Asia Funds & Financial Services Newsletter

Sidley’s Asia Funds and Financial Services Newsletter discusses important regulatory and enforcement developments that affect financial institutions, investment advisers, and investment funds operating in the Asia-Pacific region in a fast-changing regulatory landscape. In this issue, we cover, on the Hong Kong side, a critical review of Hong Kong Securities and Futures Commission (SFC) new enforcement priorities as well as its tougher posture when tackling claims to withhold disclosure of documents on the grounds of legal privilege and a new era of heightened scrutiny involving cross-border private fund-raising activities. On the Singapore side, we note the new initiatives by the Monetary Authority of Singapore (MAS) to attract high-value fund managers as well as its enhanced expectations for the management of liquidity risk by fund managers. On the Japan side, we note the tougher penalties facing entities operating unregistered financial business. 

Featured articles 

• Editorial: Hong Kong Regulator Reframes Enforcement Priorities Around Outcomes
• SFC Signals Tougher Approach to Legal Privilege Claims
• China to Tighten Private Fundraising Rules Amid Cross-Border Distribution Scrutiny 
• Singapore Sharpens Its Tax and Immigration Edge in Race for Fund Management Talent

Editorial: Hong Kong Regulator Reframes Enforcement Priorities Around Outcomes

As its three-year strategic plan nears completion, the new SFC Head of Enforcement, Michael Duignan, has given one of the clearest public statements to date of the SFC’s developing enforcement philosophy. Speaking at the 10th Annual Institute on Corporate and Securities Law in Asia on September 24, 2026, Duignan reframed the SFC’s approach not as a fixed list of enforcement “priorities” but as a broader philosophy aimed at pursuing “any lawful, workable approach that gets good outcomes fast and efficiently.”

While traditional enforcement mechanisms — formal investigations, notices, disciplinary proceedings, and appeals — will continue to matter, Duignan’s remarks indicate that the SFC will not treat that route as the only legitimate path, nor will the SFC necessarily decline a case simply because it does not fall within a preset list of enforcement priorities. In scenarios involving risks to client assets or market integrity, the SFC is prioritizing rapid market intervention, early remediation, variation of licensing conditions, business restrictions, investor redress, and even voluntary license surrenders. A prime example involved a firm facing severe control deficiencies in client asset controls, discretionary account supervision, and conflicts, which the SFC resolved through a negotiated wind-down and client redress rather than conventional sanctions alone. 

This recalibration underscores the critical role of proactive, early-stage compliance. Enforcement risks frequently originate “upstream” during routine on-site inspections, thematic reviews, deficiency letters, or complaints. Consequently, a firm’s initial reaction, governance structure, and speed in executing credible remediation plans heavily influence whether issues escalate into formal enforcement actions. Persistent failures, ignored red flags, and poor escalation are increasingly viewed as systemic governance failures under senior management responsibility. For details, please refer to our Sidley Update (here).

SFC Signals Tougher Approach to Legal Privilege Claims

Speaking at the GIR Live: Asia-Pacific Investigations Summit on August 25, 2026, Duignan also publicly signaled a tougher approach to claims for legal professional privilege, stating that the SFC is prepared to “push back hard” against overbroad claims.

The warning is understandable. Privilege is sometimes claimed too widely, particularly in the pressure of dawn raids, compulsory production notices, and urgent regulatory requests. Privilege is not a badge affixed by lawyers to documents after the event. It is a substantive immunity, justified by the public interest in enabling clients to obtain legal advice. Whether it applies depends on the dominant purpose for the document’s existence, not on labels, authorship, or assertions of confidentiality.

A factual report does not become privileged because it is written by a lawyer. Nor does a self-report become legal advice because it is accompanied by a reservation of rights. Privilege turns on the real reason the document came into existence. The SFC can be expected to test blanket claims more closely and be more willing to scrutinize claims over entire devices, inboxes, or broad categories of seized materials. Unsupported claims cannot be justified by formulaic references to lawyers or by the mere application of privilege labels.

Nevertheless, this tougher posture should not be mistaken for a change in the legal test. Internal investigations in regulated businesses commonly serve several purposes at once: establishing the facts, assessing the legal risk, considering remediation, and engaging with regulators. Fact-finding may be an indispensable foundation of legal advice, and a lawyer who interviews witnesses is not necessarily acting as a mere investigator. Equally, a report to a regulator may form part of a wider legal strategy. Regulated firms should avoid assuming that the involvement of lawyers will automatically protect all materials. For more details, please refer to our Sidley Update (here).

