China Industrial Securities International Financial : 2020 ANNUAL REPORT

March 26, 2021 at 04:35 am

ጳᗇ਷ყږፄණྠϞࠢʮ̡

China Industrial Securities International Financial Group Limited

(Incorporated in the Cayman Islands with limited liability)

Stock code : 6058

Annual Report

2020

CONTENTS
Corporate Information	2
Financial Highlights	3
Chairman's Statement	5
Management Discussion and Analysis	7
Biographical Details of Directors	14
Report of the Board of Directors	18
Corporate Governance Report	28
Environmental, Social and Governance Report	39
Independent Auditor's Report	52
Financial Statements	57
Financial Summary	172
China Industrial Securities International Financial Group Limited

BOARD OF DIRECTORS

CORPORATE INFORMATION

Non-executive Director

Mr. Huang Yilin (Chairman)

Executive Directors

Mr. Li Baochen (Chief Executive Officer)

(appointed on 13 January 2020)

Mr. Wang Xiang

Ms. Zeng Yanxia

Ms. Zhang Chunjuan

Mr. Huang Jinguang (resigned as Chief Executive Officer on 13 January 2020 and resigned as Executive Director and Vice Chairman on 6 February 2020)

Independent Non-executive Directors

Ms. Hong Ying

Mr. Tian Li

Mr. Qin Shuo

BOARD COMMITTEES

Audit Committee

Ms. Hong Ying (Chairlady) Mr. Huang Yilin

Mr. Tian Li

Remuneration Committee

Mr. Tian Li (Chairman)

Mr. Huang Yilin

Mr. Qin Shuo

Nomination Committee

Mr. Huang Yilin (Chairman)

Mr. Tian Li

Mr. Qin Shuo

COMPANY SECRETARY

Mr. Cho Ka Wai (resigned on 24 October2020)

Ms. Tsang Wing Man (appointed on 10 March 2021)

AUTHORISED REPRESENTATIVES

Ms. Zhang Chunjuan

Mr. Cho Ka Wai (resigned on 24 October2020)

Mr. Wang Xiang (appointed on 18 February 2021 and resigned on 10 March 2021)

Ms. Tsang Wing Man (appointed on 10 March 2021)

AUDITOR

KPMG

Public Interest Entity Auditor registered in accordance with the Financial Reporting Council Ordinance

REGISTERED OFFICE

PO Box 1350, Clifton House

75 Fort Street

Grand Cayman KY1-1108 Cayman Islands

PRINCIPAL PLACE OF BUSINESS IN HONG KONG

32/F, Infinitus Plaza

199 Des Voeux Road Central Hong Kong

HONG KONG SHARE REGISTRAR AND TRANSFER OFFICE

Tricor Investor Services Limited Level 54, Hopewell Centre 183 Queen's Road East Hong Kong

CAYMAN ISLANDS SHARE REGISTRAR

Tricor Services (Cayman Islands) Limited

Second Floor

Century Yard

Cricket Square, P.O. Box 902 Grand Cayman KY1-1103 Cayman Islands

PRINCIPAL BANKERS

Bank of China (Hong Kong) Limited Industrial Bank Co., Ltd., Hong Kong Branch CMB Wing Lung Bank Limited

Shanghai Pudong Development Bank Co., Ltd.,

Hong Kong Branch

China Everbright Bank Co., Ltd., Hong Kong Branch Chiyu Banking Corporation Limited

China Minsheng Bank Corp., Ltd., Hong Kong Branch

WEBSITE

www.xyzq.com.hk

STOCK CODE

6058

FINANCIAL HIGHLIGHTS

RESULTS

For the year ended 31 December

Notes:

a. Such services include securities, futures and options and insurance brokerage services.
b. Basic loss per share is calculated by dividing the loss for the year attributable to owners of the Company by the weighted average number of ordinary shares.
c. Net assets per share is calculated by dividing the net assets at the end of the year by the number of shares in issue as at the end of the year.

Brokerage

Loans and financingCorporate financeAsset managementFinancial products and investments

Notes:

a. Return on equity is calculated by dividing the loss for the year by the weighted average equity attributable to owners of the Company. The weighted average equity attributable to owners of the Company for 2020 was HK$3,622,412,393 (2019: HK$4,357,589,737).
b. Gearing ratio is calculated by dividing the total of the bank borrowings, other borrowings, notes, bonds and loan from the immediate holding company as at the end of the year by the equity attributable to owners of the Company as at the end of the year.
c. Net debt to equity ratio is calculated by dividing the total of the bank borrowings, other borrowings, notes, bonds and loan from the immediate holding company less cash and cash equivalents as at the end of the year by the equity attributable to owners of the Company as at the end of the year.

Revenue (HK$'000)

2020

2019

2018

300,000

600,000

900,000 1,200,000 1,500,000
Pro t for the year (HK$'000)
2020
2019
2018
(4
(4
92,538)
61,859)
143,801
-500,000 -400,000 -300,000 -200,000 -100,000
0
100,000 200,000
Total assets (HK$'000)
2020
2019
2018
0
5,000,000
10,000,000
15,000,000 20,000,000 25,000,000

Equity attributable to owners of the Company (HK$'000)

2020

2019

2018

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

CHAIRMAN'S STATEMENT

Dear shareholders,

In 2020, the world-wide spread of the COVID-19 pandemic dealt a heavy blow to the global economy. The Federal Reserve reduced the federal funds rate to nearly 0%. The fall in market interest rates came with a decline in the yields of interest-bearing assets. As the COVID-19 pandemic, intensifying Sino-US political and trade disputes and accommodative monetary policies adopted by countries around the world led to significant fluctuations in capital flows, financial markets became more volatile. In China, the COVID-19 pandemic broke out in the first quarter of 2020, leading to a suspension of work and production. As a result, the GDP decreased by 6.8% year-on-year in the first quarter of 2020. As China began to resume work and production in the second quarter of 2020, while other countries remained at a standstill, global orders for industrial products were diverted to China. The added value of industrial enterprises above the designated size increased by 2.8% year-on-year, and gross domestic production increased by 2.3% year-on-year. In Hong Kong, affected by the repeated resurgence of the pandemic and continuous lock-down throughout the year, local economy was hard hit, especially the tourism industry. The gross local production recorded a negative growth, and the unemployment rate hit a 15-year high.

