Regulators re-evaluating digital finance and risk measures in new reality for asset management and funds industry

Adjusting regulation of paramount importance in an increasingly digital world

Adjusting regulation of paramount importance in an increasingly digital world

July 22, 2021, Hong Kong – Recent market events and ongoing concerns in the capital markets are causing regulators in Hong Kong and around the world to reassess risks in the asset management and funds industry, according to a report by KPMG.

The report titled Through a New Lens, Evolving Asset Management Regulation, provides insights on how firms should reconsider every aspect of their business models to ensure they are fit for purpose in the evolving new reality, in particular digital finance and risk.

Andrew Weir

Andrew Weir, Global Head of Asset Management and Senior Partner for Hong Kong, KPMG China, says:

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The pandemic has been a technological catalyst. It has caused change on a greater scale and at a faster pace than any firm's planned ICT strategy or any regulatory initiative. It has also provided added impetus to governments' and regulators' plans to encourage moves towards digital finance and the widening use of technology. Regulators are attuned, though, to the risks of new technologies and increased digitalization, as well as the benefits.

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In Hong Kong, the government recently consulted on a new regulatory framework that will require centralised virtual asset exchanges to apply for a licence from the Securities and Futures Commission (SFC), whether they are operating in the jurisdiction or are targeting Hong Kong investors. Licensees will be allowed to offer services to professional investors only and all virtual asset trading platforms will be regulated under either the existing opt-in framework introduced in 2019 or the proposed new licensing regime. Affected businesses will need to carefully consider the scope of permissible activities under the licence.

Meanwhile, various regulatory reforms and tax incentives were introduced in 2020 to encourage local market growth, cement Hong Kong as the region's premier asset and wealth management hub, and to bring firms and investment structures onshore. The new Limited Partnership Fund (LPF) regime, which caters for funds invested in private and real assets, took effect in August 2020. The regime includes an opt-in registration scheme, with elements of investor protection built in. There have also been changes to the Code for Open-ended Fund Companies (OFCs), which brings it into line with the new LPF regime, including on anti-money laundering requirements.

The Chinese State Administration of Foreign Exchange (SAFE) meanwhile is planning to change the cross-border investment management rules involving private equity funds. The regulator will expand pilot schemes to support forex settlements in free trade zones, while combatting financial risks in cross-border capital flows and criminal activities like cross-border gambling.  Additionally, the Greater Bay Area Wealth Connect scheme, developed to provide mutual market access between Hong Kong and Mainland China for wealth management products, moves closer to implementation.

Bonn Liu

Bonn Liu, Partner, APAC Head of Asset Management, Hong Kong, KPMG China, concludes:

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With a number of regulatory developments expected in the coming year, firms need to reconsider all aspects of their business models to ensure they are fit for purpose in the evolving new reality.

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– Ends –

About KPMG China

KPMG member firms and its affiliates operating in Mainland China, Hong Kong and Macau are collectively referred to as “KPMG China”.

KPMG China is based in 28 offices across 25 cities with around 12,000 partners and staff in Beijing, Changsha, Chengdu, Chongqing, Foshan, Fuzhou, Guangzhou, Haikou, Hangzhou, Hefei, Jinan, Nanjing, Ningbo, Qingdao, Shanghai, Shenyang, Shenzhen, Suzhou, Tianjin, Wuhan, Xiamen, Xi’an, Zhengzhou, Hong Kong SAR and Macau SAR. Working collaboratively across all these offices, KPMG China can deploy experienced professionals efficiently, wherever our client is located.

KPMG is a global organisation of independent professional services firms providing Audit, Tax and Advisory services. We operate in 146 countries and territories and in FY20 had close to 227,000 people working in member firms around the world. Each KPMG firm is a legally distinct and separate entity and describes itself as such. KPMG International Limited is a private English company limited by guarantee. KPMG International Limited and its related entities do not provide services to clients.

In 1992, KPMG became the first international accounting network to be granted a joint venture licence in mainland China. KPMG was also the first among the Big Four in mainland China to convert from a joint venture to a special general partnership, as of 1 August 2012. Additionally, the Hong Kong firm can trace its origins to 1945. This early commitment to this market, together with an unwavering focus on quality, has been the foundation for accumulated industry experience, and is reflected in KPMG’s appointment for multidisciplinary services (including audit, tax and advisory) by some of China’s most prestigious companies.

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