China to Tighten Private Fundraising Rules Amid Cross-Border Distribution Scrutiny

The China Securities Regulatory Commission (CSRC) recently concluded public consultation of its draft “Administrative Measures for Fundraising by Private Investment Funds,” which points toward closer regulatory scrutiny of fundraising conduct targeting Mainland investors. The draft proposals suggest a shift toward substance-based review of Mainland investor participation, including who the ultimate investor is, how the investor was sourced, where marketing occurred, where the investment decision was made, and how subscription monies moved offshore.

For offshore private fund managers who have historically tapped capital from Mainland investors, fundraising models should be reassessed. Reliance on contractual representations, offshore vehicles, Hong Kong brokerage accounts, omnibus arrangements, special purpose vehicles, or reverse solicitation wording alone is unlikely to be sufficient where the facts indicate targeted fundraising from Mainland investors or raise People’s Republic of China regulatory or foreign exchange concerns.

This does not mean Mainland investor participation in offshore funds is necessarily prohibited. But offshore managers and Hong Kong intermediaries should expect closer scrutiny of distribution channels, investor transparency, beneficial ownership, and source of funds, particularly where Mainland-facing introductions, digital promotion, roadshows, wealth management channels, or referral arrangements are involved. Mainland investor participation in offshore funds cannot be assessed solely by reference to contractual representations, offshore vehicles, or selling restrictions. For details, please refer to our Sidley Update (here). 

Singapore Sharpens Its Tax and Immigration Edge in Race for Fund Management Talent

On August 19, 2026, MAS announced three new initiatives to attract high-value asset managers to Singapore. First, MAS planned a new tax exemption for profit-related returns (i.e., carried interest) arising from the provision of fund management services to qualifying funds, provided the funds are managed by Singapore-based fund entities meeting economic substance requirements and headcount requirements. Second, MAS will introduce the Hedge Fund Investment Program to allocate capital directly to hedge fund managers who commit to establishing or expanding their operational presence in Singapore. Third, Singapore is enhancing its five-year Overseas Networks & Expertise (ONE) Pass employment visa by introducing a dedicated investment management track. This new track will factor performance-linked returns alongside standard fixed monthly salaries (traditionally set at S$30,000) to better match typical compensation structures for senior investment professionals. Additional implementation details and guidelines for these measures will be released around February 2027, during presentation of Singapore’s budget. For more information, please refer to our Sidley Update (here).

REGULATORY STANDARDS/UPDATES

Singapore Enhances Liquidity Risk Management Expectations for Fund Managers

July 2026: Following public consultation, MAS issued the revised Guidelines on Liquidity Risk Management Practices (Fund Management Companies) to provide greater clarity on the management of liquidity risks. The key changes require fund managers to establish clear accountability and decision-making processes for the design and activation of liquidity management tools under both normal and stressed market conditions.

Japan Toughens Penalties for Unregistered Financial Operations

August 2026: Japan significantly escalated criminal and financial penalties for entities conducting financial instruments business without registration under the Financial Instruments and Exchange Act (FIEA). Under the updated framework, the maximum prison term for operating an unregistered financial business has doubled from five to 10 years. The maximum fine for individual offenders has been raised from JPY 5 million to JPY 10 million (US$ 67,000). Concurrently, corporate entities also face amplified penalties, with the maximum corporate fine climbing from JPY 500 million to JPY 700 million (US$ 4.7 million). As Japan moves to place digital assets and cryptocurrencies under the FIEA framework, unregistered cryptocurrency platforms face the exact heightened criminal exposures. 

Enhanced Disclosure Requirements for Private Credit / Private Equity Retail Funds

September 2026: The SFC issued a circular enhancing disclosure requirements for retail funds with private market asset exposure, including private credit and private equity. Affected managers must clearly detail investment limits, illiquidity risks, and valuation complexities. Direct exposure is strictly capped at 15% of net asset value, while aggregate exposures of 50% or more (including indirect exposure through listed vehicles or structured products) automatically triggers complex product classification, stricter suitability frameworks, and distribution controls restricting access to retail investors. 