In this context, in 2020, the Group adhered to the neutral and prudent risk appetite strategy, constantly optimized its internal control system, focused on the coordinated development of large institutional and wealth management business, and achieved good results in establishing a scientific and effective internal control mechanism, optimizing customer and business structure, and laying the groundwork for business development. By doing so, the Group laid a solid foundation for the transformation and sustainable, high-quality development of the Group.

BUSINESS REVIEW

In 2020, the Group's business and revenue mix was greatly improved, with the revenue from fee-based services accounting for 60%, up 32 percentage points. The wealth management business became more competitive, with the number of customers increasing by 24%. The trading volume of Hong Kong stocks registered a growth above the market average, and the Company's ranking among 632 active exchange participants was up 7 places. Our research strength was further enhanced, as evidenced by the fact that we earned the first place in both mainstream domestic awards such as New Fortune Best Analyst, Crystal Ball Award and Golden Bull Award and the ranking of best researchers issued by Chinese Asset Management Association of Hong Kong. Our research empowered institutional business to further expand. During the year, the trading volume of institutional clients increased by more than 50%, and the percentage of revenue from large institutional business increased by 7 percentage points. As to investment banking business, we focused on high-quality projects to seek steady development. In 2020, the Company's bond underwriting amount as a JGC increased by 20%, with non-real estate clients increasing by 9% and investment-grade deals accounting for 22%. We also ventured into the underwriting of innovative bonds such as dim sum bonds, green bonds and anti-COVID-19 bonds. As to asset management business, we made new breakthroughs and saw investment performance improve in an all-round way. Our first mutual fund saw its AUM increase by about five times and reached the criteria for Mainland-Hong Kong Mutual Recognition of Funds, making us the fifth Chinese asset management institution to submit an application for Mainland-Hong Kong Mutual Recognition of Funds.

CHAIRMAN'S STATEMENT

PROSPECTS

Looking forward to 2021, the time and pace of economic recovery around the world will be the key. The global economy is expected to recover, but the development of the COVID-19 pandemic will affect the global economic prospects. In addition, geopolitical risks cannot be neglected. The foreign policy of the new US administration, the development of Sino-US relations, and even the performance of the Brexit agreement will affect the financial market.

The Group will continue to improve the comprehensive risk management governance structure and institutional system, continue to foster a compliance and risk control culture, optimise tools and methods for internal control management, and continuously increase investment in information technology, so as to strengthen real-time risk management and control through information technology and continuously improve capabilities for risk management and control, identification and response. Faced with upcoming challenges and opportunities, the Group will closely monitor relevant developments, adhere to a prudent approach, and adopt appropriate measures to proactively address the impacts of the macro environment on the financial position and operating results of the Group. While seizing the opportunities, it will reduce downside risks, so as to maintaining stable business development. In addition, it will strictly control operating costs to enhance the profitability of the Company.

In the future, we will continue to unite as one to work hard and fulfill our responsibilities for the Company and all shareholders, with a view to bringing satisfactory returns to all shareholders.

APPRECIATION

On behalf of the Board, I would like to express my heartfelt gratitude to all employees for their hard work in the past year, and hope that the COVID-19 pandemic will be over soon so that Hong Kong and the world can return to normal. I would also like to take this opportunity to thank all our shareholders, business partners and customers for your long-term support.

Huang Yilin

Chairman

Hong Kong, 19 March 2021

MANAGEMENT DISCUSSION

AND ANALYSIS

HONG KONG CAPITAL MARKET REVIEW

In the past year, the Hang Seng Index was swayed by overseas market fluctuations. As at the end of December 2020, the Hang Seng Index closed at 27,231, which was 958 points or 3.4% lower than the close of 28,189 at the end of December 2019. Although the global initial public offering market was affected by the ongoing COVID-19 pandemic, the Hong Kong initial public offering market showed great resilience and vitality. In the primary market, the total amount of proceeds raised in 2020 was HK$743.7 billion, up 64.53% from HK$452 billion in 2019 and of which HK$397.5 billion was raised from IPOs, up 27.05% from HK$312.9 billion in 2019, the highest since 2011. In the secondary market, the average daily turnover of securities in 2020 was HK$129.5 billion, a year-on-year increase of 48.48%.

RESULTS AND OVERVIEW OF THE COMPANY

For the year ended 31 December 2020, the Group recorded an operating revenue of HK$576.70 million (2019: HK$1,261.56 million), a year-on-year decrease of 54.3%. For the year ended 31 December 2020, the Group's net loss after taxation was HK$492.54 million (2019: net loss of HK$461.86 million). The loss was mainly because (1) in 2020, the COVID-19 pandemic caused a tumble in global stock markets and a sustained structural stagnation of the Hong Kong stock market. The collateral in the accounts of some securities margin customers depreciated in value and loan repayment fell short of expectation, leading to heightened risk exposure for the accounts. After regular review of the portfolios and financial situation of customers' margin accounts, the Group made additional impairment provision of HK$368.74 million for relevant margin loans throughout 2020; (2) the Group strengthened risk management of the margin financing business, strictly controlling the size of newly added assets. As a result, the average daily assets of margin financing decreased significantly by 46.2% compared with 2019, leading to a decrease of HK$327.01 million in interest income from margin financing compared with 2019, representing a year-on-year decrease of 68.4%; and (3) in 2020, amidst the global spread of the COVID-19 pandemic, economic uncertainties mounted, the market underwent a liquidity crisis in the first half of the year, and the global asset price fluctuated wildly. The Group's revenue from financial products and investments decreased by HK$341.52 million compared with 2019, representing a year-on-year decrease of 80.6%.

