Hong Kong is moving ahead with new OTC derivatives regulations, as required by G20 obligations. The Securities and Futures Commission (SFC)and the Hong Kong Monetary Authority (HKMA) have issued their findings following a joint public consultation on the mandatory reporting and record keeping obligations.
The SFC and HKMA have reduced the initial application of the mandatory reporting rules that originally included reporting obligations for Hong Kong persons and asset managers, for those trades entered into on behalf of their clients.
At first, reporting obligations will apply to regulated entities such as banks, approved money brokers and SFC-licensed corporations.
The period permitted to set up reporting connections to the trade repository has been increased from three months to six months.
“Overall, the approach the SFC and the HKMA are adopting is commendable – it enables Hong Kong’s mandatory reporting regime to start in early 2015. It focuses on those entities, the dealers, that are closest to the market,” said Scott Carnachan of law firm Deacons. “It gives time to address any teething issues before broadening the scope of reporting obligations to asset managers and Hong Kong persons. It appears designed to enable a smooth start to mandatory reporting.”
Some replies in the consultation asked for substituted compliance to be permitted, that being the ability to meet the Hong Kong reporting obligation through reporting to an overseas trade repository. Some also requested one-sided reporting – meaning that only one counterparty has to report.
However, the SFC and the HKMA has reiterated the requirement for reporting in Hong Kong and that means no substituted compliance and two-sided reporting.