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Annex 2

Regulatory Requirements on Licensed Corporations


Participating in the Northbound Scheme

1. The Northbound Scheme of the Cross-Boundary Wealth Management Connect Pilot


Scheme in the Guangdong-Hong Kong-Macao Greater Bay Area (“Cross-boundary
WMC” or “Cross-boundary WMC Pilot Scheme”) refers to eligible Hong Kong investors
investing in eligible investment products offered by eligible firms in the Mainland 1 via
designated channels.

2. Should eligible Hong Kong investors wish to invest in eligible investment products
offered by eligible Mainland broker, they should open (a) an account with investment
function with an eligible Mainland broker (“dedicated investment account”); and (b) an
account with the eligible Mainland broker’s partner licensed corporation (“Participating
LC”) in Hong Kong and this account should be used solely for Cross-boundary WMC
purposes (“dedicated remittance account”). The Hong Kong investor will have to deposit
funds via the dedicated remittance account and purchase eligible investment products
offered by the eligible Mainland broker via the dedicated investment account.

Eligible investors

3. Eligible Hong Kong investors refer to all Hong Kong residents who hold Hong Kong
identity cards (including permanent and non-permanent residents). These investors must
invest in their personal capacity. Investments in joint names or in the names of corporate
clients are not accepted. Neither are they allowed to authorise a third party to operate
their accounts.

4. Participating LCs must verify the eligibility of Hong Kong investors to participate in the
Northbound Scheme.

Eligible licensed corporations

5. Licensed corporations (“LCs”) which wish to participate in the Northbound Scheme


should fulfil the following entry requirements:

(a) Financial resources: Both paid-up capital and shareholders’ funds are not less than
HK$100 million;

(b) Licence: Being licensed by the Securities and Futures Commission (“SFC”) to carry
on Type 1 regulated activity;

(c) Experience: With at least 3 years of experience in distributing investment products


(ie, funds and/ or bonds);

1
Eligible Mainland firms refer to financial institutions of the Mainland financial industry in the Greater Bay Area which meet the
criteria set by Mainland regulatory authorities to participate in Cross-boundary WMC, including eligible Mainland banks and
eligible Mainland brokers.

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(d) Transaction volume in investment products (ie, funds and/ or bonds): With
transaction volume of not less than HK$ 500 million during any 12-month period in
the past 3 years; and

(e) Systems of controls: Implemented internal controls, operating procedures and


systems, and have sufficient financial resources and operational capabilities to
conduct the business and ensure compliance with applicable requirements,
including the “closed-loop fund flow arrangements” under paragraphs 16 to 22
below.

6. Participating LCs should maintain paid-up capital and shareholders’ funds at HK$100
million or above at all times. The Participating LC should notify the SFC within one
business day of becoming aware that its paid-up capital or shareholders’ funds:

(a) falls below HK$110 million but exceeds HK$100 million. It should also provide an
undertaking in writing that its shareholders will inject capital so as to ensure that the
paid-up capital and shareholders’ funds of the Participating LC will be maintained at
HK$100 million or above and devise an exit plan, including but not limited to:

(i) arrangements on affected clients (including arrangements for notifying affected


clients and arrangements for the assets and funds of its existing clients, if
applicable);

(ii) relevant measures and the financial, human and operational resources required
to execute the exit plan; and

(iii) assigning designated personnel, who have sufficient authority to act for the
Participating LC in executing the exit plan;

(b) falls below HK$100 million. It should also immediately cease providing any services
under the Northbound Scheme. Notwithstanding, the SFC may permit the
Participating LC to carry on limited activities, such as remitting the relevant funds
back to the clients within a specified timeframe.

7. In general, LCs that intend to participate in the Northbound Scheme should, at least
three months prior to launching their Northbound Scheme activities:

(a) notify the SFC of their plan (covering, amongst other things, their roles and services
to be provided, closed-loop fund flow arrangements, review and monitoring
mechanism, senior management oversight, promotion and sales arrangements and
their partnership arrangements with eligible Mainland broker(s)); and

(b) submit a self-assessment report certified by their Manager-in-Charge (“MIC”) –


Overall Management Oversight, MIC – Compliance and head of internal audit
function to demonstrate their operational readiness.