For the year ended 31 December 2020, the Group's operating revenue from brokerage services, corporate finance services, asset management services, loans and financing services, financial products and investments saw an increase of 10.2%, and a decrease of 16.5%, 18.5%, 68.5% and 80.6% year-on-year, respectively.

BUSINESS REVIEW OF THE COMPANY

The Group's operating revenue derives from (i) brokerage; (ii) corporate finance; (iii) asset management; (iv) loans and financing; and (v) financial products and investments.

Brokerage

For the year ended 31 December 2020, the Group recorded commission and fee income from brokerage services of HK$184.97 million (2019: HK$167.80 million), representing a year-on-year increase of 10.2%. We achieved initial results in the transformation of wealth management business, thus increasing the competitiveness of such business. As at the end of the reporting period, the number of securities customers was 36,301, an increase of 24% from the beginning of the year; the turnover of securities for the year was HK$174,479 million, a year-on-year increase of 25%. In particular, the trading volume of Hong Kong stocks recorded a growth above the market average, and the Company ranked 68th among 632 active exchange participants, up 7 places.

Corporate finance

For the year ended 31 December 2020, the Group recorded income from corporate finance business of HK$129.28 million (2019: HK$154.78 million), representing a year-on-year decrease of 16.5%.

For the year ended 31 December 2020, the Group's commission income on placing, underwriting and sub-underwriting of debt securities amounted to HK$50.18 million (2019: HK$62.58 million), representing a year-on-year decrease of 19.8%. According to Bloomberg data, in 2020, the Group underwrote US$1,080 million of USD bonds in total, ranking tenth among Chinese brokers, and the Group's bond underwriting amount as a JGC increased by 20%, with investment-grade deals accounting for 22%.

Hong Kong stock market's financing projects suffered different levels of delay due to the Covid-19 pandemic, the number of newly listed stocks dropped. Commission income on placing, underwriting and sub-underwriting of equity securities amounted to HK$9.32 million (2019: HK$53.82 million), representing a year-on-year decrease of 82.7%. According to Bloomberg data, the total equity financing amount of the Group in 2020 was US$115 million, ranking 15th among Chinese brokers. Arrangement fee amounted to HK$57.78 million (2019: HK$29.74 million), representing a year-on-year increase of 94.3%.

Asset management

For the year ended 31 December 2020, the Group recorded income from asset management business of HK$29.42 million (2019: HK$36.08 million), representing a year-on-year decrease of 18.5%. As at the end of the reporting period, the Group's assets under management (AUM) amounted to HK$7,276 million, ranking third among Chinese brokers' asset management arms. Among them, China Core Asset Fund had an AUM of HK$369 million, an increase of nearly five times from the beginning of the year, and the Company became the fifth Chinese asset management institution to submit an application for Mainland-Hong Kong Mutual Recognition of Funds.

Loans and financing

In 2020, the Group optimised its customer structure and scaled down margin financing, resulting in a significant year-on-year decline in the average size of secured margin loans. For the year ended 31 December 2020, the Group's revenue from loans and financing business was HK$150.83 million (2019: HK$479.20 million), representing a year-on-year decrease of 68.5%.

Financial products and investments

Given the financial market volatility in 2020, the Group's revenue from financial products and investments for the year ended 31 December 2020 dropped by 80.6% year-on-year to HK$82.20 million (2019: HK$423.72 million).

FINANCIAL POSITION

As at 31 December 2020, the total assets of the Group decreased by 24.9% to HK$18,263.69 million (31 December 2019: HK$24,304.67 million). As at 31 December 2020, the total liabilities of the Group decreased by 27.1% to HK$14,916.59 million (31 December 2019: HK$20,465.03 million).

LIQUIDITY, FINANCIAL RESOURCES AND CAPITAL STRUCTURES

As at 31 December 2020, the net current assets of the Group decreased by 32.4% to HK$5,231.71 million (31 December 2019: HK$7,737.91 million). As at 31 December 2020, the current ratio of the Group (defined as current assets divided by current liabilities as at the end of the respective financial year) was 1.4 times (31 December 2019: 1.5 times).

For the year ended 31 December 2020, the net cash outflow of the Group was HK$3,073.73 million (31 December 2019: inflow of HK$3,842.72 million). As at 31 December 2020, the bank balance of the Group was HK$2,286.22 million (31 December 2019: HK$5,359.95 million).

As at 31 December 2020, the Group's bank and other borrowings in aggregate decreased by 53.7% to HK$4,590.43 million (31 December 2019: HK$9,915.83 million).

As at 31 December 2020, the notes outstanding of the Group amounted to HK$69.77 million (31 December 2019: HK$31.30 million). As at 31 December 2020, the Group did not have bonds outstanding (31 December 2019: HK$2,173.67 million) and its shareholder loan amounted to HK$2,286.90 million (31 December 2019: Nil). As at 31 December 2020, the gearing ratio of the Group (defined as the sum of bank borrowings, other borrowings, notes outstanding and bonds, and shareholder loan divided by total equity) decreased by approximately 34.2% to 2.076 (31 December 2019: 3.157).

The capital of the Group comprises only ordinary shares. Total equity attributable to owners of the Company amounted to HK$3,347.10 million as at 31 December 2020 (31 December 2019: HK$3,839.64 million).

