Business continuity and regulatory compliance amidst the coronavirus outbreak

This article was written by Rachel Yu and Iris Shaw.

The coronavirus outbreak and subsequent lockdown of cities and travel bans have caused significant disruption for businesses, presenting strings of challenges for licensed corporations, authorised institutions ("AIs") and all Hong Kong market participants complying with regulatory requirements.

In February, the Securities and Futures Commission ("SFC"), the Hong Kong Monetary Authority ("HKMA") and the Stock Exchange of Hong Kong Limited ("HKEx") issued various papers comprising their regulatory expectations and arrangements. These served as a timely reminder to licensed corporations, AIs and other relevant market participants about the importance of business continuity planning and the regulators' expectations in that regard. We here set out some practical steps which businesses should consider taking to preserve business continuity and ensure regulatory compliance during these tumultuous times.

Regulators' position regarding compliance during the current coronavirus outbreak

As indicated in its press release of 5 February 2020 the SFC expects regulated parties to make all reasonable efforts to meet their obligations and all regulatory filings, reporting and other deadlines. There is some latitude hinted at, by mention of prompt communication in case of specific difficulties.

Further, by letter dated 7 February 2020, the HKMA announced that it is open to considering extensions of statutory deadlines for AIs to file annual accounts and related documents on a case-by-case basis.  AIs will have to ensure that their requests for extension are justifiable and make written applications for extension as soon as practicable.

On 4 February 2020, the SFC and the HKEx issued a Joint Statement providing guidance to Hong Kong listed issuers on disclosure of financial information during this time. In gist, issuers who are unable to publish their preliminary results and audited financial statements in compliance with the Listing Rules due to the coronavirus outbreak, should contact the HKEx as early as possible to provide details and explanation for their potential failure to comply. Those who are able to publish their financial information but cannot obtain agreement from their auditors should still publish that information without auditors' agreement on or before the deadline. Issuers and their directors should ensure the accuracy and completeness of such financial information that is available and may be disclosed, and highlight any uncertainties so as to allow investors to evaluate and make informed investment decisions. Issuers should also proactively engage with its auditors to discuss audit plans, timetables and monitor new developments. For more in-depth discussion on this Joint Statement, please refer to our earlier article on Guidance from the SFC and the HKEX on Results Announcements in view of Travel and Other Restrictions from the Coronavirus Outbreak.

Licensed corporations should keep monitoring whether any notification requirements to the SFC or the HKMA have been triggered, for example, by material changes in business nature, business plan, structure or overall condition in light of the coronavirus outbreak. They should ensure that all regulatory records are kept at SFC-approved premises in Hong Kong regardless of any alternative working arrangements.

Business Continuity Plan ("BCP")

The essential and indeed fundamental step for businesses to preserve and ensure business continuity when a disaster or pandemic strikes is to devise and implement an effective BCP. In 2003 when Hong Kong and major cities of mainland China were heavily affected by the SARS outbreak, the HKMA and SFC separately issued multiple circulars stressing the importance of comprehensive business continuity planning.  They also recommended a number of emergency response and contingency measures to form part of a BCP. These recommendations are equally appropriate and worth considering for the current situation. They include:

1. establishing a multi-disciplinary crisis management team for information sharing, corporate decision making and revising arrangements in accordance with changing circumstances. The team should also be responsible for monitoring developments relating to the pandemic;
2. setting up of different critical operational teams;
3. arranging for operational teams to work in alternative locations such as another branch or at the back-up site or from home where the situation permits;
4. making arrangements with overseas branches to cover at least part of the activities of the Hong Kong operations in case of need;
5. arranging with counterparts or exchanges on contingency closing out of positions, clearing and settlement matters;
6. reviewing system capacity to cater for potential upsurge in transaction volume in the event of clients switching to using electronic channels;
7. ensuring adequate back up facilities, mobile computing/ communication devices and network bandwidth;
8. arranging for rehearsal and testing of contingency plans, systems and equipment;

1. cleansing and disinfecting office premises more regularly and following the Department of Health's guidance in maintaining a clean and healthy work environment;
2. establishing infection control procedures including the acquisition of adequate protective equipment (e.g. face masks, hand gloves, liquid soap and disinfectants) for use by staff in case of need;

1. reducing non-essential overseas trips and meetings and using video or telephone conferencing facilities where possible;
2. making sure the contact numbers of staff remain up-to-date;
3. communicating to staff the steps taken by the institutions in preparation for the outbreak;
4. providing health advice and guidelines on the importance of good personal hygiene to staff through internal communications and training;
5. reviewing and where necessary, strengthening policies on medical provision, sick leave and other leave;

1. encouraging clients to use telephone or online facilities in place of physical visits and communicating any special service arrangements to clients clearly and timely;
2. keeping the HKMA, the SFC and the relevant licensing relationship managers apprised of the latest situation should any staff member or the licensed corporations be affected; and
3. checking with critical suppliers and major outside service providers to make sure that their contingency plan is adequate and can be activated at any time in face of a pandemic.

Conclusion

Special arrangements have been suggested and offered by the regulators to minimise disruption, even though it has been repeatedly emphasised that those arrangements are not a relaxation of regulatory requirements. Licensed corporations, AIs and all market participants are reminded to exercise all reasonable and good faith efforts to meet all their regulatory obligations so as not to attract disciplinary action. In case of compliance difficulties, approaches should be made to the relevant regulator as early as practicable.

A BCP should be devised to help preserve and protect business continuity and cope with the coronavirus outbreak or other possible crises. It is also crucial for businesses to ensure the effective implementation, and continuous review of their BCPs, making improvements when needed and as quickly as possible.