Hong Kong Expands Oversight of Audits and Financial Reporting

September 2026: The Accounting and Financial Reporting Council signed an enhanced memorandum of understanding to significantly expand joint oversight with the SFC. The updated framework widens jurisdiction beyond listed entities to include unlisted financial subsectors, bringing licensed corporations, virtual asset platforms, and public funds under joint oversight. It also streamlines information sharing, case referrals, and joint inspections and investigations into financial reporting and auditor misconduct.

SFC Revamps Retail Fund Regulations

October 2026: Following public consultation, the SFC announced amendments to enhance the regulation of retail funds under the Code of Unit Trusts and Mutual Funds (UT Code), taking effect on November 1, 2026 (subject to a 12-month transition for existing funds). The revised UT Code (i) allows SFC-authorized funds to use value-at-risk derivative framework alongside the net derivative exposure baseline, (ii) mandates antidilution liquidity risk management tools for open-ended funds to protect remaining investors during large redemptions, (iii) permits phased retail access to private market assets, initially restricted to listed closed-ended alternative funds, (iv) tightens structural guardrails for SFC-authorized money market funds, and (v) streamlines approvals of investments by feeder funds, explicitly clarifying the framework for SFC-authorized feeder funds investing in non-SFC authorized underlying master funds without separate authorization.

INTERMEDIARIES/MARKET SUPERVISION

SFC Mandates Antiphishing Controls for Internet Brokers and VATPs

July 2026: The SFC issued a circular mandating that virtual asset trading platforms (VATPs) and internet brokers implement phishing-resistant authentication. The circular bans vulnerable text messages and email one-time passwords for client logins and device binding, requiring migration to such cryptographically secure alternatives as passkeys within 12 months. 

Hong Kong and Malaysia Broaden Cross-Border Fund and Dual-Listing Frameworks

July 2026: The Hong Kong and Malaysia regulators expanded their Mutual Recognition of Funds framework to include conventional exchange-traded funds (ETFs), real estate investment trusts, and leveraged products. Additionally, the agreement establishes a streamlined dual initial public offering pathway between Hong Kong Exchanges and Clearing (HKEX) and Bursa Malaysia to deepen capital market integration. 

Japan FSA Unifies Interagency Cyber Incident Reporting Form

September 2026: Japan’s Financial Services Agency (FSA) announced that effective October 1, 2026, regulated institutions — including cryptocurrency exchanges — are required to use a newly standardized interagency template for reporting distributed denial-of-service attacks, ransomware, and other cyber incidents. The change aims to streamline reporting and facilitate information sharing among relevant government authorities. To ease operational friction, the FSA will allow a transitional grace period, permitting institutions to temporarily leverage legacy reporting templates until March 31, 2027.

Hong Kong Regulators Flag Potential Trading Halts Over Audit Disclaimers

October 2026: Hong Kong financial regulators issued a joint warning that heavily affects buy-side risk models and portfolio liquidity management. The SFC, HKEX (as frontline regulator of the Hong Kong stock exchange), and Accounting and Financial Reporting Council (as statutory regulator for the accounting profession) revealed an alarming sevenfold surge in listed companies carrying unresolved going-concern audit disclaimers, prompting a strict enforcement push. Critically, for fund managers, the regulators have made it clear that they will consider abolishing the current listing rule carveout if market compliance does not improve.

KEY PRODUCT DEVELOPMENTS

Singapore Opens Door to New Retail Alternative Funds

July 2026: MAS published proposals to amend the Code on Collective Investment Schemes to introduce a new Alternative Funds Appendix. This framework enables retail access to fund products that deviate from existing investment restrictions under the Code. Eligible funds will be authorized through circulars setting out tailored investment requirements, alternative safeguards, and enhanced disclosures. 

Hong Kong Adopts Flexible Leverage Structure for Listed L&I Products

August 2026: The SFC revised its circular on listed structured funds to introduce flexible leverage structure for daily leveraged and inverse (L&I) products. To better manage volatility, the revised framework allows managers to lower their fund’s daily leverage target below the statutory caps of 2x and –2x. 