FUTURE PLAN

The Group will make every effort to promote business development on the basis of strictly maintaining a neutral and prudent risk appetite and conducting standardized internal control. We will consolidate the foundation of fee-based services and prudently develop capital-consuming business; make full use of and integrate the advantages of the Group, focus on the principal business, seize new opportunities and establish new development concepts based on the characteristics of the new market phase, expand the customer base, and increase the proportion of institutional clients and high-quality clients to optimize the customer mix, business structure and income structure; deepen and improve the business system driven by wealth management and large institutional business; increase investment in information technology and use technologies to improve internal control efficiency and empower business development; allocate resources scientifically, strictly control operating costs, and improve the efficiency of input and output of resources; pay attention to the healthy development of employees, establish a scientific and reasonable incentive scheme system, and build a good culture for the win-win development of employees and the Company. We will strive to build a sound business development model to achieve organic growth and high-quality development.

In the future, we will continue to unite as one to work hard and fulfil our responsibilities for the Company and all shareholders, with a view to bringing satisfactory returns to all shareholders.

SIGNIFICANT INVESTMENTS AND MATERIAL ACQUISITION OR DISPOSAL OF SUBSIDIARIES AND ASSOCIATED COMPANIES

There were no significant investments nor material acquisitions or disposals of subsidiaries and associated companies by the Group for the year ended 31 December 2020.

CHARGES ON GROUP ASSETS

For the year ended 31 December 2020, the Group's assets pledged were mainly debt securities pledged as collaterals for repurchase agreements and other borrowings.

EMPLOYEE AND REMUNERATION POLICY

As at 31 December 2020, the Group had 206 full-time employees (31 December 2019: 219 full-time employees), including the Directors.

Total remuneration for the year ended 31 December 2020 was HK$169.96 million (2019: HK$232.10 million). The Group will review its remuneration policy from time to time in accordance with market practice. While the bonus will be distributed with reference to individual performance appraisal, prevailing market condition, and the Group's financial performance. Other employee benefits include contributions to the Mandatory Provident Fund Scheme, medical care insurance etc.

CONTINGENT LIABILITIES

The Group did not have any material contingent liabilities for the year ended 31 December 2020 and as of the date of this report.

EVENTS AFTER THE REPORTING PERIOD

Up to the date of this report, the Directors were not aware of any significant events related to the business or financial performance of the Group after the reporting period.

RISK MANAGEMENT

The Group has in place a comprehensive corporate structure of risk management and a duly established risk management committee has been guiding for the risk management tasks throughout the Group, and the implementation of a series of risk control policies, such as credit policies, market policies, operating procedures and other internal control measures for control of exposure to credit, market, operational and liquidity risks during the course of business activities.

Credit Risks

The Group has established the risk management committee responsible for reviewing and monitoring the implementation of risk management policies for credit business and investment business of principal business units, identifying risks, and updating relevant risk management policies in response to changes. It has also established an investment and financing business assessment committee responsible for inspecting and reviewing credit approval related policies, approving trading limit and credit limit;

The Group has implemented "know-your-client" procedures and credit check to ascertain the background of potential clients. The Group also performs credit assessment (especially in loans and financing business) and risk grading on potential clients, and requires loans and financing clients to provide margin deposit, secured securities or other acceptable collateral (as the case may be) to minimize risk;

The Group closely monitors the margin ratio and loan-to-value and collateral value ratios of the loans and financing clients and takes appropriate action to recover or minimise loss where it foresees that the client may default in his or her obligation; the senior management and heads of business units of the Group regularly review the balance sheet, profit and loss accounts and credit granted to clients to identify the risk exposure of the Group, especially during adverse market movements; the Group has established credit policy with respect to the trading limit, credit line and credit period granted to clients, and will review and revise such policy on an ongoing basis; the Group conducts regular review in respect of outstanding margin loans to assess exposure to credit risks and adopts appropriate measures to mitigate such risks.

Liquidity Risks

The Group has in place liquidity risk management procedures to identify, treat, monitor and control potential liquidity risk and maintains the liquidity and financial resources requirements as specified under applicable laws and regulations, such as Securities and Futures (Financial Resources) Rules (Chapter 571N of the Laws of Hong Kong);

The Group has established a multi-tiers authorisation mechanism and internal policies for the management and approval of the use and allocation of capital. The Group has authorization limits in place for any commitment or capital outflow, such as procurement, investments, loans, etc., and assesses the impact of those transactions on the capital level; and

The Group meets its funding requirements primarily through bank borrowings from multiple banks. The Group obtained financing capital by issuing bonds for the first time in 2019, expanding its financing channels. The Group has also adopted stringent liquidity management measures to ensure that the Group has satisfied the capital requirements under the applicable laws.

Compliance and Legal Risks

The Group has established a sound and comprehensive compliance and legal risk management framework and formulated relevant policies, procedures and models in various aspects. While keeping abreast of the laws and regulations concerning the current business environment, the Group assesses the severity and causes of identified legal and compliance risks and formulates long-term and comprehensive plans for remedies and rectification measures, so as to mitigate the risks and take reasonable remedies when necessary.

The Group's compliance department is responsible for compliance monitoring and formulating the policies and procedures within the scopes of the Company, providing compliance opinion for various business plans and affairs, strictly monitoring the operation of the Group's licensed business and ensuring its compliance with relevant regulatory requirements. Meanwhile, in order to foster a compliance culture of the Group and strengthen compliance awareness, the compliance department arranges legal and compliance trainings for our staff from time to time and provides internal guidelines on the latest regulatory development.

The Group's compliance department and professional talents closely work with external legal consultants in order to ensure that the Group can avert and handle legal risks such as those arising from complaints lodged by clients against the Group's regulated activities in a timely manner.