After obtaining the no objection notification from the SFC, the LCs can embark on such
activities.

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Partnership arrangement with eligible Mainland broker

8. Participating LCs should have partnership arrangements with an eligible Mainland broker
(“Partner Broker”) on Cross-boundary WMC business. Participating LCs may have
partnership arrangements with more than one Partner Broker at the same time.

9. Before partnering with any Partner Broker, Participating LCs should ensure that the
Partner Broker has been confirmed by the relevant Mainland regulatory authorities that it
is eligible for providing Cross-boundary WMC services.

10. Under the Northbound Scheme, Partner Brokers undertake the sale of investment
products, including the opening of dedicated investment accounts for eligible Hong Kong
investors. Participating LCs may assist Hong Kong investors in opening dedicated
investment account with Partner Brokers and handling cross-boundary fund remittance
and conduct Cross-boundary WMC related promotional and sales activities as permitted
under the Frequently Asked Questions (“FAQ”) to this circular.

11. Participating LCs should enter into partnership agreements in writing with Partner
Brokers, under which the roles and responsibilities of Participating LCs and Partner
Brokers are to be clearly set out. Participating LCs should obtain the no objection
notification from the SFC before they enter into or terminate a partnership arrangement
with an eligible Mainland broker under the Northbound Scheme.

Account opening

12. Investors, who wish to open a dedicated investment account with an eligible Mainland
Broker, must also open a dedicated remittance account with a Participating LC 2 (These
investors are referred to as “Northbound Scheme clients”). Participating LCs should
provide disclosure and proper explanation in writing to the clients to ensure that they
understand the requirements under the Northbound Scheme, amongst other things:

(a) roles and responsibilities of the Participating LC and the Partner Broker;

(b) closed-loop fund flow and fund transfer requirements; and

(c) complaint handling mechanism.

Where an account opening procedure other than a face-to-face approach is used, the
covering correspondence should specifically direct the client’s attention to the aforesaid
disclosures.

13. Hong Kong investors can open a dedicated investment account with Partner Brokers
using a face-to-face or non-face-to-face approach. For non-face-to-face account
opening, Participating LCs may assist Partner Brokers in collecting the required account
opening documents and information from investors (for example, to assist Partner
Brokers in collecting the identity documents of Hong Kong investors, etc.). Participating
LCs should provide the investors with a written warning indicating that the Partner Broker
is not a licensed corporation as defined in the Securities and Futures Ordinance, and

2
This Participating LC should have a partnership arrangement with the eligible Mainland broker at which the investors wish to
open the dedicated investment account with.

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that investments maintained with the Partner Broker are not protected by the Investor
Compensation Fund in Hong Kong.

An example of such warning can be “[Name of the Partner Broker] is incorporated in


[name of jurisdiction where it is incorporated] and is not a licensed corporation as
defined in the Securities and Futures Ordinance and is not subject to the supervision of
the Securities and Futures Commission. [Name of the Partner Broker] cannot carry on
any regulated activities in Hong Kong. Any investments maintained with [Name of the
Partner Broker] are not protected under the Investor Compensation Fund in Hong
Kong.”.

14. Each eligible Hong Kong investor can only participate in the Northbound Scheme
through one of the following approaches: (i) selecting an eligible Mainland broker; (ii)
selecting an eligible Mainland bank; or (iii) selecting both approaches mentioned in (i)
and (ii) above. Partner Brokers should also take corresponding measures to ascertain
that the Mainland investors have only participated in the Northbound Scheme through
one of these approaches.

15. Should an eligible Hong Kong investor who has already opened a dedicated remittance
account with another Participating LC wish to open a new dedicated remittance account,
he/ she should close his/ her existing dedicated remittance account with such
Participating LC. Partner Brokers should also take corresponding measures to check the
status of such investors.

