Additional detailed data required in SFC FRR submissions
SFC-regulated businesses have become accustomed to their regular financial and regulatory reporting ("FRR") requirements, the frequency and complexity of which varies depending on a firm's licence type.
In the latest evolution of the FRR, the SFC is looking to gather more detailed information within the existing reporting framework. Whilst the rules themselves (Cap. 571N) remain unchanged, the reporting burden is increasing for all firms due to the additional detail they now must report.
The first to be impacted will be those firms with accounting periods starting on or after 1 July 2021, so action should be taken now to ensure readiness, particularly as many of the new requirements could take some time to assess.
What additional information will I need to gather?
The changes to required information are broad and, of course, apply to different firms and licence types in different ways. The changes which will apply most broadly pertain to:
- securities and other financial instruments including futures, options contracts etc held under assets or liabilities;
- breakdown of geographic location for monetary assets, including client assets by geographic location; and
- detailed analysis of AUM.
Firms for which any of the above are relevant should start to consider the impact on their firm and what new data needs to be collected in good time.
Further detail on those and other areas is summarised below.
Securities borrowing/lending agreements and repurchase transactions
Assets arising from securities borrowing/lending agreements and payables to the borrowers under those agreements are added in other assets (item 18) and other payables & liabilities (item 28) respectively.
Assets arising from repurchase transactions and consideration for securities sold in repurchase transactions are added in other assets (item 18) and other payables & liabilities (item 28) respectively.
An additional item for income arising from securities borrowing and lending and repurchase transactions is added in the profit and loss account.
Bank balances
Firms are required to disclose the top five authorised financial institutions or approved banks incorporated outside Hong Kong holding the largest aggregate amount of money in "other accounts" (as reported under Form 1 item 5).
Proprietary positions in securities and specified investments
Firms must provide a breakdown of the market value by investment type.
They must also disclose details of the investment with a market value exceeding 10% of the excess liquid capital (reported in cell 1105) for the top 50 investments.
Futures and unlisted options contracts
Ranking liabilities relating to futures and unlisted options contracts must be split by house account and client account.
For firms holding the contracts on behalf of clients, a breakdown is required between (1) futures and unlisted options and (2) stock options contracts, split by markets traded either in Hong Kong or elsewhere.
Management fees recharged to/by group companies
Income or expenses from management fees recharged to/by group companies must be split by the nature of the fees, i.e. whether trading profit sharing, expenses recharge or others.
Interest income and expenses
Further details are required if the gross exceeds 30% of total income and 30% of total overheads respectively.
Information on clients and AUM
The number of clients must be split by (1) service type and geographic location, and (2) client type.
For firms licensed for Type 9 regulated activities, the aggregate AUM must be split by (1) investment strategy and (2) account type.
Further changes specific to licence types will also come into effect so we highly recommend firms review the full changes to ensure there are no nasty surprises next time reporting is due.
How we help our clients
Cognitive GRC collaborates with Wheelhouse Advisors, a market-leading provider of prudential advisory, accounting and tax services, to assist clients with a range of solutions designed to meet their Cap. 571N capital, liquidity and reporting obligations.
Whether it's a one-off project to assess the impact of the upcoming changes or an ongoing engagement to fully outsource your reporting obligations, Wheelhouse Advisors has the expertise and experience to ensure the process runs smoothly and simplify your ongoing FRR obligations.
Please contact us to discuss further detail or outsourcing the completion of your reporting obligations.