Market Risks

The Group has established policy and procedures to monitor and control the price risk in the ordinary and usual course of business;

The Group's staff with professional qualification and industry experience in the business units discusses and evaluates the underlying market risks prior to engaging in any new transaction or launching of any such new business;

The Group reviews market risk limits for certain business lines such as the asset management and financial products and investments business to manage risk and periodically review and adjust the market strategies in response to changes in the business performance, risk tolerance levels and market conditions;

In terms of the financial products and investments business, the Group formulates different selection criteria for bonds and other fixed income products, limits the investment in industries and enterprises with excess capacity and negative news, and tracks and monitors the trends of macro economy and investment concentration ratio to optimise investment strategies; the Group diversifies the fixed income investment portfolios, limits the investment scale in any single product, client or type of investment and continually tracks the changes on the operation, credit rating and solvency of the issuers; and

The Group assesses the spread level, relative investment values, relative yield, shape of yield curve, major risks, degree of liquidity and profitability of different types of bonds, and controls the investment horizon of debt securities investment; the Group monitors investments on a timely basis, including trading positions, unrealised profit or loss, risk exposure and trading activities, and establishes mechanisms that set pre-determined points to halt profit or loss on an overall basis or on a single bond; regarding the changes of the markets and our customers, the Group organises regular or ad-hoc risk analysis and inspections and timely addresses the businesses occurring or existing potential risks.

Foreign Currency Risks

The Group's exposure to foreign currency risks is primarily related to transactions denominated in a currency other than Hong Kong dollars. The Group's financial products and investments business primarily comprises investment in bonds and other fixed income products denominated in US dollars. The Group has been monitoring closely the exchange rate trend and adopts hedging measures when appropriate, so as to prevent significant foreign exchange risk arising from US dollar denominated monetary items.

Interest Rate Risks

The interest rate risks of the Group mainly come from fixed-rate loans receivable and fixed-rate debt securities. For debt securities included in financial assets, their prices at fair value are subject to the effect of market interest rate. The Group has adopted the US Treasury bond futures and other instruments to hedge against interest rate risks;

The Group may also expose to cash flow interest rate risks primarily arising from bank balances, secured margin loans and bank borrowings which carry interest at prevailing market interest rates; and

The management of the Group closely monitors exposure related to interest rate risk and ensures that it is maintained at an acceptable level. The Group's exposure to cash flow interest rate risks is mainly concentrated on the Hong Kong Interbank Offered Rate and London Interbank Offered Rate, which is due to the Group's financial instruments denominated in Hong Kong dollars and US dollars.

Operational Risks

The Group has responsible officers in charge of overseeing the day-to-day operations and solving dealing problems, and formulates and updates the operational manual based on regulatory and industrial requirements to standardise the operational procedures and reduce human errors; and

The Group sets authorisation hierarchy and procedures for its daily operations, and has surveillance systems to monitor the trading activities of the Group's business units and staff on a real-time basis.

BIOGRAPHICAL DETAILS OF DIRECTORS

NON-EXECUTIVE DIRECTOR

Mr. Huang Yilin ("Mr. Huang"), aged 52, was appointed as a non-executive Director on 12 July 2017 and a member of audit committee under the Board, the chairman of the Board, the chairman of nomination committee under the Board and a member of remuneration committee on 6 August 2019. Mr. Huang was also appointed as a director of Industrial Securities (Hong Kong) Financial Holdings Limited on 12 July 2017, which is the controlling shareholder of the Company (as defined in the Listing Rules). Mr. Huang has over 20 years of experience in the financial services industry.

Mr. Huang is currently the vice president of China Industrial Securities Co. Ltd.* (formerly known as Industrial Securities Co., Ltd.) ("China Industrial Securities") and supervisor and chief supervisor of Aegon-Industrial Fund Management Co., Ltd. He was the general manager of R&D Center, the general manager of customers of asset management, the assistant to the president and the general manager of investment bank headquarter, the general manager of fixed income and derivatives product department, and the general manager of fixed income business headquarter of China Industrial Securities.

Mr. Huang obtained a doctor's degree in western economics from Wuhan University, the PRC in July 1998.

EXECUTIVE DIRECTORS

Mr. Li Baochen ("Mr. Li"), aged 43, was appointed as an executive Director and Chief Executive Officer on 13 January 2020. Mr. Li is also a director of various subsidiaries of the Group. Mr. Li was also appointed as a director and chief executive officer of Industrial Securities (Hong Kong) Financial Holdings Limited on 31 July 2019, which is the controlling shareholder of the Company (as defined in the Listing Rules).

Currently, he is a director and vice chairman of Chinese Securities Association of Hong Kong Company Limited. Mr. Li has over 17 years of experience in the financial services industry.

Mr. Li was the product manager of personal banking of Industrial and Commercial Bank of China, Shenzhen Branch; the general manager of the market research and development department of China Lianhe Credit Rating Co., Ltd.; the managing director, deputy general manager and general manager of the fixed income business headquarter of China Industrial Securities.

Mr. Li obtained a master's degree in economics from Nankai University, the PRC in July 2003.

Mr. Wang Xiang ("Mr. Wang"), aged 41, was appointed as an executive Director on 1 June 2016 and a deputy Chief Executive Officer on 8

June 2016. Mr. Wang is also a director of various subsidiaries of the Group. Mr. Wang has over 12 years of experience in the financial services industry.

Mr. Wang joined the China Industrial Securities as a research analyst at the securities investment department in March 2008. From August 2010 to December 2011, Mr. Wang served as a manager of the securities investment department of China Industrial Securities and from January 2012 to May 2015, Mr. Wang served as the assistant chief executive officer of Industrial Securities (Hong Kong) Financial Holdings Limited. From May 2015 to September 2016, Mr. Wang was the deputy chief executive officer of Industrial Securities (Hong Kong) Financial Holdings Limited.

Mr. Wang obtained a master's degree in accounting and financial management from the University of Hertfordshire, the United Kingdom, in March 2006.