Closed-loop fund flow arrangements

16. Northbound Scheme clients should indicate clearly to Participating LCs their consent for
the Participating LCs and Partner Brokers to assist in transferring their funds between
their dedicated remittance accounts and dedicated investment accounts.

17. Participating LCs should open a new or designate an existing segregated account used
solely for Cross-boundary WMC purpose with a Hong Kong bank which has launched its
business under the Cross-boundary WMC Pilot Scheme (“Hong Kong omnibus
account”). Participating LCs should clearly designate the Hong Kong omnibus account
as a “WMC client account” or “WMC trust account”. For the avoidance of doubt, the
Participating LC may only open or designate one account at one Hong Kong bank as the
Hong Kong omnibus account.

18. Partner Brokers should open a new or designate an existing segregated account used
solely for Cross-boundary WMC purpose with a Mainland bank which has launched its
business under the Cross-boundary WMC Pilot Scheme (“Mainland omnibus account”).
Participating LCs should pair their Hong Kong omnibus account with the Mainland
omnibus account of their Partner Brokers.

19. The Hong Kong omnibus account should solely be used by Participating LCs for
remitting funds from the Northbound Scheme clients to the Mainland omnibus account of
their Partner Brokers (or for receiving funds of Northbound Scheme clients from the
Mainland omnibus account of their Partner Brokers). The funds remitted can only be
used for Cross-boundary WMC investment purposes.

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20. Upon the receipt of the Northbound Scheme clients’ instruction, Partner Brokers could
only remit both the clients’ principal and investment proceeds back to the Hong Kong
omnibus account of the Participating LCs. Participating LCs are responsible for returning
the client funds back to the Northbound Scheme clients.

21. All cross-boundary remittances between the Hong Kong omnibus accounts of the
Participating LCs and the Mainland omnibus accounts of the Partner Brokers should be
conducted in RMB and through the Cross-border Interbank Payment System. All cross-
boundary remittances related to the Northbound Scheme cannot be conducted through
other channels.

22. Participating LCs should record in detail and monitor the funds of each Northbound
Scheme client, and maintain proper transaction records of the Hong Kong omnibus
account and the dedicated remittance account of the Northbound Scheme clients,
including the inflows and outflows of funds, etc., to ensure that all funds received and
held on behalf of the Northbound Scheme clients are promptly and properly accounted
for and adequately safeguarded. The records should be retained for review or
investigation by Participating LCs, their auditors and the SFC 3.

Aggregate quota

23. Remittances to the Mainland under the Northbound Scheme is subject to an aggregate
quota. The aggregate quota is calculated on a net basis. The cumulative remittance to
the Mainland under the Northbound Scheme should not, at any time, exceed the
aggregate quota.

24. The aggregate quota for the Northbound Scheme is initially set at RMB 150 billion. The
usage of the aggregate quota under the Northbound Scheme is calculated as follows:

Usage of aggregate quota under the Northbound Scheme = cumulative remittances


from Hong Kong and Macao to the Mainland under the Northbound Scheme –
cumulative remittances from the Mainland to Hong Kong and Macao under the
Northbound Scheme

The Guangdong Provincial Branch 4 and Shenzhen Branch 5 of the People’s Bank of
China will update the usage of the aggregate quota on each trading day on their
websites.

25. When the usage of the aggregate quota under the Northbound Scheme reaches its
upper limit, Participating LCs can only proceed with inward remittance back to Hong
Kong under the Northbound Scheme and cannot proceed with outward remittance to the
Mainland under the Northbound Scheme.

