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TechWatch 199

05/28/2019


Local updates

Invitations to comment

The Institute is seeking comments on:

  • The International Ethics Standards Board for Accountants’ exposure draft, proposed revisions to Part 4B of the Code to Reflect Terms and Concepts Used in ISAE 3000 (Revised) by 27 May.
  • The International Accounting Standards Board exposure draft on Interest Rate Benchmark Reform by 3 June.
  • The International Auditing and Assurance Standards Board’s discussion paper on Audits of Less Complex Entities by 12 August.

Invitation to observe meetings of the HKIISG

Register to observe meetings of the Hong Kong Insurance Implementation Support Group (HKIISG) which discusses hot topics on HKFRS 17 Insurance Contracts. Meeting schedule, papers and summaries can be found on the Institute’s website.

Professional accountants in business

Machine learning: more science than fiction

The Association of Chartered Certified Accountants has recently published a report which offers an accessible, practical introduction to machine learning, and how it is being adopted within the accounting profession.

In addition to an overview of what it is, the report also explores issues of ethics and other concerns pertinent to the public interest.

ICAC’s powers for offences other than bribery and corruption

The Independent Commission Against Corruption has wide-ranging powers to investigate other crimes when investigating bribery and corruption. An article from ONC Lawyers’ newsletter demonstrates, with reference to a case study, how the Theft Ordinance, the Crimes Ordinance and the Prevention of Bribery Ordinance may interlink and operate together to be applied by the ICAC to combat corrupt transactions that involve fraud and use of deceiving false documents.

Corporate finance

Institute comments on proposals for revising the operational model for implementing a uncertificated securities market in Hong Kong

The Institute issued a submission on 3 May responding to the proposals by Securities and Futures Commission (SFC), Hong Kong Exchanges and Clearing Limited and the Federation of Share Registrars Limited for revising the operational model for implementing an uncertificated securities market in Hong Kong, and related matters.

The Institute, in principle, supports the proposals in order to maintain Hong Kong’s standing as an international capital market. At the same time, the Institute also raises questions on certain aspects of the proposals, including how full dematerialization will be implemented and the impact on traditional retail investors, used to holding their own share certificates; the length of the transition period; the initial and ongoing cost implications for investors under the new scripless system; the integrity of the system, which will give much more responsibility to share registrars; and, ultimately, whether investors will ultimately reap the benefits of the improved efficiencies of the new system.

Joint consultation of the Hong Kong Monetary Authority and the SFC to the OTC derivatives regime

On 26 April, the Hong Kong Monetary Authority and the SFC jointly issued a consultation paper on further enhancements to the over-the-counter (OTC) derivatives regulatory regime in Hong Kong.

The regulators propose that transactions to be submitted to the Hong Kong Trade Repository for the reporting obligation would be required to be identified by unique transaction identifiers with the structure and format as set out in the technical guidance issued by the Committee on Payments and Market Infrastructures and the International Organization of Securities Commissions.

The regulators also propose to remove 17 jurisdictions from the list of designated jurisdictions for the masking relief of the reporting obligation in view of the recent clarification by the Financial Stability Board, and to update the list of Financial Services Providers under the OTC derivatives clearing regime.

SFC’s consultation conclusions on the proposed guidelines for securities margin financing activities

The SFC has published consultation conclusions on proposed guidelines for securities margin financing activities. The SFC’s initiative to provide guidance on the risk management practices expected of brokers when they provide securities margin financing was generally supported by the respondents.

According to the guidelines, the maximum total margin loans-to-capital multiple brokers can adopt is five times to avoid excessive leverage. The concentration risks posed by holding individual or connected securities as collateral and by significant exposure to margin clients should also be controlled. Further, brokers are required to set prudent triggers for margin calls and strictly enforce margin call policies. Guidance is provided to help brokers set prudent haircut percentages for securities acceptable as collateral and conduct stress testing to assess the financial impact of their securities margin financing activities. A summary of the consultation conclusions is set out in the press release.

The guidelines were gazetted on 4 April and will take effect on 4 October.

Taxation

Announcements by the Inland Revenue Department Members may wish to be aware of the following matters:

  • The Inland Revenue Department (IRD) has issued the Departmental Interpretation and Practice Notes (DIPN) No. 5 (Revised) on profits tax deductions for various kinds of expenditure. The IRD has also issued DIPN No. 55 to explain the eligibility for 100 percent tax deductions, or enhanced deductions of up to 300 percent, on research and development expenditure.
  • Issues of tax returns for 2018/19.
  • Legislative Council questions on regulation of virtual asset investment activities.
  • The IRD provided further clarifications on the completion of supplementary form S1 Person electing for two-tiered profits tax rates of the 2018/19 profit tax return.
  • Stamp Duty statistics (March 2019).

Institute hosts GAA tax directors

The Institute hosted a three-day meeting of Global Accounting Alliance (GAA) tax heads in Hong Kong and Beijing during 15-17 April.

During that time, the tax heads were briefed on key issues in Hong Kong, cross-border and Mainland tax. They also held meetings with Legislative Council Accountancy functional constituency representative, Kenneth Leung, and the Belt and Road Office of the Hong Kong SAR Government, among others.

The scope of work of the GAA Tax Director Group includes:

  • Coordinating and learning from shared experiences
  • Sharing and disseminating best practices
  • Providing advocacy on significant issues of common interest and concern

The group is one of the only tax-dedicated bodies providing a global voice on tax for the accounting profession. It adopts a global perspective to ensure that the work done in the member bodies’ individual countries is better informed and better focused.

The GAA itself was formed in November 2005 and is an alliance of 10 leading professional accounting bodies in significant capital markets. It was created to promote quality services, share information and collaborate on important international issues. The GAA works with national regulators, governments and stakeholders, through member-body collaboration, articulation of consensus views, and working in collaboration where possible with other international bodies, especially the International Federation of Accountants. The GAA represents a total of close to one million accountants in over 180 countries around the globe.

You can read more about the views of the attendees on global tax here.

Legislation and other initiatives

Anti-money laundering notices

For the current lists of terrorists, terrorist associates and relevant persons/entities under United Nations (UN) sanctions, members should refer to the Institute’s AML webpage which is updated regularly. The UN sanctions webpage of the Commerce and Economic Development Bureau contains consolidated lists of UN sanctions currently in force in Hong Kong.

AML/CFT guidance

For mandatory guidance and information on the AML/CFT requirements for members, see the Institute’s Guidelines on Anti-Money Laundering and Counter-Terrorist Financing for Professional Accountants.

Members who are licensed trust or company service providers should also see the Guideline on Compliance of Anti-Money Laundering and Counter-Terrorist Financing Requirements for Trust or Company Service Providers, by Companies Registry.

Members should be aware of the Hong Kong Money Laundering and Terrorist Financing Risk Assessment Report (in particular Chapter 6, covering designated non-financial businesses and professions), which indicates ML/TF risks and vulnerabilities in the Hong Kong market.


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