Global asset management quarterly - Asia

Changes to the process for making disclosure under Hong Kong’s disclosure of interest regime

Authors: Emma de Ronde, Nicholas Wilson and Lillian Chau

Mandatory electronic filing of DI notices will come into effect on July 3, 2017. From that day onwards, market participants are required to submit DI notices electronically through the new Disclosure of Interests Online System.

The changes will affect how substantial shareholders, directors and chief executives of listed corporations and even listed corporations themselves comply with their disclosure/notification obligations under the Securities and Futures Ordinance.

Market participants are advised to familiarise themselves with the new filing regime ahead of the July 3, 2017 commencement date and to start thinking about necessary changes to their DI notice compliance practices and procedures.

Introduction

Mandatory electronic filing of disclosure of interests notifications (DI notices) will come into effect on July 3, 2017. From that day onwards, market participants are required to submit DI notices electronically through the new Disclosure of Interests Online System (DION System).

The changes will affect how substantial shareholders, directors and chief executives of listed corporations and even listed corporations themselves comply with their disclosure/notification obligations under Part XV Securities and Futures Ordinance (SFO) – though the changes will not otherwise affect the operation of Part XV SFO.

Market participants are advised to familiarise themselves with the new filing regime ahead of the 3 July 2017 commencement date and to start thinking about necessary changes to their DI notice compliance practices and procedures.

What is changing?

directors and chief executives of listed corporations are required to submit DI notices to the relevant listed corporation and the Stock Exchange of Hong Kong Limited (SEHK) by hand, post, fax or email. However, once the electronic filing regime becomes effective, filers will need to use the DION System to discharge their disclosure obligation, though the change in filing regime will be subject to a three-month transition period (as described below). Persons who are party to an agreement to acquire interests in a listed corporation (commonly known as a “section 317 agreement”) will be required to submit the relevant documentation via the DION System as well.

The DION System will be introduced by Hong Kong Exchanges and Clearing Limited (HKEx) and any disclosure of interests information, including DI notices and relevant documentation pertaining to section 317 agreements, will be maintained and published on the HKEx website and accessible by the public. Under the current regime, section 317 agreements submitted by filers (or extracts thereof) are not made publicly available on the HKEx website.

It should be noted that there are no other changes to filers’ disclosure obligations under Part XV SFO.

New prescribed forms for the DI notices were published by the Securities and Futures Commission (SFC) in May 2017 and will replace the existing forms when the new regime comes into operation. The SFC has also introduced a new form for listed corporations to report the results of their investigations of share ownership under section 329 SFO. The public may view the new prescribed forms on the SFC’s website.

Moreover, to improve the accuracy of the information provided in the DI notices, the SFC has introduced new event codes for the new forms. A full list of the new event codes can be found here.

When should I start using the new system?

For events triggering disclosure obligations which occur on or after July 3, 2017, filers should use the new prescribed forms and submit DI notices and reports electronically via the DION System.

Helpfully, filers will no longer need to submit the DI notices to the relevant listed corporation, as the listed corporation, and the SFC, will be notified by the SEHK upon submission of the DI notices.

There will be a three-month transition period from July 3, 2017 to enable a smooth transition to the DION System and to reduce potential issues with the new filing regime. During the transition period, filers may submit DI notices using the new forms and the DION System, or continue to use the existing forms and submit them to the SEHK and the relevant listed corporation by hand, post, fax or email.

The SFC has expressly stated that it is unlikely to prosecute a breach of the disclosure obligations under Part XV SFO solely based on an incorrect use of a prescribed form or submission method during the transition period. Nonetheless, substantial shareholders, directors and chief executives of listed corporations are advised to familiarise themselves with the new filing regime by adopting the new system early.

Hong Kong resolution regime for financial institutions – one step closer to commencement

Authors: Emma de Ronde, and Esther Yee

The Government and financial regulators in Hong Kong have recently published their conclusion on the public consultation relating to the protected arrangements regulation, which prescribes requirements to be complied with by a resolution authority in connection with six types of financial arrangements fundamental to the operation of financial markets.

The protected arrangements regulation will be tabled before the Legislative Council in Q2 of 2017 as subsidiary legislation under the Financial Institutions (Resolution) Ordinance. The Financial Institutions (Resolution) Ordinance and the protected arrangements regulation are expected to commence during 2017.

On April 6, 2017, the Government and financial regulators in Hong Kong, namely the Hong Kong Monetary Authority (HKMA), the Insurance Authority (IA) and the Securities and Futures Commission (SFC), published their conclusion on the public consultation relating to the protected arrangements regulation, bringing the Financial Institutions (Resolution) Ordinance (Chapter 628 of the Laws of Hong Kong) one step closer to commencement.

The Financial Institutions (Resolution) Ordinance, which establishes the operation of a resolution regime in Hong Kong and confers upon the HKMA, IA and SFC (as resolution authorities), the powers to undertake resolution planning, was enacted by the Legislative Council in June 2016 but has yet to commence as it was considered prudent to have the protected arrangements regulation in place beforehand.

The protected arrangements regulation prescribes requirements to be complied with by a resolution authority in connection with six types of financial arrangements: clearing and settlement arrangements, netting arrangements, secured arrangements, set-off arrangements, structured finance arrangements, and title transfer arrangements. As these financial arrangements are fundamental to the operation of financial markets and are relied upon by financial market participants to mitigate credit risk exposure and to provide sources of liquidity and finance, legal certainty around how such arrangements would be treated by a resolution authority if resolution powers are exercised under the resolution regime is crucial.

With the release of the consultation conclusion, the protected arrangements regulation will now be tabled before the Legislative Council in Q2 of 2017 as subsidiary legislation under the Financial Institutions (Resolution) Ordinance, and the Financial Institutions (Resolution) Ordinance and the protected arrangements regulation are expected to commence during 2017.

Further information on the protected arrangements regulation and the Financial Institutions (Resolution) Ordinance can be found on the websites of the Financial Services Branch of the Financial Services and Treasury Bureau, the HKMA, the IA and the SFC.