The original proposal, to impose mandatory reporting on all reportable transactions to which locally incorporated AIs and LCs are a counterparty, is largely unchanged. However, in relation to reportable transactions “originated or executed” by locally incorporated AIs and LCs, the Regulators have confirmed that such transactions must now also have a Hong Kong nexus in order to fall within the mandatory reporting requirement. They have also clarified that AMBs will be subject to the same mandatory reporting requirements as AIs and LCs.
As regards overseas incorporated AIs, the Original Proposals were that they should also be required to report reportable transactions in certain circumstances, including where the transaction involved their Hong Kong branch, or where they were a counterparty and the transaction has a Hong Kong nexus. In response to concerns expressed about the compliance difficulties such an approach could cause for overseas incorporated AIs, the Regulators have decided to narrow the reporting obligation. Accordingly, overseas incorporated AIs will only be caught by the mandatory reporting obligation where (i) the AI has become a counterparty to a reportable transaction through its Hong Kong branch, or (ii) the AI has originated or executed a reportable transaction through its Hong Kong branch and the transaction has a Hong Kong nexus.
The Regulators have confirmed that they intend to build a degree of flexibility into the mandatory reporting obligations to both reduce the compliance burden and allow for situations where a transaction cannot be reported due to conflicting legal obligations under overseas laws which cannot be overcome despite reasonable efforts. For example, a Hong Kong person who has exceeded the reporting threshold will be exempt if the transaction involves an AI, LC or AMB who has an obligation to report. Similarly, in the case of an obligation arising in respect of (ii) above, this may be discharged if the counterparty on whose behalf the AI, LC or AMB was acting has reported to the HKMA trade repository.
The Regulators have also indicated that they are prepared to consider extending exemptions from mandatory reporting to: (a) central banks, (b) monetary authorities or public bodies charged with responsibility for the management of public debt and reserves and the maintenance of market stability, and (c) certain global institutions such as the International Monetary Fund and the Bank for International Settlements. They have confirmed that reciprocity will be taken into account when determining whether to grant an exemption for central banks, monetary authorities and public bodies.
The Conclusions Paper also confirms that a fiduciary (e.g. an investment manager) is not subject to separate reporting obligations itself and would not have to report a reportable transaction executed on behalf of its clients. However, in the case of funds, the Regulators’ thinking is that the reporting obligation in respect of a fund could rest with the legal owner of the assets of the fund (e.g. the trustee, if the fund is structured in the form of a trust) but the reporting threshold should be triggered at a fund level. For an umbrella fund, where each sub-fund operates as a separate unit and its respective portfolio is segregated from other sub-funds, it is stated that the reporting obligation could apply at a sub-fund level.
Reporting to a global trade repository (TR) will not be permitted. Reporting will be solely to the TR established by the HKMA (which is currently being set up). The Regulators believe this will enable them to obtain relevant information more effectively.
To the extent a reportable transaction is reported to the HKMA TR and is centrally cleared, additional information will be required together with updates of certain changes.
More details on the specifics of the mandatory reporting obligation will be provided when a further public consultation is undertaken on the detailed requirements in Q4 this year.
Confidentiality of data collected
In response to concerns voiced by respondents, the Regulators have confirmed that data collected by the HKMA TR will be used solely for regulatory and market surveillance purposes. They have further confirmed that the secrecy and disclosure provisions under the SFO will be expanded, as necessary, to cover the data collected, and provide for any sharing of such data with authorities and regulators in Hong Kong and overseas, as well as with overseas TRs.
Reporting time frame and obligation
The Conclusions Paper notes concerns raised by respondents on the initial proposal to report within a “T+1” timeframe. Given these concerns and potential technical issues arising from reporting by overseas entities in a later time zone, the Regulators are now proposing to extend the reporting timeframe to “T+2”.