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TechWatch 185

March 2018



Members’ handbook

Handbook updates nos. 214 to 216

Update no.214: Annual Improvements to HKFRSs 2015-2017 cycle.

Updates no. 215 and no. 216: Code of Ethics for Professional Accountants (Revised).

Local updates

Hong Kong Insurance Implementation Support Group

The Institute has established Hong Kong Insurance Implementation Support Group (HKIISG) to support implementation of HKFRS 17 Insurance Contracts. The first meeting was on 20 March. Interested parties can submit implementation questions for HKIISG discussion or register as an observer to attend upcoming HKIISG meetings.

First bilateral meeting between the Accounting Standards Board of Japan and the Institute

The Accounting Standards Board of Japan (ASBJ) and the Institute’s Standard Setting Department held their first bilateral meeting on 5-6 March.

The Institute discussed ASBJ’s proposals on an accounting standard on virtual currencies, and the Institute’s thinking on developing the accounting for group reorganizations.

Professional accountants in business

HKEX launches director training webcast on IPOs

The Hong Kong Exchanges and Clearing (HKEX) has published the fourth and final instalment of its director training webcasts, entitled Directors Responsibilities at IPOs, to improve the standards of corporate governance and regulatory best practices among listed issuers.

The webcast offers directors at companies considering an initial public offering (IPO) with guidance on their responsibilities, as well as practical advice on tackling issues that may arise during and after the listing process. It combines key regulatory messages with real-life examples, presented by company directors and market practitioners with experience in IPOs.

The webcast covers the following seven topics:

  • Change of mindset for business owners
  • Role of directors
  • Appointment of independent non-executive directors
  • Use of IPO proceeds
  • Internal control
  • Post-IPO profit decline, disposal of original business and dealing restrictions
  • Practical tips

Applying enterprise risk management to ESG-related risk

On 7 February, the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and the World Business Council for Sustainable Development released draft guidance for applying enterprise risk management (ERM) to environmental, social and governance (ESG)-related risks. The draft guidance is designed to supplement COSO’s updated ERM framework, Enterprise Risk Management – Integrating with Strategy and Performance. It aims to help organizations worldwide respond to the increasing prevalence and severity of ESG-related risks, ranging from extreme weather events to product safety recalls.

Comments on the draft guidance are sought by 30 June to ensure that the business and regulatory community are represented in the final version.

Corporate finance

HKEX guidance letters on IPO pricing flexibility and placing tranche reallocation

On 2 February, HKEX published the following guidance letters which are designed to maintain a balance between market facilitation and investor protection.

(i) Guidance letter on pricing flexibility for IPOs (HKEX-GL-90-18)

It sets out the conditions under which the final offer price in an IPO can be below the indicative offer price or the bottom end of the indicative offer price range in the prospectus without triggering the withdrawal mechanisms. This allows listing applicants certain flexibility in adjusting their IPO offer price without the need to withdraw and then re-launch the offer and placing tranche reallocation cap in IPOs.

(ii) Guidance letter on placing tranche reallocation (HKEX-GL-91-18)

It specifies the circumstances under which an IPO listing applicant may reallocate shares from the placing tranche to the public subscription tranche in an IPO other than pursuant to the Main Board Listing Rules or GEM rules requirements that have been agreed with HKEX or over-allocate shares to the public subscription tranche. This aims to better protect investors who subscribe for shares under the public subscription tranche by limiting how such investors are allocated shares which are not taken up by institutional and professional investors for whatever reasons.

SFC enforcement priorities for 2018

The Securities and Futures Commission (SFC) sets out its 2018 enforcement priorities in the latest issue of its Enforcement Reporter. Corporate fraud is at the top of the list and other key priorities are insider dealing and market manipulation, intermediary and sponsor misconduct and money laundering internal control failures.

The newsletter also outlines the enforcement implications of the Manager-In-Charge regime which helps the SFC identify responsible individuals, and the importance of the SFC’s enforcement cooperation with the China Securities Regulatory Commission for the development of Hong Kong’s financial markets. The SFC’s recent review of the marketing and sale of financial products is discussed. It also summarizes the guidance note on cooperation with the SFC published in December 2017 and highlights the significance of four recent enforcement actions.

Taxation

Institute’s tax-related submissions

The Institute made a submission to the Legislative Council, expressing views and concerns on the Inland Revenue (Amendment) (N0.6) Bill 2017 which introduces transfer pricing rules into the law in Hong Kong for the first time. The government has since issued a response to submissions on the bill.

Legislation and other initiatives

Guidelines on anti-money laundering and counter-terrorist financing for professional accountants

Under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (Cap. 615) (AMLO), as recently amended, “accounting professionals,” i.e. practice units and members of the Institute, as defined in the Professional Accountants Ordinance (Cap. 50), are required to comply with certain customer due diligence and record-keeping requirements, commencing 1 March.

Under section 7 of AMLO, the Institute, as the regulatory body for the profession, is empowered to issue guidelines to members. Guidelines were published in the Government Gazette on 23 February and are effective as from 1 March. They form a new Part F, Sections 600-670, of the Code of Ethics for Professional Accountants.

Anti-money laundering notices

Members may wish to note the following notices and publications in relation to anti-money laundering and counter-terrorist financing:

  • A revised guideline on Anti-Money Laundering and Counter-Terrorist Financing (GL3) of the Insurance Authority comes into effect on 1 March. Major amendments have been summarized in the government circular on 23 February.
  • Government notice 1401: an updated list of terrorists and terrorist associates has been specified under the United Nations (Anti-terrorism Measures) Ordinance (Cap. 575).
  • Government notice 1233: an updated list of terrorists and terrorist associates has been specified under the United Nations Sanctions (Democratic People’s Republic of Korea) Ordinance.
  • Government notice 702: an updated list of terrorists and terrorist associates has been specified under the United Nations Sanctions (Democratic Republic of Congo) Regulation.
  • Specially designated nationals and blocked persons list, published by the United States Treasury’s Office of Foreign Assets Control.
  • Subsequent to the meetings of Financial Action Task Force (FATF) during 18-23 February, the FATF issued a public statement on Democratic People’s Republic of Korea and Iran. FATF also issued Improving Global AML/CFT Compliance: On-going Process in relation to nine other jurisdictions.

Please refer to the full version of TechWatch 185