Securities & Futures Commission of Hong Kong

Accounts and Audit Rules

Q1:

Is a registered institution required under section 3(1)(c) of the Securities and Futures (Accounts and Audit) Rules (“Accounts and Audit Rules”) to submit the business and risk management questionnaire (“BRMQ”)?

A:

No. Section 156 of the SFO only sets out the reporting requirements for licensed corporations and associated entities of intermediaries. Therefore, the Accounts and Audit Rules which are made under section 156 of the SFO are not applicable to registered institutions.

Section reference: 156(1) of the SFO

Q2:

If the financial year end of a licensed corporation or an associated entity is on or before 31 March 2003, when will be the first submission date of the BRMQ?

A:

The licensed corporation or associated entity should submit the first BRMQ to the SFC for the year ended 31 March 2004 by no later than 31 July 2004.

Section reference: 156(2) of the SFO

Q3:

Is a licensed corporation required to submit all 8 audited financial returns specified under section 3(1)(b) of the Accounts and Audit Rules?

A:

No. The licensed corporation is only required to submit the audited financial returns applicable to its business activities. For example, if a licensed corporation does not engage in securities margin financing business, it is not required to submit the audited analysis of margin clients and the analysis of collateral received from margin clients.

Section reference: 3(1)(b)

Q4:

Are only licensed corporations licensed for dealing in securities required to submit the BRMQ?

A:

No. All licensed corporations are required to submit the BRMQ. In addition, section 3(1)(c) of the Accounts and Audit Rules requires all licensed corporations to submit the BRMQ together with their annual audited financial statements.

Section reference: 3(1)(c)

Q5:

Who is responsible for completing and approving the BRMQ?

A:

The BRMQ should be completed by a staff who is in charge of relevant functions of the licensed corporation or associated entity and who has sufficient knowledge about its business operations and risk management measures.

Furthermore, the BRMQ should be double checked and approved by the senior management such as a responsible officer of a licensed corporation or an executive officer of an associated entity.

Section reference: 3(1)(c) & 3(3)(c)

Q6:

Are auditors required to express any opinion on the BRMQ?

A:

No. Section 3(1)(c) and 3(3)(c) of the Accounts and Audit Rules only require licensed corporations and associated entities respectively to prepare the BRMQ. However, the BRMQ may be a good reference for the auditors of a licensed corporation or associated entity to understand its risk management measures and internal controls.

Section reference: 3(1)(c) & 3(3)(c)

Q7:

The BRMQ frequently asks whether the licensed corporation or associated entity has policies and procedures. Will the SFC issue any guidelines as to what would be considered to be proper procedures?

A:

Given the significant differences that exist in the nature and scope of their business activities, organizational and legal structures as well as degree of management supervision, there are no hard and fast rules as to proper policies or procedures relevant to all licensed corporations and associated entities. We have expressed this view in the “Foreword” section of the BRMQ. Further, the BRMQ may be used as a self assessment tool for the licensed corporations or associated entities to better understand their own business operations and assess whether they have implemented relevant risk management measures and internal controls.

Section reference: 3(1)(c) & 3(3)(c)

Q8:

Many questions in the BRMQ ask the licensed corporation or associated entity to specify the frequency of certain activities. Will the SFC issue any guidelines as to what would be considered to be proper frequency?

A:

As mentioned in the answer to the question 7 above, the SFC recognises that licensed corporations or associated entities may have significant differences in the nature and scope of their business activities, organizational and legal structures as well as degree of management supervision. Therefore, frequency of performing certain activities must be commensurate with different business and operating environment of licensed corporations or associated entities.

Section reference: 3(1)(c) & 3(3)(c)

Q9:

Are existing advisers or exempt persons (other than authorized financial institution) that have a financial period end date prior to the expiration of the grace period set out in section 60 of the Securities and Futures (Financial Resources) Rules (“SFFRR”) required to submit audited accounts and BRMQ under the Accounts and Audit Rules?

A:

Yes, all existing advisers or exempt persons are required to submit the audited accounts and BRMQ in accordance with section 3(1)(a) and (c) of the Accounts and Audit Rules.

However, since section 60 of the SFFRR provides a 6-month grace period for them to comply with the requirements set out in the SFFRR, they are not required to comply with the requirements set out in section 3(1)(b) of the Accounts and Audit Rules before the expiration of the grace period.

Existing advisers should however continue to submit their audited Net Tangible Assets computation to the SFC.

Section reference: General

3.9913 s