the proper and continued functioning of, a technology, platform or system (ie, not merely providing system support); and (ii) the technology, platform or system in which the applicant has expertise is central to the regulated activity of his/her new principal.

IA – Insurtech Sandbox
The Insurance Authority (“IA”) has recognised that the application of technology in the insurance industry (“Insurtech”) has closely followed the development of Fintech. In response, the IA has launched the following initiatives in September 2017:

• Insurtech Sandbox – Authorised insurers uncertain whether their innovative Insurtech applications can meet the relevant supervisory requirements can apply for a trial in the Insurtech Sandbox, where presents an opportunity for such insurer to collect data to demonstrate that such application can broadly meet IA’s supervisory requirements.
• Fast Track for New Insurers – the Fast Track provides a dedicate queue for new applications for insurance business in or from Hong Kong owning and operating solely digital distribution channels (as opposed to agents, brokers or banks).

Conclusions
Regulators in Hong Kong have launched their respective sandbox initiatives relevant to the booming Fintech industry. If a firm’s activities may be subject to the regulation of more than one regulator, a firm only needs to apply for the sandbox it deems more relevant. The relevant regulator will act as the primary point of contact, and will assist in liaising with other regulators.

Moreover, it should be stressed that the sandbox initiatives should not be seen as a means to bypass the current supervisory regime. While the sandbox and other relevant initiatives are meant to encourage the development of Fintech, this aim will be subject to the regulators’ duty to protect consumers and to maintain financial stability.

This newsletter 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.

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

The Ceremony for “The First Batch of National Lawyers in Hong Kong and Macau in Joint Venture Law Firms” to receive practising certificates was successfully held in China (Guangdong) Pilot Free Trade Zone Nansha Area of Guangzhou on 16th October 2017. More than 100 guests being lawyers from Hong Kong, Macau and Guangzhou, and corporate representatives from Nansha Free Trade Zone attended the ceremony. Director-General of the Department of Justice of Guangdong Province Mr. Zeng Xianglu presented practising certificates to a total of 42 lawyers, 33 from Hong Kong and 9 from Macau. Deputy Director of the Department of Justice of Guangdong Province Mr. Liang Zhen, President of Guangdong Lawyers Association Mr. Xiao Sheng Fang, Deputy Director of Justice Bureau of Guangzhou Municipality Mr. Tan Xian Ping and District Chief of Guangzhou Nansha People’s Government Mr. Ceng Jin Ze also attended the ceremony.

SW Partners Mr. Willy Cheng, Mr. Hank Lo and Mr. Eric Lui all received their practising certificates. “It is an honour for us to receive practising certificates and encourages Stevenson, Wong & Co. to promote our joint venture law firm.” The joint venture law firm set up by AllBright Law Offices and Stevenson, Wong & Co. in Qianhai (“ABL&SW”) opened its doors in January 2016. ABL&SW’s office is located in the heart of the Qianhai modern service industry cooperation zone and is one of the first batch of joint venture law firms to operate in Qianhai. ABL&SW are well positioned to give legal advice from both Hong Kong and PRC law.

Please contact Mr. Willy Cheng, Mr. Hank Lo, or Mr. Eric Lui for any enquiries or further information about this event.

Introduction

The Primary Equity Connect (“PEC”) initiative is a key element of The Hong Kong Exchanges and Clearing Limited’s (“HKEX”) Strategic Plan 2016 – 2018, specifically to complete Mainland-Hong Kong Mutual Market connectivity of the equity market segment. The PEC aims to expand cross-border accessibility to the primary equity markets in both the Mainland and Hong Kong for mainland and global investors. This will be achieved by allowing Mainland investors to subscribe for Initial Public Offerings (“IPOs”) in the Hong Kong market via the PEC (Southbound) and global investors in Hong Kong to subscribe for IPOs in the Mainland market via the PEC (Northbound). It is believed that this initiative will be of mutual benefit to each market in view of the limited “internationalisation” development of both markets. Industry players have expressed interest in the PEC, in the belief that the initiative will improve market liquidity, expand investor base and attract sizable global IPOs. However, concerns have been raised regarding the PEC’s potential negative impact on both markets, as well as regulatory and operational complications relating to the implementation of the PEC. In response to such concerns, HKEX has released a research report seeking to elaborate and clarify the details of the PEC, to address the concerns, and to enhance public confidence and support for the initiative.

Background

HKEX has identified deficiencies currently faced by the Mainland and Hong Kong markets:

(a) A Mutual Market without primary market connectivity; and

(b) Developmental bottlenecks in Mainland and Hong Kong stock markets.

