On 11 October 2019, the Government and the Securities and Futures Commission (SFC) published the Securities and Futures (Investor Compensation – Levy) (Amendment) Rules 2019, the Securities and Futures (Investor Compensation – Compensation Limits) (Amendment) Rules 2019 and the Securities and Futures (Investor Compensation – Claims) (Amendment) Rules 2019 (together, the IC Amendment Rules) in the Gazette, following the release of the SFC’s consultation conclusions on the proposed enhancements to the investor compensation regime (ICF Regime) on 8 October 2019.
By way of background, the ICF Regime was established to provide compensation (through payments out of the Investor Compensation Fund) to investors who have sustained pecuniary losses in relation to exchange-traded securities or futures contracts as a result of defaults of licensed intermediaries or authorized financial institutions in Hong Kong. Defaults cover insolvency, bankruptcy, winding up, breach of trust, defalcation, fraud or misfeasance.
The IC Amendment Rules will enhance investor protection under the existing ICF Regime by:
- raising the compensation limit from HK$150,000 to HK$500,000 per investor per default, and consequential to this, raising the trigger levels for suspending and reinstating the ICF levy, i.e. raising the suspension level from HK$1.4 billion to HK$3 billion and the reinstatement level from HK$1 billion to HK$2 billion; and
- expanding the coverage of the ICF Regime so that it covers northbound trading under Mainland China-Hong Kong Stock Connect.
The IC Amendment Rules will be tabled before the Legislative Council for negative vetting on 16 October 2019. Subject to negative vetting by the Legislative Council, the IC Amendment Rules will come into operation on 1 January 2020.