26. Prior to providing Northbound Scheme services to clients, Participating LCs should
explain in detail the possible impact of the restrictions of the aggregate quota on the
clients (ie, instructions for remittances from Hong Kong to the Mainland under the

3
Under Part IV(6) of the Management, Supervision and Internal Control Guidelines for Persons Licensed by or Registered
with the Securities and Futures Commission (“Internal Control Guidelines”).
4
http://guangzhou.pbc.gov.cn/guangzhou/129196/4332364/4332372/4332394/index.html
5
http://shenzhen.pbc.gov.cn/shenzhen/4334824/4334830/4334837/index.html

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Northbound Scheme may be put on hold as a result of the aggregate quota being used
up while remittances from the Mainland back to Hong Kong and investment instructions
using funds already remitted to the dedicated investment accounts will not be affected)
and the associated risks.

Individual investor quota

27. The individual investor quota for each investor under the Northbound Scheme is RMB 3
million. If an investor simultaneously selects both an eligible Mainland bank and an
eligible Mainland broker for investment under the Northbound Scheme, the individual
investor quota allocated between the bank and the broker will each be RMB 1.5 million.
Participating LCs and Partner Brokers should take corresponding measures to monitor
the usage of the individual investor quota. The usage of the individual investor quota
under the Northbound Scheme is calculated as follows:

Usage of brokers’ individual investor quota under the Northbound Scheme =


cumulative remittances from Participating LCs to the Mainland under the Northbound
Scheme – cumulative remittances from the Mainland back to Participating LCs under
the Northbound Scheme

28. Participating LCs should monitor cross-boundary remittances. Before remitting funds
from Northbound Scheme clients to Partner Brokers, Participating LCs should ascertain
that the cumulative net remittance to Partner Brokers from Northbound Scheme clients
does not exceed the individual investor quota. If the amount that a Northbound Scheme
client plans to remit exceeds his/ her remaining individual investor quota, Participating
LCs should refuse to remit the funds or only remit the amount of the remaining individual
investor quota.

Eligible investment products

29. Eligible investment products under the Northbound Scheme mainly include public
securities investment funds with risk rating “R1” to “R4” (excluding commodity futures
funds) distributed by Partner Brokers. For details, please refer to the implementation
arrangements issued by the Mainland regulatory authorities.

Promotion and sales

30. Participating LCs may, through appropriate channels in Hong Kong, display and provide
factual representations to the public (including non-Northbound Scheme clients) on the
Northbound Scheme services provided by the Participating LCs (including the
operational arrangements of the Northbound Scheme services, detailed arrangements
for opening a dedicated remittance account under the Northbound Scheme, relevant
services provided by the Participating LCs under the Northbound Scheme, contact
details of the Participating LCs, and a representation made in a prescribed manner 6 on
the partnership arrangement between the Participating LCs and their Partner Broker),
and general information about the Cross-boundary WMC (including the scope and
categories of eligible investment products, quota, funds remittance and transfer
arrangements, investor protection, etc.). Participating LCs may also provide investor

6
Please refer to the FAQs to this circular for the prescribed manner.

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education (for example, educating investors on how to read and understand different
types of product documents).

31. Participating LCs may upon enquiry or request by a Hong Kong investor:

(a) provide basic contact information of Partner Brokers (such as name, phone number,
branch addresses and website address, etc.); and

(b) assist in arranging a direct dialogue or video conference with the Partner Brokers on
the Northbound Scheme service. In respect of the investor’s first request,
Participating LCs may provide the contact information of the Partner Brokers (such
as telephone number) to allow the Hong Kong investor to initiate the relevant
dialogue or conference (Participating LCs’ representatives can participate in such
dialogue or conference). If the Hong Kong investor and the Partner Broker agree
that the Participating LC can assist the Hong Kong investor in arranging a direct
dialogue or conference with the Partner Broker in the future, the Participating LC can
arrange the relevant dialogue or conference in the future upon the investor’s
request.

32. Participating LCs may organise briefings and seminars in Hong Kong for the Hong Kong
public to introduce the content set out in paragraph 30 above, and information on
macroeconomic conditions, market environment, industry segments, sectoral trends or
general financial information, etc.

