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In brief

Against the backdrop of an environment of rapid legal changes, the Hong Kong Securities and Futures Commission (SFC) issued a Policy Statement and the Hong Kong Monetary Authority (HKMA) published an article in its official column inSight, setting out their respective ongoing approach to regulation. We discuss the Policy Statement and inSight article and their genesis.

Background – Rapid legal developments

The last several months have seen significant legal developments within or potentially impacting Hong Kong. On 30 June 2020, the Standing Committee of the National People’s Congress of the People’s Republic of China (PRC) passed the Law of the People’s Republic of China on Safeguarding National Security in the Hong Kong Special Administrative Region (NSL). The 66-article law criminalizes four types of acts: secession, subversion, terrorist activities, and collusion with a foreign country or with external elements to endanger national security (which includes to impose sanctions or blockade or engage in other hostile activities). It also stipulates the corresponding penalties, which in the most serious cases could result in life imprisonment.[1] On 7 July 2020, the Implementation Rules for Article 43 of the NSL came into operation, empowering the Police Department to take specific measures when handling cases concerning National Security Offences.[2] Please refer to our earlier alerts on these items for a more detailed analysis of their application.[3]

On 14 July 2020, United States President Donald Trump signed into law the Hong Kong Autonomy Act, providing for the imposition of sanctions on foreign persons who materially contribute to the undermining of Hong Kong’s autonomy by the Government of the PRC and foreign financial institutions who engage in significant transactions with such foreign persons.[4] On the same day, an Executive Order was also issued, which directs the suspension or elimination of special and preferential treatment for Hong Kong under a wide range of US laws, setting the stage for Hong Kong to be treated the same way as mainland China. It also authorizes sanctions against persons involved in developing, adopting or implementing the NSL, as well as individuals and entities determined to be engaged in several categories of human rights-related conduct in, or related to, Hong Kong.[5] Please refer to our separate Sanctions Update Blog entries for a more detailed discussion of these arrangements.[6]  

This unique combination of legal changes, their close proximity in timing, and their as yet untested interaction raises questions regarding the potential impact of these laws on financial institutions operating in Hong Kong. On 19 July 2020, the SFC issued a Policy Statement setting out its own perspective.[7] On 24 July 2020, the HKMA published its position in inSight.[8] We discuss the regulatory positions of the SFC and HKMA in more detail below.

Regulatory position

The SFC’s Policy Statement is issued as a result of conversations with globally active financial institutions (“firms“) operating in Hong Kong centered on concerns about the potential ambit and effect of the NSL on the way firms currently do business in Hong Kong. Acknowledging that it has conveyed firms’ observations to the Hong Kong SAR Government (“Government“) and that it welcomes the views of the Financial Secretary of the Government as set out in his Blog,[9] the key messages from the SFC include the following:

  • It is the independent statutory regulator of Hong Kong’s capital markets and would like to give its own perspective.
  • It would like to clarify that it is not aware of any aspect of the NSL which would affect or alter the existing ways in which firms and listed companies originate, access, disseminate and transmit financial market and related business information under the regulatory regime it administers.
  • Rules and accepted practices governing market trading activities, including in exchange traded and over-the-counter derivative markets, the use of hedging strategies and activities under Hong Kong’s short selling regime, also remain unaltered.
  • All related regulations will be administered by the SFC in the same manner as before the advent of the NSL.
  • The SFC will continue to regulate Hong Kong’s markets as it has done so before the NSL was enacted and in line with its Policy Statement.

In its inSight, the HKMA confirmed that during its contacts with the banking industry and other institutions in the wider financial sector, it has received feedback on the newly enacted NSL, which it has reflected to the Government. The HKMA also advised that it has written to the institutions it supervises and regulates (“institutions“) to make the following clear from a regulator’s perspective:

  • The NSL will not affect the HKMA’s long-established supervisory policies and regulatory guidance, which are aligned with international standards, or its existing supervisory approach.
  • The same rules and regulations administered by the HKMA before the introduction of the NSL will continue to apply in the same way.
  • The HKMA does not see that the NSL would affect institutions’ normal conduct of business, provided it is permissible under the existing regulatory framework.
  • It should be business as usual for the ongoing operations of the city’s financial institutions.

The HKMA has also provided examples of activities which it states will not be effected, as follows:

  • Sharing of market intelligence or commercial information collected in Hong Kong with overseas headquarters or with other overseas operations, as global financial institutions lawfully do now
  • Publication of research reports expressing a pessimistic view of Hong Kong’s economy or market outlook
  • Trading, hedging or short selling of any financial asset or currency in the spot or derivatives market in accordance with relevant regulatory rules

Actions to consider

It will be important for firms and institutions to maintain vigilance over the evolving regulatory landscape and continue to monitor regulatory communications for clarification on the way that the various laws being implemented within and outside Hong Kong will interact. As the picture continues to evolve, a comprehensive and in-depth assessment of the potential implications for existing and future businesses will need to be completed. This will potentially be complicated and will likely take some time. Depending upon the outcome of such reviews, variations in current compliance processes and procedures may be required in order to ensure future proofing of existing business activities and maintain ongoing regulatory compliance for daily operations. What is currently clear from the SFC and HKMA is that their regulatory approach has not altered, and it remains imperative for firms and institutions to ensure that they continue to meet existing expectations or face potential regulatory actions.

If you have any questions on any of the above matters or would like to discuss your specific circumstances, please do not hesitate to liaise with your usual contact at Baker McKenzie or with the lawyers listed in this client alert.



[3] Please refer to footnotes 1 and 2 above.

[6] Please refer to footnotes 4 and 5 above.


Karen Man is a partner in Baker McKenzie’s Financial Services group, leading the non-contentious Financial Services Regulatory practice. Her clients include global, Chinese and local banks, fund managers, brokers/dealers, money service operators and fintech firms. Karen is admitted to practice in Hong Kong, the UK, and Australia.


Mini vandePol was appointed as the Chair of Baker McKenzie's Global Compliance & Investigations Group on 1 September 2014, after successfully completing five years as the Asia Pacific Regional Chair of the Dispute Resolution Practice Group. In this role, she leads a global team of more than 900 compliance and investigations practitioners in Asia Pacific, EMEA, Latin America and North America. Ms. vandePol's work engagements focus on anti-bribery and corruption investigations and risk management and mitigation in China, India and other parts of Asia in a variety of industries. Ms. vandePol and her team are responsible for the Global Overview of Anti-Bribery Laws (2nd Edition 2016) and is the editor of the very popular Global Attorney-Client Privilege Handbook (2nd edition 2014). She has written a number of articles in journals and other publications both in Australia, India and elsewhere in Asia Pacific on topics ranging from corporate compliance investigations and enforcement, fraud risk, international trade and sanctions compliance, and ethical business practices. She is also a highly sought after media spokesperson and has made several appearances in business media in Hong Kong, India, Australia and the US.


Tracy Wut is experienced in mergers and acquisitions and foreign direct investments in China. She regularly acts for clients in complex cross-border transactions, in particular in the pharmaceuticals and healthcare sector, and navigates clients through various issues relating to investments in China. She has been recommended as a leading lawyer in Corporate/M&A by Chambers Global, Corporate/M&A and Life Sciences by Chambers Asia and M&A and private equity by IFLR1000. She is the co-head of the Pharmaceuticals and Healthcare Industry Group in China and Hong Kong.