www.pwchk.com
Helping Asset
Management Firms
in Hong Kong Face
Regulatory and
Operational Challenges
Regulatory Advisory
Services
February 2012
Introduction
While the economy has shown signs of improvement, global market
volatility and transient regulatory reform continue to pressure asset
manager firms in Hong Kong.
The global chaos of the past few years has yielded to relative financial stability and
modest economic recovery. Key industry findings from our recent Global CEO Survey
revealed that asset management CEOs are among the most optimistic CEOs in our
survey, though this confidence is tempered by a keen awareness of the challenges of
increasing regulation, competition for talent and evolving investor expectations.
At the same time, the expectations of asset management firms have never been higher.
Key stakeholders including investors, clients and prospective clients are demanding
greater transparency and more assurance that the manager has strong compliance
and internal controls. Recent frauds and compliance failures have only heightened
their concerns and expectations. Senior management also needs confidence that their
firms have no unintended and undiscovered compliance problems. Existing or legacy
compliance programs may not be adequate to meet these expectations.
Heightened regulatory expectations place additional pressure on asset management
firms. A more aggressive approach in inspections and enforcement actions, as we have
seen recently with the SFC, is the new norm. Regulators expect a comprehensive,
tailored, state-of-art compliance program with full testing, use of technological tools, and
expertise. The consequences of non-compliance are front-page news, and a compliance
failure can be fatal to a firm’s business.
With the foregoing in mind, it is imperative to have a professional services firm that
understands the dynamics of today’s regulatory landscape and has the tools and
resources necessary to assist asset managers in Hong Kong; PwC can help asset
management firms of all types address regulatory compliance issues and manage
regulatory risk effectively. PwC has a local (and extensive global) network of asset
management professionals with extensive industry and regulatory experience ready to
assist you in meeting your operational and regulatory needs.
Included in this publication are themes and related business issues that represent what
we believe to be the key challenges facing the industry today. Our mission is to assist
asset managers in addressing and managing the broad spectrum of these, and other
business issues in an efficient and cost effective manner. We customize our engagements
and work with our clients to develop custom solutions that address the key challenges
facing your organisations.
Helping Asset Management Firms in Hong Kong Face Regulatory and Operational Challenges 3
Offering deep industry knowledge
and distinctive resources
PwC is the leading professional services firm serving the global asset management community. In
Hong Kong, we have a committed and dedicated regulatory advisory team to provide regulatory,
operational, risk and control services.
We bring a unique combination of integrated services, people
and technology to provide valuable knowledge and experience
to meet the growing needs of our clients. We work closely
with PwC’s global network of asset management professionals,
providing access to extensive industry and regulatory
experience in locations all over the world.
We provide professional services to every major segment of the
asset management industry. PwC provides industry-focused
assurance, tax and advisory services to build public trust and
enhance value for its clients. More than 160,000 people in over
150 countries across our network including people from 16 offices
in China and Hong Kong share their thinking, experience and
solutions to develop fresh perspectives and practical advice. PwC
China, Hong Kong, Singapore and Taiwan operate on a combined
basis, subject to local applicable laws. Taken together, we have
more than 620 partners and the strength of 14,000 people.
161,000
people worldwide
154
16
620
countries
offices in China and Hong Kong
partners
14,000
people in China, Hong Kong,
Singapore and Taiwan
PwC provides professional services to every major segment of the asset management industry.
Our major focus in Hong Kong includes:
Traditional Investments
Alternative Investments
Service Providers
• Open-and close-end funds
• Institutional and retail
funds
• Exchange-traded funds
• Pension funds
• Family offices
•
•
•
•
•
•
•
•
•
•
•
4 PwC
Hedge funds
Private equity funds
Venture capital funds
Fund of funds
Real estate investment
funds
• Infrastructure funds
• Sovereign wealth funds
• Insurance company and
bank-advised funds
Investment advisors
Investment managers
Fund administrators
Prime brokers
Custodians
Transfer agents
PwC can assist asset management
firms in Hong Kong from start up
to those that are well established
Our mission is to assist asset management firms in addressing and managing the broad spectrum
of business and operational issues regardless of where they are in the development stage. We
customize our scope of services and work with our clients to develop solutions that address the key
challenges facing your organisations.
With our broad experience in advising and assisting asset management firms to meet compliance
obligations and regulatory changes, we understand the needs of your business. Our regular
participation, leadership roles and general involvement in various committees formed by the
regulators, asset management and professional associations bring you the most up to date industry
insight and perspective.
The diagram below summarises the major services which we provide to our asset management
clients in Hong Kong at different stages of their business cycle.
