SFC to Implement Further Requirements for OTC Derivatives

The (SFC) will be implementing further requirements to enhance the , the regulator announced this Wednesday.
Today, the SFC released consultation conclusions to address conduct risks that regulated entities face when dealing with group affiliates and other connected persons. As a result, as of September 2019, some licenced corporations will be subject to risk mitigation requirements.
According to the statement from the , the risk mitigation requirements: “cover trading relationship documentation, trade confirmation, valuation, portfolio reconciliation, portfolio compression and dispute resolution.”
Specifically, licenced corporations that are contracting parties to non-centrally cleared OTC derivative transactions or regulated asset management firms, will be subject to these requirements.
SFC requirements to come into effect next year
In addition, companies which provide client clearing services for OTC derivative transactions will be subject to the following requirements – segregation, portability and disclosure. These amendments to the Code of Conduct will be gazetted on Friday, December 14, 2018, with the risk mitigation requirements to come into effect from September 1, 2019.
Furthermore, licenced persons will need to ensure client-facing affiliates introduced by them to enter into OTC derivative transactions with clients are authorised in a similar way as an OTC derivative dealer in Hong Kong.