The Securities and Futures Commission of Hong Kong has dealt with the recent pandemic in various ways that affect brokers and asset managers.

The outbreak has led to extreme volatility in financial markets all over the world and major operational problems at financial firms. Like other regulators, the SFC has bowed to the inevitable by becoming, grudgingly and in fits and starts, more 'flexible.'

Ashley Alder, the SFC's chief, likes to refer to his relaxation of various rules as "much-needed regulatory relief." His outfit has issued rules to govern the way in which brokers can record orders from HNW clients when out of the office, has put various deadlines that apply to a range of regulated firms, and has vowed to be more 'flexible' when handing out licences for firms' employees to do various things. For example, if the rules say that someone must acquire Continuous Professional Training (CPT) hours before a certain deadline but the CPT courses are not available, the firm can ask the SFC for an extension. The SFC suspended all regulatory examinations for advisors to sit in early April.

Meanwhile, the SFC has directed its attention towards the liquidity of investment funds, redemption profiles and the fair treatment of people who invest in funds, particularly if those funds propose to take steps - such as swing pricing or suspensions - to offset risks that relate to liquidity.

Hong Kong was "in lockdown" by 31 January and this was when the SFC issued a circular about the Post Office's suspension of deliveries and collections from post boxes. This was obviously stopping firms from providing people with contract notes, statements of account and receipts by post on time, so it no longer required them to give it written notice in case of delays. It later applied the same principle to overseas postal services - something that it could have done in January but chose not to.

Later on, the regulator allowed firms to ask it for permission to put off submitting their audited accounts and other documents, which is usually something that has to happen within four months after the end of each financial year according to section 156(1) Securities and Futures Ordinance. It also warned them to obey their obligation to think of customers' best interests when giving them "suitable" advice and help (paragraph 5.2 of the Code of Conduct that all regulated firms have to obey).

The regulator has put off the deadline for the submission of certain documents regarding electronic data storage providers (EDSPs) from 30 June to 31 December. Similarly, the deadline for one of its new measures to protect clients' assets from theft (regarding countersigned letters of acknowledgment) was 31 July but is now 31 January next year. Various brokers once had until 31 October to change their systems and make other arrangements to comply with some new standards regarding data that appeared last July; they now have until 30 April next year.

Firms have long been obliged to send their clients notices that were prepared or issued by the investment products’ issuers, product arrangers or management companies on a timely basis upon receipt. In view of the fact that HNWs are often unreachable on email and that many a compliance officer can only send post that comes from his printer at home, these documents are likely to arrive in a far from timely manner. The regulator has not yet given way on this point.

Fund management rules - relaxations and reinforcements

On April Fool's Day the SFC said the managers of unit trusts and mutual funds may increase the swing factor (the amount a fund's net asset value per share swings up or down after it exceeds the given threshold) beyond the maximum level that has been set out in the funds’ offering documents as a temporary measure, without its prior approval as long as they met certain conditions. It added that it was now accepting applications for new funds in soft copy only. Unsigned documents are now acceptable also, as are new applications with "application fees" (actually payments to the SFC) to follow. The next day the regualtor extended all this to pooled retirement funds and MPF (mandatory provident fund) products. The day after that, it did the same for paper gold schemes and investment-linked insurance schemes. It announced all these changes in its lists of "frequently asked questions," a common way in which it places fresh obligations on firms without recourse to the rulebook.

On 27 March the SFC sent a circular to the trustees and custodians of funds and 'mancos' in which it reminded them of the rule that obliges them to give it early warning of any problems that affect their funds, including any intention to increase or apply any swing factor (or anti-dilution levy) exceeding the ones to be found in the offering documents and to keep investors informed at all times of anything untoward relating to the funds under their management. This is a point on which the regulator seems not to want to budge.

The SFC has reconfigured its staffing arrangements to limit the risk of infections from the Coronavirus, as have many other organisations. Many members of staff are working from home/remotely. Its general rule is that if any financial firm is in doubt about whether it is allowed to relax its observance of a rule, it should get in touch with its case handler or other point of contact.