Hong Kong / Chinese Regulators Deepen Cross-Border Market Links

August 2026: The SFC and CSRC jointly announced 10 major measures to enhance Mainland–Hong Kong capital markets connectivity. Alongside such strategic initiatives as fast-tracked ETF registrations and new RMB derivatives, the package significantly reinforces cross-border supervision to protect market integrity. It introduces a shared risk-monitoring architecture and expands cross-agency information-sharing protocols. These enhanced tools are designed to facilitate swift joint investigations and parallel enforcement actions against market intermediary misconduct, targeting unauthorized operations and ensuring robust investor protection across dual-listed entities and cross-boundary fund frameworks.

Singapore Charts the Next Phase of Stablecoin Regulation

September 2026: MAS proposed sweeping amendments to the Payment Services Act 2019 to introduce a new framework to regulate stablecoins, covering domestic issuers, multijurisdictional issuers, and foreign issuers. Stablecoins that do not meet the applicable requirements, or whose issuers do not apply to be brought within the MAS framework, will continue to be treated as digital payment tokens. For details, please refer to our Sidley Update (here).

SIGNIFICANT ENFORCEMENT ACTIONS

We highlight below several noteworthy disciplinary and enforcement actions that may be of interest to managers-in-charge (MICs), responsible officers (ROs), licensed representatives, intermediaries, and others operating in the Hong Kong financial markets.

Insider Dealing 

July 2026: The Market Misconduct Tribunal found a chairman of a listed company (listco) and his private investment vehicle liable for insider dealing. After learning that a private startup — in which the listco held a 3.73% minority stake — was being acquired, the chairman used his vehicle to increase his own stake in the listco. The acquisition ultimately yielded a HK$ 1.15 billion cash windfall for the listco. The tribunal also ruled that the listco had breached its statutory disclosure obligations because the chairman intentionally withheld this price-sensitive information from the board. 

Breaches of the Fund Manager Code of Conduct

July 2026: The SFC reprimanded and fined a licensed asset manager HK$6.8 million for failing to discharge its duties as a private fund manager after acceding to an investor-driven request to enter into unnecessarily complex, structured note arrangements linked to debt instruments issued by a connected party. The firm failed to properly evaluate the red flags or comply with the stated investment objectives, creating additional risk without a clear commercial rationale. 

Anti-Money-Laundering and Senior Management Accountability

July 2026: A licensed brokerage firm was fined HK$1.7 million and its RO/MIC suspended for three months for inadequate client due diligence and Know Your Customer verification. The firm permitted a client to execute large equity sales despite glaring discrepancies in the client’s declared financial profile. After discovering that the client had submitted fraudulent third-party brokerage statements to facilitate the transactions, the firm failed to report the deceptive conduct to the SFC. 

September 2026: A licensed futures dealer was fined HK$7 million and its RO suspended for seven months over failures to conduct due diligence on the customer-supplied systems used by clients for placing orders. The firm failed to effectively monitor transactions to identify and detect suspicious trading patterns in the client accounts in compliance with anti-money-laundering requirements. Specifically, it ignored 176 instances of same-second wash trades and overlooked glaring redflags, including HK$65.5 million in third-party deposits that completely contradicted the low-income financial profiles declared by the clients.

Cybersecurity

July 2026: The SFC reprimanded and fined a licensed securities broker HK$ 2.1 million for systemic cybersecurity failures. Despite a clean historical record and no evidence of client losses, the penalty was imposed to address a severe lack of operational resilience. The vulnerabilities contributed to a ransomware attack that crippled the firm’s critical trading systems for approximately three weeks, completely shutting out clients from mobile app and internet platform trading. 

Financial Resource Requirements

August 2026: A former RO of a securities broker was banned for 10 years for systematic manipulation of monthly returns to conceal prolonged liquid capital deficits, resulting in multiple false submissions. 

Internal Control Failures

July 2026: A licensed brokerage firm was reprimanded and fined HK$ 2.8 million for systemic internal control failures in monitoring and detecting wash trades. Prior to implementing real-time surveillance, the firm relied purely on reactive post-trade reviews, and its subsequent pretrade interception protocols relied heavily on manual processes that triggered only after repeated violations occurred.

September 2026: The SFC banned a former licensed representative for 42 months for operating several client accounts on a discretionary basis without obtaining mandatory written authorizations. To conceal subsequent investment losses totaling nearly HK$3 million, the intermediary fabricated valuation statements and provided false financial information to multiple clients.