Compliance Training Test On Regulatory Inspection

In June 2011, SFC issued a publication named "Approach to Supervision of Intermediaries" which states below:

The senior management of each firm is responsible for the licensed corporation’s activities and for properly managing the risks
associated with such activities. Appropriate measures should be implemented and maintained for ensuring that the licensed corporation complies with the relevant legislative and regulatory requirements. To this end, senior management of licensed corporations are required to, among other things:

 Develop and implement appropriate systems and controls commensurate with the scale and depth of the licensed corporation’s business activities;

 Continually and timely appraise the status of the licensed corporation’s operations and financial position, including qualitative and quantitative risks posed thereto or weaknesses detected therein;

 Ensure that management and supervisory functions are performed by qualified and experienced individuals; and

 Ensure that its staff acts honestly, fairly and in the best interests of clients and the integrity of the market.

SFC has published two booklets named "Approach to Supervision of Intermediaries" and "Regulatory Framework for Intermediaries" in June 2011 that contain details about SFC supervision of intermediaries that indicated that to enhance SFC data analysis, intelligence from other sources is also collected by the SFC that include: market news or media reports; actions taken by other divisions of the Commission; sharing with or referrals from fellow regulators (such as the Hong Kong Monetary Authority, Office of the Commissioner of Insurance and Mandatory Provident Fund Schemes Authority); frequent dialogue with market practitioners / industry and trade associations; and industry surveys (including mystery shopping programs) conducted by the SFC from time to time.

SFC website www.sfc.hk has more details on SFC Supervisory approach.

SFC has published two booklets named "Approach to Supervision of Intermediaries" and "Regulatory Framework for Intermediaries" in June 2011 that contain details about SFC supervision of intermediaries.

Prudential visits are part of the SFC continuous supervisory process. Through visiting the office of the licensed corporation and meeting with their management team, the SFC can obtain a high level understanding of the licensed corporation’s latest business developments, business outlook and how it manages the challenges it faces.

In particular, information on both firm-specific events and significant market / industry events would be discussed during the meeting to assist the SFC to ascertain their impact on the licensed corporation and the industry as a whole. Such visits also serve as a platform that enables the SFC to build rapport with the senior management of the licensed corporations. They provide an opportunity for sharing views on the market and regulatory environment and discussing any regulatory issues or concerns.

Different from inspections, prudential visits are less formal and are generally directed at information gathering. The information obtained may enable a better assessment of the risk profile of the licensed corporations and would be taken into consideration in determining if an inspection or further review is required.

SFC website www.sfc.hk has more details on SFC Supervisory approach.

SFC is authorized under the Securities and Futures Ordinance to enter business premises of a company and residential premises of employees to search for documents and information relevant to an investigation, copy or confiscate relevant materials, and conduct questioning of individuals.

On 27 October 2008, SFC issued a Circular to All Licensed Corporations Engaged in Hedge Funds Management Business that sets out specific instances of management oversight and information disclosures issues concerning the hedge fund industry that SFC noted during our ongoing monitoring and onsite inspections. This circular also sets out the standards of conduct and control procedures generally expected of hedge fund managers licensed in Hong Kong such as on risk management and controls, disclosure on side letter arrangement, disclosure made to ultimate clients, operation efficiency etc.

SFC website www.sfc.hk also lists out reports on findings of thematic inspection/review that SFC had carried out in the past for industry and public information.

SFC has published two booklets named "Approach to Supervision of Intermediaries" and "Regulatory Framework for Intermediaries" in June 2011 that contain details about SFC supervision of intermediaries.

SFC website www.sfc.hk has more details on SFC Supervisory approach.

There are four types of on-site review conducted by the SFC, namely: Routine inspection; Special inspection; Thematic inspection; and Prudential visit.