Ms. Zeng Yanxia ("Ms. Zeng"), aged 44, was appointed as an executive Director on 1 June 2016 and a deputy Chief Executive Officer on 8 June 2016 and was the chief financial officer of the Company from 8 June 2016 to 17 July 2019. Ms. Zeng is also a director of various subsidiaries of the Group. Ms. Zeng has over 14 years of experience in the financial services industry.

Ms. Zeng joined the accounting and finance department of the China Industrial Securities in October 2006, following which she served successively as a manager of its internal division, assistant to the general manager, deputy director and deputy general manager. From August 2013 to March 2016, Ms. Zeng served as a deputy general manager of the strategy development department of China Industrial Securities and from March 2016 to September 2016, Ms. Zeng was the deputy chief executive officer and chief financial officer of Industrial Securities (Hong Kong) Financial Holdings Limited.

Ms. Zeng graduated from the Zhongnan University of Finance and Economics (as it was then known as), the PRC, with a bachelor's degree in accountancy in June 1998. She further obtained a master's degree in finance from Wuhan University, the PRC, in June 2003, and a doctor's degree in accounting from Xiamen University, the PRC, in July 2006. She is also a senior accountant and non-practising certified public accountant of the PRC.

Ms. Zhang Chunjuan ("Ms. Zhang"), aged 37, was appointed as a deputy Chief Executive Officer and chief financial officer of the Company on 17 July 2019 and an executive Director on 2 August 2019. Ms. Zhang is also a director of various subsidiaries of the Group. Ms.

Zhang has over 12 years of experience in financial services industry.

From July 2008 to September 2013, Ms. Zhang served as the manager of information management and analysis department of the integrated business planning department of planning and finance department of China Industrial Securities. From October 2013 to April 2015, Ms. Zhang served as the manager and senior manager of tax planning and accounting internal control department of finance department of China Industrial Securities. From May 2015 to May 2017, Ms. Zhang served as the manager and senior manager of financial management and analysis department financial management division of finance department of China Industrial Securities. From May 2017 to December 2017, Ms. Zhang served as the assistant general manager of finance department and manager of financial management analysis department. From January 2018 to October 2018, Ms. Zhang served as the director of planning and analysis department of planning and finance department of China Industrial Securities. From October 2018 to March 2019, Ms. Zhang served as the assistant general manager of planning and finance department and the director of planning and analysis department of China Industrial Securities.

Ms. Zhang obtained a master's degree in accounting from Shanghai University of Finance and Economics in July 2008. She is also a certified public accountant and intermediate accountant of the PRC.

INDEPENDENT NON-EXECUTIVE DIRECTORS

Ms. Hong Ying ("Ms. Hong"), aged 70, was appointed as an independent non-executive Director on 27 July 2016 and the chairman of audit committee under the Board on 30 September 2016. Ms. Hong has over 42 years of experience in the accounting industry. Ms. Hong is also qualified as a fellow certified public accountant and senior accountant in the PRC and a fellow certified public accountant of CPA Australia, and international associate member of Hong Kong CPA. Currently, Ms. Hong is the chairlady and legal representative of Beijing Fortune C.P.A Limited, a firm engaged in enterprise audit and accounting and consulting services, which is based in the PRC. Ms. Hong is also the chairlady and legal representative of Beijing Fortune International Enterprise Management Consulting Limited, and the chairlady of Fortune International (Asia) Limited and a director and council member of The Hong Kong Independent Non- Executive Director Association. Ms. Hong was appointed as an independent director of Hangzhou Wanshili Silk Culture Co., Ltd（. 杭州萬事利絲綢文化股份有限公司）on 19 December 2018 and an independent director of Jilin Jinguan Electric Co., Ltd（. 吉林金冠電氣股份有限公司）on 16 October 2019, and a director of The Hong Kong Chinese Enterprises Association on 16 September 2020.

Ms. Hong completed the Finance CEO programme jointly offered by the Cheung Kong Graduate School of Business, Columbia Business School and London Business School in January 2009, and obtained a certificate in Executive Management from the Golden Gate University, the United States in August 1993.

Mr. Tian Li ("Mr. Tian"), aged 52, was appointed as an independent non-executive Director on 27 July 2016 and the chairman of remuneration committee and a member of audit committee and nomination committee under the Board on 30 September 2016. Mr. Tian has over 20 years of experience in the financial services industry. Mr. Tian is a director of Shanghai Tuhong Investment Management Company Limited（上海圖鴻投資管理有限公司）, a company primarily engages in strategic investment, asset management, and the provision of corporate advisory services, and an independent director of China Industrial International Trust Limited. For the avoidance of doubt, China Industrial International Trust Limited is a subsidiary of Industrial Bank Co. Ltd（興業銀行股份有限公司）, which like China Industrial Securities, is partially owned by Fujian Provincial Department of Finance（福建省財政廳）. He is also an executive director of New York Institute of Finance Inc., an executive director and chief executive officer of NYIF International Holding LLC, a legal representative of NYIF Information Technology Development Co., Ltd. and a managing director of Shanghai Li Ding Information Technology Development Limited（上海力鼎信息科技發展有限公司）and Shanghai Hui Sheng Equity Investment Management Limited（上海惠盛股權投資管理有限公司）respectively. Mr. Tian's previous experiences include employment with Bank of China International Limited as group executive director and head of financial institutions from January 2002 to October 2004.

Mr. Tian graduated with a bachelor's degree in engineering from the People's Liberation Army University of Science and Technology (previously known as the People's Liberation Army Institute of Engineering Corps), the PRC, in July 1990. He then obtained a master's degree in civil engineering from Cleveland State University, the United States, in August 1996, and a further master's degree in business administration from Duke University, the United States, in May 1999.

