Essential SFC Circular: governance standards for licensed corporations and financial resources compliance

Expected standards and examples of deficiencies relating to Financial Resources management and compliance with the Securities and Futures (Financial Resources) Rules

The Securities and Futures Commission (SFC) has issued a circular detailing minimum expected standards for licensed corporations (LCs) to enhance governance and compliance with the Securities and Futures (Financial Resources) Rules (FRR). This is in response to observed deficiencies that have impacted excess liquid capital (ELC) and regulatory compliance.

Key points

• How can governance and oversight ensure effective liquid capital management?
  • Senior management must ensure effective oversight of liquid capital calculations, monitoring and reporting.
  • Designation of responsible officers (ROs) or Managers-In-Charge (MICs) is mandatory.
• What internal controls are necessary for effective liquid capital assessment?
  • Implement robust accounting policies and sound procedures for liquid capital assessment.
  • Establish ongoing monitoring and effective liquidity management frameworks.
• What should LCs report regarding liquid capital maintenance?
  • LCs must report any inability to maintain required liquid capital within three weeks and remediate promptly.
• Why is compliance with SFC requirements crucial during financial distress?
  • Compliance with SFC requirements is essential, even if business operations cease.
• What are the next steps for LCs in reviewing internal controls?
  • Review internal controls and governance practices.
  • Ensure competent personnel are in place for financial monitoring.

To fully understand the implications and detailed expectations outlined by the SFC, go and read the full report. This will provide essential insights into compliance and governance best practices critical for maintaining financial resource adequacy.