• HC-2 HC-2 Approved Persons Loyalty

    • HC-2.1 HC-2.1 Principle

      • HC-2.1.1

        The approved persons must have full loyalty to the licensee.

        January 2014

    • HC-2.2 HC-2.2 Personal Accountability

      • HC-2.2.1

        Licensees are subject to a wide variety of laws, regulations and codes of best practice that directly affect the conduct of business. Such laws involve the Rulebook of the licensed exchange, the Labour Law, the Commercial Companies Law, occupational health and safety, even environment and pollution laws, as well as the Law, codes of conduct and regulations of the CBB (as amended from time to time). The board sets the 'tone at the top' of a licensee, and has a responsibility to oversee compliance with these various requirements. The board should ensure that the staff conduct their affairs with a high degree of integrity, taking note of applicable laws, codes and regulations.

        January 2014

      • Corporate Ethics, Conflicts of Interest and Code of Conduct

        • HC-2.2.2

          Each member of the board must understand that under the Company Law he is personally accountable to the licensee and the shareholders if he violates his legal duty of loyalty to the licensee, and that he can be personally sued by the licensee or the shareholders for such violations.

          January 2014

        • HC-2.2.3

          The board must establish corporate standards for approved persons and employees. This requirement should be met by way of a documented and published code of conduct or similar document. These standards must be communicated throughout the licensee, so that the approved persons and staff understand the importance of conducting business based on good corporate governance values and understand their accountabilities to the various stakeholders of the licensee. Licensee's approved persons and staff must be informed of and be required to fulfil their responsibilities to the stakeholders.

          January 2014

        • HC-2.2.4

          An internal code of conduct is separate from the business strategy of a licensee. A code of conduct should outline the practices that approved persons and staff should follow in performing their duties. Licensees may wish to use procedures and policies to complement their codes of conduct. The suggested contents of a code of conduct are covered below:

          (a) Commitment by the board and management to the code. The code of conduct should be linked to the objectives of the licensee, and its responsibilities and undertakings to customers, shareholders, staff and the wider community (see HC-2.2.3 and HC-2.2.4). The code should give examples or expectations of honesty, integrity, leadership and professionalism;
          (b) Commitment to the law and best practice standards. This commitment would include commitments to following accounting standards, industry best practice (such as ensuring that information to clients is clear, fair, and not misleading), transparency, and rules concerning potential conflicts of interest (see HC-2.3);
          (c) Employment practices. This would include rules concerning health and safety of employees, training, policies on the acceptance and giving of business courtesies, prohibition on the offering and acceptance of bribes, and potential misuse of licensee's assets;
          (d) How the licensee deals with disputes and complaints (see Chapter BC-2) from clients and monitors compliance with the code; and
          (e) Confidentiality. Disclosure of client or licensee information should be prohibited, except where disclosure is required by law (see HC-1.2.10 b).
          January 2014

        • HC-2.2.5

          The CBB expects that the board and its members individually and collectively:

          (a) Act with honesty, integrity and in good faith, with due diligence and care, with a view to the best interest of the licensee and its shareholders and other stakeholders (see Paragraphs HC-2.2.2 to HC-2.2.4);
          (b) Act within the scope of their responsibilities (which should be clearly defined – see HC-1.2.9 and HC-1.2.11) and not participate in the day-to-day management of the licensee;
          (c) Have a proper understanding of, and competence to deal with the affairs and products of the licensee and devote sufficient time to their responsibilities; and
          (d) To independently assess and question the policies, processes and procedures of the licensee, with the intent to identify and initiate management action on issues requiring improvement. (i.e. to act as checks and balances on management).
          January 2014

        • HC-2.2.6

          The duty of loyalty (mentioned in Paragraph HC-2.2.2) includes a duty not to use property of the licensee for his personal needs as though it was his own property, not to disclose confidential information of the licensee or use it for his personal profit, not to take business opportunities of the licensee for himself, not to compete in business with the licensee, and to serve the licensee's interest in any transactions with a licensee in which he has a personal interest.

          January 2014

        • HC-2.2.7

          For purposes of Paragraph HC-2.2.6, an approved person should be considered to have a "personal interest" in a transaction with a licensee if:

          (a) He himself; or
          (b) A member of his family (i.e. spouse, father, mother, sons, daughters, brothers or sisters); or
          (c) Another licensee of which he is a director or controller,

          is a party to the transaction or has a material financial interest in the transaction. (Transactions and interests which are de minimis in value should not be included.)

          January 2014

    • HC-2.3 HC-2.3 Avoidance of Conflicts of Interest

      • HC-2.3.1

        Each approved person must make every practicable effort to arrange his personal and business affairs to avoid a conflict of interest with the licensee.

        January 2014

      • HC-2.3.2

        The board must establish and disseminate to its members and management, policies and procedures for the identification, reporting, disclosure, prevention, or strict limitation of potential conflicts of interest. It is senior management's responsibility to implement these policies. Rules concerning connected party transactions and potential conflicts of interest may be dealt with in the Code of Conduct (see HC-2.2.4). In particular, the CBB requires that any decisions to enter into transactions, under which approved persons would have conflicts of interest that are material, should be formally and unanimously approved by the full board. Best practice would dictate that an approved person must:

        (a) Not enter into competition with the licensee;
        (b) Not demand or accept substantial gifts from the licensee for himself or connected persons;
        (c) Not misuse the licensee's assets;
        (d) Not use the licensee's privileged information or take advantage of business opportunities to which the licensee is entitled, for himself or his associates; and
        (e) Absent himself from any discussions or decision-making that involves a subject where they are incapable of providing objective advice, or which involves a subject or a proposed transaction where a conflict of interest exists.
        January 2014

    • HC-2.4 HC-2.4 Disclosure of Conflicts of Interest

      • HC-2.4.1

        Each approved person must inform the entire board of potential conflicts of interest in their activities with, and commitments to other organisations as they arise. Board members must abstain from voting on the matter in accordance with the relevant provisions of the Company Law. This disclosure must include all material facts in the case of a contract or transaction involving the approved person. The approved persons must understand that any approval of a conflicted transaction is effective only if all material facts are known to the authorising persons and the conflicted person did not participate in the decision. In any case, all approved persons must declare in writing all of their other interests in other enterprises or activities (whether as a shareholder of above 5% of the voting capital of a licensee, a manager, or other form of significant participation) to the board (or the nominations or audit committees) on an annual basis.

        January 2014

      • HC-2.4.2

        The board should establish formal procedures for:

        (a) Periodic disclosure and updating of information by each approved person on his actual and potential conflicts of interest; and
        (b) Advance approval by directors or shareholders who do not have an interest in the transactions in which a licensee's approved person has a personal interest. The board should require such advance approval in every case.
        January 2014

    • HC-2.5 HC-2.5 Disclosure of Conflicts of Interest to Shareholders

      • HC-2.5.1

        The licensee must disclose to its shareholders in the notes to the audited financial statements any abstention from voting motivated by a conflict of interest and must disclose to its shareholders any authorisation of a conflict of interest contract or transaction in accordance with the Company Law.

        January 2014