33. Participating LCs must be cautious that the information provided on the Cross-boundary
WMC (i) should be factual and fair representations and should not involve solicitation or
recommendation; (ii) should not constitute an offer to the Hong Kong public in relation to
individual investment products; and (iii) should not constitute active marketing of the
Partner Broker’s Cross-boundary WMC services to the Hong Kong public. There should
not be any indication which suggests that the Participating LC is the representative or
agent of the Partner Broker in Hong Kong.

34. For detailed promotion and sales arrangements, please refer to the FAQs to this circular.

Controls, supervision and staff competency

35. The senior management of Participating LCs should bear primary responsibility for
ensuring adherence by the Participating LCs to their internal policies and procedures as
well as all applicable laws, rules and codes. This includes putting in place appropriate
systems and controls, as well as appropriate monitoring, compliance and audit
mechanisms to ensure compliance with the internal policies and procedures as well as
applicable legal and regulatory requirements by the Participating LCs; recruiting
appropriate staff who have suitable knowledge and skills to provide services to clients;
and providing regular and appropriate training to the staff.

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Breaches

36. Where non-compliance or breaches by Participating LCs of the requirements in this


circular, applicable laws, rules or codes are found in their course of business under the
Northbound Scheme, the SFC will assess the relevant non-compliance and breaches,
and determine whether it is necessary to suspend the Participating LCs’ eligibility to
engage in the Northbound Scheme or the Cross-boundary WMC.

37. The SFC may take supervisory and/ or enforcement actions against the Participating
LCs involved and/ or their relevant personnel in respect non-compliance or breaches of
the applicable requirements in their course of business under the Cross-boundary WMC.

38. If Participating LCs become aware of any non-compliance or breach by an individual


investor of any requirements set out in this circular or relevant regulations (for example
become aware of an investor possessing more than one dedicated investment
account 7), they should file a report to the SFC immediately. Participating LCs should
ensure that the relevant client agreements are contractually effective in addressing the
above situation and should clearly explain the situation to the client.

Investor protection and complaint handling mechanism

39. The transactions carried out by the Northbound Scheme investors via their dedicated
investment accounts are subject to the protection of the Mainland laws and regulations
and regulatory regime. Participating LCs should also provide Northbound Scheme
investors with proper investor education on, amongst other things, communication with
Participating LCs and remittance channels, and issue anti-fraud alerts.

40. Regarding complaints about investment products and services under the Northbound
Scheme, Participating LCs should refer the complaints to the Partner Brokers for follow-
up and assist investors as appropriate. After referral of any complaint, Participating LCs
should take appropriate follow-up actions to ensure that the complaint is duly handled
and addressed by the relevant Partner Brokers within a reasonable time.

41. Participating LCs should handle complaints involving cross-boundary fund remittances
under the Northbound Scheme in accordance with the requirements prescribed by the
SFC 8.

Data reporting and submission

42. Participating LCs should collect, compile and report data or information on Northbound
Scheme activities as requested by the SFC, including but not limited to information on
accounts, cross-boundary fund remittance and transfer, client complaints and
compliance with relevant regulatory requirements, etc.

43. Participating LCs should designate at least two staff members as the contact persons for
liaising with the SFC.

7
For example, by requiring investors to make a declaration and pass the checking by Partner Brokers prior to account
opening (see paragraph 14 above).
8
Including paragraph 12.3 of the Code of Conduct for Persons Licensed by or Registered with the Securities and Futures
Commission, part V(5) of the Internal Control Guidelines, and other guidelines published by the SFC, such as the Circular on
handling of client complaints dated 31 March 2022.

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Personal data

44. Participating LCs should handle the personal data of their clients in accordance with the
Personal Data (Privacy) Ordinance at all times.

Exchange of information under the Memorandum of Understanding

45. The SFC has entered into a memorandum of understanding with the Hong Kong
Monetary Authority and the Mainland regulatory authorities, under which the parties
thereto will exchange information on supervisory and enforcement cooperation.

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