Global Trustee and Fiduciary Services News and Views Issue 50

Prime, Futures and Securities Services | Culture and Conduct 38 Hong Kong The MIC regime was introduced by the Securities and Futures Commission (SFC) in December 2016 and fully implemented on 16 October 2017. 10 It has given the SFC a more structured view of firms’ management and accountability, and improved firms’ governance structures. The SFC believes that an important benefit of the regime is that it will help to drive behavioural change at firms. The SFC also highlighted in its May Compliance Bulletin (published 16 May 2018) its concerns when it considers licensing applications and provides an update on the implementation of the MIC regime. 11 Case studies illustrate the SFC’s regulatory focus and areas of concern that could result in the refusal of licensing applications and even criminal prosecution. These include failure to meet the SFC’s fitness and properness requirements or to provide complete, true and accurate information to the SFC. The bulletin also provides examples of steps that licensed corporations have taken to strengthen corporate governance and senior management accountability following the introduction of the MIC regime, and notes that the SFC will soon conduct a thematic review of the structure and effectiveness of the management of licensed corporations, including board governance and the responsibilities of MICs. Singapore On 26 April 2018, the Monetary Authority of Singapore (MAS) proposed guidelines to strengthen individual accountability of senior managers and raise standards of conduct in financial institutions (FIs). 12 The guidelines are a key part of MAS’ broader efforts to foster a culture of ethical behaviour and responsible risk-taking in the financial industry. The proposed guidelines set out MAS’ supervisory expectations of boards and senior management with respect to individual conduct and behaviours. They are not designed to be prescriptive. It is ultimately the responsibility of each FI to hold its senior managers accountable for their actions and ensure proper conduct among their employees. The guidelines reinforce FIs’ responsibilities in three key areas: • Promoting individual accountability of senior managers: FIs should identify senior managers responsible for core management functions and clearly specify their individual accountabilities. FIs should ensure that senior managers are fit and proper for their roles and hold them responsible for the actions of their staff and the conduct of the business under their purview. The FI’s management structure and reporting relationships should be clear and transparent. • Strengthening oversight of employees in material risk functions: FIs should identify employees who have the authority to make decisions or conduct activities that can significantly impact the FI’s safety and soundness, or cause harm to a significant segment of the FI’s customers or other stakeholders. FIs should ensure that such employees are fit and proper and are subject to an appropriate incentive structure and effective risk governance. • Embedding standards of proper conduct among all employees: FIs should have in place a framework that promotes and sustains the desired conduct among employees. The conduct framework should articulate the standards of conduct expected of all employees and be effectively communicated and enforced throughout the organisation. Policies and processes should be implemented to ensure the regular monitoring and reporting of conduct issues to the board and senior management. There should also be appropriate incentive systems and effective feedback channels, such as whistle-blowing mechanisms, in place. The guidelines provide FIs with the operational flexibility to determine the most appropriate ways to achieve the desired outcomes of proper accountability and conduct. MAS will monitor FIs’ progress in implementing the guidelines through its regular supervisory engagements. Feedback on the proposals closed on 25 May 2018 and final guidelines are expected to be issued by MAS during Q4 2018.