New start up asset
management firms
Established licensed
corporations
Ongoing
compliance
• Assist management
in applying for the
relevant regulatory
licenses and
authorisations
• Review and compilation
of the required licensing
application documents
(e.g. compliance manual)
• Advise on the appropriate
and applicable regulatory
requirements
• Conduct controls and
compliance review with
reference to the relevant
regulatory obligations
• Perform periodic
regulatory health check
to assess whether the
asset management firm
is complying with the
regulatory obligations
• Perform desktop review
of the computation of the
draft Financial Resources
Returns and the other
regulatory filings
• Provide insight on
regulatory changes
• Perform gap analysis on
the asset management
firm’s existing compliance
program with the relevant
rules and guidelines
• Perform mock regulatory
compliance exams
• Provide regulatory and
internal control advisory
services, in particular
in relation to trading
practices, valuation,
conflict management,
insider dealing etc
Helping Asset Management Firms in Hong Kong Face Regulatory and Operational Challenges 5
Top industry issues
The following themes and related business issues represent what we
believe to be the key challenges facing the industry today:
Licensing
requirements
Issue
Business drivers
How PwC can help
Company may require licenses
approved by regulators in the
relevant jurisdictions to carry
out their business activities. It
is common for a new start up
asset management firm to seek
assistance with the licensing
application.
• Asset management firms
(or a person) who carry out
regulated activity in Hong
Kong must be licensed by
Hong Kong Securities and
Futures Commission (SFC).
It is illegal for any person to
carry out regulated activity
as defined in Securities and
Futures Ordinance without
the appropriate SFC license.
• The US Dodd Frank
Wall Street Reform and
Consumer Protection Act
(Dodd Frank), which is
now effective, brought
a significant number of
non-US asset management
firms under US Securities
and Exchange Commission
(SEC) oversight.
• The asset management firm
licensed with the relevant
regulatory bodies has an
obligation to comply with
the relevant regulatory
rules, guidelines and
filing requirements on a
continuous basis.
• The licensed asset
management firm in
Hong Kong has to satisfy
all relevant SFC filing
requirements, including the
financial resources returns,
business risk management
questionnaire, etc.
• Assist with the application
for relevant licenses and
authorisations for the
asset management firm or
investment product.
• Review and assist with the
compilation of the required
licensing application
documents (e.g. compliance
manual).
• Advise on the fit and proper
criteria and competency
requirements for the asset
management firm and the
individual applicant.
• Advise on the preparation
of the application forms and
documents for submission
to the regulators to ensure
all information that is
required by the regulators is
appropriately addressed.
• Perform regulatory
health check for the asset
management firm on a
periodic basis to ensure
the compliance program
and related policies and
procedures are in line with
the existing regulatory
expectations and to satisfy
all required compliance
obligations.
• Perform desktop review
of the computation of the
draft financial resources
returns and the process
for preparing other filings
to minimise deficiencies
related to disclosure and
interpretation errors.
For existing licensed asset
management firms or licensed
person, on-going compliance
with the relevant regulatory
obligations is crucial.
6 PwC
Regulations
Issue
Business drivers
All asset management firms
• New measures introduced
face new regulatory obligations
by the regulators to enhance
and higher expectations
protection for the investing
from regulators around the
public.
world. In addition to new
• In Hong Kong, the SFC has
regulatory requirements,
strengthened a number
the consequences of nonof regulatory rules and
compliance with the existing
guidelines. For example,
regulatory obligations are
consolidated SFC handbook
serious, and key stakeholders,
was issued in 2011 and
such as investors, boards
various SFC Codes in
of directors, regulators and
relation to the conduct of
the general public, demand
licensed corporations were
effective compliance
recently revised.
programs.
• In the US, continued
rulemaking alters the
regulatory landscape for
financial services firms and
affects SEC registration and
reporting requirements for
certain investment advisers.
• The regulators are more
vigilant in monitoring the
misselling of investment
products and malpractices
of the licensed asset
management firms. This is
evidenced by the increase
in both the severity and
volume of related SFC
enforcement actions.
• Increased frequency and
severity of regulatory
inspections/ examinations
and surveillance of asset
management firms both in
Hong Kong and globally.
• Aggressive civil and
criminal investigations
of white collar crime,
including insider trading,
and offering fraud continue.
How PwC can help
• Assist with evaluation,
design and implementation
of compliance programs,
including policies and
procedures.
• Perform gap analysis on
the asset management
firms’ existing compliance
program, policies and
procedures compared with
the relevant regulatory
rules and guidelines.