The table below summarises the deficiencies as presented by the HKEX:

In light of the above deficiencies, HKEX proposes that the mutual market connectivity model with access to the primary equity market via PEC, supplemented by access to the secondary stock market via Stock Connect, will sufficiently remedy those deficiencies. The PEC will also provide various benefits to the Stock markets on both sides of the border, and contribute to China’s wider economic strategy of attaining a balanced economy, opening up the financial market, and fully realising RMB capital account convertibility.

Implications

The PEC’s potential benefits to both the Mainland and Hong Kong markets are detailed in the table below:

However, there are legitimate concerns in connection to the implementation of the PEC. Sound market regulations for the PEC will have to be established to ensure a fair environment for investors, and to provide adequate investor protection and risk control. This may include eligibility criteria for issuers and investors, and obligations and liabilities of interested parties such as exchanges, market regulators, intermediaries, issuers and investors on both sides of the Mutual Market. Additional disclosure requirements may also need to be imposed for both IPOs under PEC (Southbound) targeting Mainland investors, and IPOs under PEC (Northbound) offered to local and global investors in Hong Kong. A coherent and well-constructed regulatory framework will ensure that regulatory incidents relating to issuers under PEC which impact investors’ interests could be minimised and resolved.

Operational concerns, such as those relating to IPO procedures and general market practices were raised:

(a) whether cross-border retail investors will be allowed to subscribe for PEC shares, or will PEC shares only be open to cross-border institutional investors;

(b) how PEC shares will be allotted to cross-border investors;

(c) whether there will be a separate subscription pool for cross-border subscription, or a combined pool with domestic market subscription;

(d) whether cross-border subscription be subject to different market rules or follow the IPO home market rules;

(e) whether cross-border investors be served by intermediaries in the IPO home market or in the investor’s market; and

(f) whether intermediaries serving cross-border investors be subject to different regulatory requirements, such as Know-Your-Client rules and placement guidelines.

For example, with regards to (a), if the PEC allows retail investors in the Mainland to subscribe for IPO shares, it may entail additional regulatory requirements for the listing company, as this will be deemed as a mainland public offering. This will foreseeably lead to increased time and costs for the listing company. Conversely, if the PEC only allows institutional investors in the Mainland to subscribe for IPO shares, the listing will be exempt from those regulatory requirements. Such operational uncertainties must be properly remedied to preserve market fairness and integrity.

It is anticipated that with considerable effort, a suitable model design catering to the best interests of the Mainland-Hong Kong Mutual Market will be able to effectively address the regulatory and operational concerns, and the PEC will be a successful endeavour benefitting both the Mainland and Hong Kong markets.

This newsletter 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.

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

¹ Refer to HKEX Research Report “Primary Equity Connect – A Breakthrough Opportunity for Mainland-Hong Kong Mutual Market Connectivity and RMB Internationalisation” pp 7; and CSDC Monthly Statistics, CSDC website, December 2016
² Refer to HKEX Research Report “Primary Equity Connect – A Breakthrough Opportunity for Mainland-Hong Kong Mutual Market Connectivity and RMB Internationalisation” pp 7; and Southwest Securities research report on QFII 2017Q1 shareholding status, 1 May 2017
³ Refer to HKEX Research Report “Primary Equity Connect – A Breakthrough Opportunity for Mainland-Hong Kong Mutual Market Connectivity and RMB Internationalisation” pp 10 – 11 and Figure 7

We are delighted to announce that our Partner and Head of Litigation and Dispute Resolution Department Ms. Heidi Chui has been appointed by The Honourable Chief Justice Geoffrey Ma, the Chief Justice of the Hong Kong Court of Final Appeal as a Practising Solicitor Member of the Solicitors Disciplinary Tribunal Panel in October 2017 for a term of three years.

The Solicitors Disciplinary Tribunal deals with specific disciplinary cases brought by The Law Society of Hong Kong against any person who is, or was at the relevant time, a solicitor, a registered foreign lawyer, a trainee solicitor or an employee of a solicitor or a registered foreign lawyer of Hong Kong for alleged professional misconduct.

Ms. Heidi Chui is an Arbitrator (on the panel list of the Law Society of Hong Kong), Fellow of the Chartered Institute of Arbitrators (U.K.) and an Accredited General Mediator with both the Hong Kong International Arbitration Centre and the Law Society of Hong Kong. She is also a member of the Arbitration Committee of The Law Society of Hong Kong. She is a China Appointed Attesting Officer.

Please contact Ms. Heidi Chui for any enquiries or further information.

Stevenson, Wong & Co. is delighted to announce that we have expanded with a new main office at Gloucester Tower, The Landmark. Our Corporate, Litigation & Dispute Resolution and Private Client Departments have all relocated to the new office. Our office in Central Tower will continue to serve clients for conveyancing, employment, corporate services, intellectual property and immigration matters.

We look forward to seeing and serving our clients at our improved office surroundings.
Should you have any questions on the location of our office, please feel free to contact us.