Mr. Qin Shuo ("Mr. Qin"), aged 52, was appointed as an independent non-executive Director on 27 July 2016 and a member of remuneration committee and nomination committee under the Board on 30 September 2016. Mr. Qin was the chief editor of China Business News（第一財經日報）, from June 2004 to October 2015 and was an independent director of Shenzhen Bosun Institute of Management Science Co. Ltd（深圳市博商管理科學研究院股份有限公司）, a consulting company trading on the National Equities Exchange and Quotations system in the PRC. Currently, Mr. Qin is a director of Guangzhou Microdream Media Co., Ltd（. 廣州市匯志文化傳播股份有限公司）. Mr. Qin was appointed as an independent director of Oppein Home Group Inc（. 歐派家居集團股份有限公司）, whose shares are listing on The Shanghai Stock Exchange (stock code: 603833.SS) on 16 May 2018.

Mr. Qin graduated with a bachelor's degree in journalism from Fudan University, the PRC in July 1990, a master's degree in public administration from California State University (Northridge), the United States, in June 2001 and further obtained his doctor's degree in business administration from Sun Yat-sen University, the PRC, in June 2009.

REPORT OF THE BOARD OF DIRECTORS

The Directors present their annual report and the audited consolidated financial statements for the year ended 31 December 2020 (the "Year").

PRINCIPAL ACTIVITIES

The Company is an investment holding company. The Group is principally engaged in the provision of brokerage services, loans and financing services, corporate finance services, asset management services and financial products and investments.

BUSINESS REVIEW

The business review of the Group for the Year is set out in the sections of Management Discussion and Analysis on pages 7 to 13 of this report.

RESULTS AND APPROPRIATIONS

The results of the Group for the Year and the state of affairs of the Group as at that date are set out in the consolidated statement of profit or loss and other comprehensive income on page 57 of this report.

The Board did not recommend any payment of a final dividend for the year ended 31 December 2020.

SHARE CAPITAL

Details of the authorised and issued share capital of the Company are set out in note 33 to the consolidated financial statements.

RESERVES

Details of movements in the reserves of the Group and the Company during the Year are set out in the consolidated statement of changes in equity on page 60 and note 46 to the consolidated financial statements.

DISTRIBUTABLE RESERVES

As at 31 December 2020, the distributable reserves of the Company amounted to approximately HK$2,885,778,165 under the Companies Law, Cap 22 (Law 3 of 1961, as consolidated and revised) of the Cayman Islands.

PROPERTY AND EQUIPMENT

Details of movements in the property and equipment of the Group during the Year are set out in note 14 to the consolidated financial statements.

MAJOR CUSTOMERS AND SUPPLIERS

Details of major customers are set out in note 6 to the consolidated financial statements.

Due to the nature of our business activities, the Group has no major suppliers and thus the percentage of purchases attributable to the largest supplier and the percentage of purchases attributable to the 5 largest suppliers combined are not applicable.

None of the Directors or any of their close associates (as defined in the Listing Rules) or any Shareholders (which, to the best knowledge of the Directors, own more than 5% of the Company's issued share capital) has any beneficial interest in the Group's five largest customers.

FINANCIAL SUMMARY

A summary of the published results, assets and liabilities of the Group for each of the last five financial years is set out on page 172 of this report.

DIRECTORS

The directors of the Company during the Year and up to the date of this report are as follows:

NON-EXECUTIVE DIRECTOR:

Mr. Huang Yilin (Chairman)

EXECUTIVE DIRECTORS:

Mr. Li Baochen (Chief Executive Officer) (appointed on 13 January 2020) Mr. Wang Xiang

Ms. Zeng Yanxia

Ms. Zhang Chunjuan

Mr. Huang Jinguang (resigned as Chief Executive Officer on 13 January 2020 and resigned as executive Director and Vice Chairman on 6 February 2020)

INDEPENDENT NON-EXECUTIVE DIRECTORS:

Ms. Hong Ying

Mr. Tian Li

Mr. Qin Shuo

Pursuant to articles 108(a) and (b) of articles of association of the Company (the "Articles"), Mr. Huang Yilin, Ms. Hong Ying and Mr. Tian Li shall retire from office, and being eligible, will offer themselves for re-election as the Directors at the forthcoming annual general meeting ("AGM") of the Company.

None of the Directors proposed for re-election at the forthcoming AGM has a service contract with the Company which is not determinable by the Company within one year without payment of compensation, other than statutory compensation.

The Company has received annual confirmation of independence from each of the independent non-executive Directors pursuant to the requirement of Rule 3.13 of the Listing Rules. The Company considers all independent non-executive Directors to be independent.

CHANGES IN INFORMATION OF DIRECTORS

Pursuant to Rule 13.51B(1) of the Listing Rules, the changes in information of Directors subsequent to the date of the 2020 interim report of the Company are set out below:

Director

Detail of Change

Hong Ying

Appointed as a director of The Hong Kong Chinese Enterprises Association on 16 September 2020

DIRECTORS' SERVICE CONTRACTS

Executive Directors have entered into service contracts with the Company for a term of three years and be thereafter continuous unless and until the termination by either party thereto giving no less than three months' prior written notice.

The non-executive Directors and Independent Non-executive Directors are appointed for a term of three years and either party may terminate such appointment at any time by giving at least three months' notice in writing to the other.

DIRECTORS' EMOLUMENTS

The Directors' fees are subject to Shareholders' approval at general meeting. Other emoluments are determined by the Board with reference to their experience, responsibilities, workload and time devoted to the Group and performance of the Group. Details of the emoluments of Directors are set out in note 11 to the consolidated financial statements of this report.

