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In the News: HK Security Law; Wealth Management Connect; and Data Security Law
July 06, 2020 | BY
Vincent ChowHong Kong national security law comes into effect with U.S. sanctions imminent; China launches wealth management connect scheme with Hong Kong, Macao; and NPC publishes draft Data Security Law tightening data protection rules
Hong Kong national security law comes into force
Hong Kong's new national security law finally came into effect following weeks of intense speculation about its scope and potential impact on businesses in the city. On June 30, China's top legislative body, the National People's Congress Standing Committee, granted final approval before President Xi Jinping signed the legislation into law. The law, which cracks down on "secession, subversion, organisation and perpetration of terrorist activities," as well as collusion with foreign countries, came into effect the same evening.
The controversial law has sparked a fierce global backlash, with the United States suspending Hong Kong's special license exceptions under the U.S. export controls regime on June 29. It also ended exports of U.S. defense equipment to Hong Kong and is imposing the same restrictions on exports of U.S. defense and dual-use technologies to the city as it does for mainland China. A sanctions bill targeting Chinese officials and financial institutions dubbed the Hong Kong Autonomy Act is also expected to be signed into law imminently by President Donald Trump, following expedited and unanimous congressional approvals. Meanwhile, Canada, the United Kingdom and Australia have updated their travel advisories for Hong Kong to warn citizens of possible arrest under the new law.
According to Thomas So, a Hong Kong-based partner at Mayer Brown and a member of the National Committee of the Chinese People's Political Consultative Conference, there are two aspects of the new national security law that global firms in Hong Kong should pay particular attention to. First, pursuant to articles 2 and 9, companies should not do anything that might be interpreted as encouraging pro-independence activities. Second, pursuant to Article 21, companies should devise policies that bar employees from using company equipment or premises to commit offences stipulated by the law. One highly controversial provision in the new law that has sparked global outcry is Article 38, which states that the law applies to offences committed by foreigners outside Hong Kong. According to So, the "long-arm" jurisdiction of the new law could have a negative impact on foreign investors and legal practitioners' willingness to come to Hong Kong. He notes however that the substantive impact will depend on how the law is implemented in the coming weeks and months.
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China announces wealth management connect with Hong Kong, Macao
China has launched a cross-border wealth management scheme as part of its Greater Bay Area (GBA) development plan that opens up wealth flows between the mainland and the special administrative regions of Hong Kong and Macao. On June 29, the People's Bank of China, Hong Kong Monetary Authority (HKMA), and Monetary Authority of Macao jointly announced the Cross-boundary Wealth Management Connect Pilot Scheme ("跨境理财通"). The launch date and implementation details will be issued in a separate announcement, the regulators said.
According to the announcement, residents of mainland cities in the GBA will be allowed to open investment accounts with banks in Hong Kong and Macao to purchase wealth management products under the southbound connect. Meanwhile, Hong Kong and Macao residents can do the same in the opposite direction under the northbound connect. Eddie Yue, Chief Executive of the HKMA, said in a statement that the new scheme marks "another important milestone for the Mainland's capital account liberalization" following the launch of the Stock Connect and Bond Connect schemes.
The new Wealth Management Connect scheme is a major part of China's GBA plan to develop an economic powerhouse through the closer integration of Hong Kong and Macao with major cities on the mainland including Shenzhen and Guangzhou. Greater cross-border flows of capital between the three jurisdictions is a core element of the GBA development plan unveiled in 2019. There are strict capital controls on the mainland, while Hong Kong and Macau have no such restrictions. According to the latest announcement, cross-border remittances will be conducted in renminbi, while currency conversions will be done offshore. The scheme will be governed by the respective laws and regulations in the three jurisdictions, the announcement said, with further details on how this will work in practice expected to be released in the future. Key areas to look out for include rules surrounding investor eligibility, dispute resolution and investment quotas.
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Stock Connect: The War for Capital – China's Stock Market Reforms in 2019
Regulatory battle: Winning the War to Rein in China's Wealth Management Products
China releases draft Data Security Law for public consultation
China's expanding data protection regime has seen another significant development with the release of a draft PRC Data Security Law (中华人民共和国数据安全法). On July 2, the National People's Congress Standing Committee published the draft for public comments until Aug. 16. The draft says that the state will promote the development of the digital economy while protecting the legitimate rights of individuals and organizations in relation to their data.
Article 2 of the draft stipulates that organizations and individuals outside mainland China engaging in data activities that harm "national security, the public interest, or the lawful interests of citizens or organizations of the People's Republic of China" will be legally liable. Article 22 proposes the establishment of a data security review system, whereby data activities that affect or may affect national security will be subject to a national security review.
According to Barbara Li, corporate head at Beijing Rui Bai Law Firm, the draft law contains some provisions from the draft Measures for the Administration of Data Security (数据安全管理办法) issued in May 2019. Since the PRC Cybersecurity Law (中华人民共和国网络安全法) came into force in 2017, China has introduced various laws and regulations related to data security and protection. Highlights include the Provisions for the Online Protection of the Personal Information of Children (儿童个人信息网络保护规定), which provide specific requirements for protecting personal information of children, and draft Measures for Security Assessments of the Transfer of Personal Information Overseas (个人信息出境安全评估办法) in June 2019, which regulates exports of personal information by network operators overseas. In March, Chinese regulators finalized the Personal Information Security Specification (信息安全技术个人信息安全规范), which sets out new tightened national standards for the collection and storage of personal information.
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