• Conduct specialised
reviews of compliance in a
particular area.
• Perform mock regulatory
compliance examinations.
• Assist directors and/or
management in developing
outsourcing and service
providers oversight
programs.
• Provide insight on foreign
regulatory changes through
the global regulatory
network of PwC member
firms.
Helping Asset Management Firms in Hong Kong Face Regulatory and Operational Challenges 7
Enterprise risk
management
Issue
Business drivers
How PwC can help
The financial crisis and
resulting regulatory change
have caused deep reflection
on the effectiveness of risk
management in its current
form, and traditional
approaches to risk
management may no longer
be appropriate or sufficient to
meet investor and regulator
expectations.
• Need for clearer
linkage between
business objectives, risk
management strategy and
regulatory compliance
requirements.
• Need for adequacy in
identifying, planning for
and monitoring risk events.
• Need for aggregating
different types of risks
across products and
portfolios to assess the
overall risk exposure to the
asset management entity
itself.
• Need for assessing severity
of risks, and identifying
metrics to monitor on an
ongoing basis.
• Greater focus on
transparency, risk
disclosure and due
diligence.
• Design an enterprisewide risk management
framework for
identification and
management of financial,
business and operational
risks.
• Develop testing programs
(including forensic testing)
around key risk controls
(e.g., use of models, content
and quality of risk reporting
and information).
• Assess/benchmark risk
management function,
organisation and
framework.
• Assist with development of
and implementation of risk
management technology
solutions.
Companies are focusing on
strengthening the linkage
between risk management
and business strategy in order
to create an enterprise-wide
approach to risk management
with a heightened focus on
operational risk, compliance
risk, vendor risk, fraud
and liquidity risks, as well
as balancing demands for
increased transparency and
due diligence.
8 PwC
Operational
effectiveness
Issue
Business drivers
Opportunities to increase
operational effectiveness
and efficiency continue to be
evaluated by asset managers.
At a time when investors,
legislators and regulators are
seeking improved governance,
controls and transparency,
having strong infrastructure is
critical.
• Increased demand from
• Evaluate the effectiveness
investors and regulators for
of the control environment,
greater transparency in all
financial reporting and
aspects – from operations
internal controls.
to financial reporting.
• Provide independent
Additionally, investors are
internal control reporting
increasingly demanding
for investors and other
third party assurances over
interested parties that
select areas of financial
promote more effective
information, controls, and
and efficient controls
performance reporting.
transparency by providing
• Increased need to evaluate
visibility into the design and
infrastructure options
effectiveness of the control
– significant internal
environment throughout
development or outsourcing
the year and not just at
options – as a result of years
year-end.
of underinvestment.
• Perform Mock Operational
• Increased need for
Due Diligence Assessment
outsourcing to a one-stopusing similar methods as
shop has forced service
institutional investors and
providers to diversify their
consultants in order to help
product support offerings.
improve the information
provided to prospective
• Increased need for tax
investors.
functional integration,
efficiency and
optimization in order to
fulfil the tax reporting
requirements globally
(e.g. Foreign Account Tax
Compliance Act – FATCA).
Third party servicing
relationships are allowing
firms to leverage technology
investment and spending as
well as realign operations and
eliminate costs while receiving
high quality specialised
services with established
service levels.
How PwC can help
Helping Asset Management Firms in Hong Kong Face Regulatory and Operational Challenges 9
PwC Regulatory Advisory Service contacts
To have a more in-depth conversation about these or other issues, please contact any of the following PwC Hong Kong partners:
10 PwC
Marie-Anne Kong
Partner
Asset Management Industry Group Leader
+852 2289 2707
[email protected]
Rick Heathcote
Partner
Regulatory Advisory Services Practice Leader
+852 2289 1155
[email protected]
Anthony Evangelista
Partner
+852 2289 1100
[email protected]
Adams Chan
Partner
+852 2289 2784
[email protected]
Helen Li
Partner
+852 2289 2741
[email protected]
Duncan Fitzgerald
Partner
+852 2289 1190
[email protected]
Shane Knowler
Partner
+852 2289 2703
[email protected]
Tony Wood
Director
+852 2289 2799
[email protected]
www.pwchk.com
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advice. You should not act upon the information contained in this publication without obtaining specific professional
advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information
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© 2012 PricewaterhouseCoopers Limited. All rights reserved. In this document, “PwC” refers to PricewaterhouseCoopers
Limited which is a member firm of PricewaterhouseCoopers International Limited, each member firm of which is a
separate legal entity. HK-20120206-4-C1