DIRECTORS' AND CHIEF EXECUTIVES' INTERESTS AND SHORT POSITIONS IN THE SHARES, UNDERLYING SHARES AND DEBENTURES OF THE COMPANY AND ITS ASSOCIATED CORPORATIONS

As at 31 December 2020, the interests and short positions in the shares, underlying shares and debentures of the Company or any associated corporation (within the meaning of Part XV of the SFO) held by the Directors and chief executives of the Company (the "Chief Executives") which have been notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which were taken or deemed to have under such provisions of the SFO) or have been entered in the register maintained by the Company pursuant to section 352 of the SFO, or as otherwise have been notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers set out in Appendix 10 to the Listing Rules (the "Model Code") were as follows:

Long position in ordinary shares of HK$0.1 each of the Company

No. of	Approximate
Name of Director	Capacity/Nature	Shares held	percentage
Huang Yilin	Beneficial owner	2,264,384	0.06%
Wang Xiang	Beneficial owner	8,131,197	0.20%
Zeng Yanxia	Beneficial owner	7,204,858	0.18%

Save as disclosed above, as at 31 December 2020, none of the Directors or Chief Executives had any interests or short positions in the shares, underlying shares or debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) which would have to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which he was taken or deemed to have under such provisions of the SFO) or which was required, pursuant to section 352 of the SFO, to be entered in the register referred to therein, or pursuant to the Model Code, to be notified to the Company and the Stock Exchange.

SUBSTANTIAL SHAREHOLDERS' AND OTHER PERSONS' INTERESTS AND SHORT POSITIONS IN THE SHARES AND UNDERLYING SHARES

So far as the Directors and the Chief Executives are aware, as at 31 December 2020, the following persons/corporations (other than a Director or the chief executive of the Company) had interests or short positions in the Shares and the underlying Shares, which were notified to the Company and the Stock Exchange pursuant to Divisions 2 and 3 of Part XV of the SFO and entered in the register maintained by the Company pursuant to Section 336 of the SFO were as follows:

Approximate

No. of	percentage of
Name	Nature of Interest	Shares held	Shareholding
Industrial Securities (Hong Kong) Financial	Beneficial owner	2,077,337,644	51.93%
Holdings Limited
China Industrial Securities (Note 1)	Interest of controlled	2,077,337,644	51.93%
corporation
Harvest Capital Management Co., Ltd (Note 2)	Investment manager	293,232,000	7.33%
Harvest Fund Management Co., Ltd. (Note 2)	Interest of controlled	293,232,000	7.33%
corporation
China Credit Trust Co., Ltd (Note 2)	Interest of controlled	293,232,000	7.33%
corporation
Hao Kang Financial Holdings (Group) Limited	Beneficial owner	205,853,089	5.15%
Apex Trade Holdings Limited	Interest of controlled	205,853,089	5.15%
corporation
Chen Jiaquan (Note 3)	Interest of controlled	205,853,089	5.15%
corporation
Yang Zhiying (Note 4)	Interest of spouse	205,853,089	5.15%
Notes:

1. China Industrial Securities holds the entire issued share capital of Industrial Securities (Hong Kong) Financial Holdings Limited. Therefore, China Industrial Securities is deemed or taken to be interested in all the Shares held by Industrial Securities (Hong Kong) Financial Holdings Limited for the purposes of the SFO.
2. China Credit Trust Co., Ltd holds 40% of the entire issued share capital of Harvest Fund Management Co., Ltd., and Harvest Fund Management Co., Ltd. holds 75% of the entire issued share capital of Harvest Capital Management Co., Ltd, Therefore, China Credit Trust Co., Ltd and Harvest Fund Management Co., Ltd. are deemed or taken to be interested in all the Shares held by Harvest Capital Management Co., Ltd for the purposes of the SFO.

3. Chen Jiaquan holds 70% of the total issued share capital of Apex Trade Holdings Limited and is the sole director of Hao Kang Financial Holdings (Group) Limited and therefore is deemed or taken to be interested in all the Shares held by Apex Trade Holdings Limited and Hao Kang Financial Holdings (Group) Limited for the purpose of the SFO.
4. Yang Zhiying is the spouse of Chen Jiaquan. Under the SFO, Yang Zhiying is deemed, or is taken to be, interested in all the Shares in which Chen Jiaquan is interested.

Save as disclosed above, as at 31 December 2020, the Company has not been notified by any persons, other than the Directors and the Chief Executives who had interests or short positions in the Shares or underlying Shares which would fall to be disclosed to the Company under the provisions of Division 2 and 3 of Part XV of the SFO, or which were recorded in the register required to be kept by the Company under Section 336 of the SFO.

DIRECTORS' RIGHTS TO ACQUIRE SHARES OR DEBENTURES

To the best knowledge of the Board, at no time during the Year was the Company, its subsidiaries or its other associated corporations a party to any arrangement to enable the Directors or chief executives of the Company (including their spouse and children under 18 years of age) to acquire benefits by means of the acquisition of shares or underlying shares in, or debentures of, the Company or its associated corporations.

DIRECTORS' INTERESTS IN TRANSACTIONS, ARRANGEMENTS OR CONTRACTS OF SIGNIFICANCE

No transactions, arrangements or contracts of significance in relation to the Group's business to which the Company, its subsidiaries, its fellow subsidiaries or its holding company was a party and in which a Director had a material interest, whether directly or indirectly, subsisted during the Year or at the end of the Year.

COMPETING INTERESTS

Save for the continuing connected transactions as disclosed in the section headed "Relationship with the controlling shareholders" and "Connected transactions" in the prospectus of the Company dated 30 September 2016 (the "Prospectus"), none of the Directors or the controlling shareholders of the Company nor their respective close associates as defined in the Listing Rules had any interest in business that competed or might compete with business of the Group during the Year.

MANAGEMENT CONTRACTS

The Board is not aware of any contract entered into with the management and administration of the whole or any substantial part of the business of the Company during the Year.

EMOLUMENT POLICY

The Directors of the Company receive compensation in the form of fees, salaries, contributions to pension schemes, other allowances, other benefits in kind and/or discretionary bonuses with reference to those paid by comparable companies, time commitment and performance of the Directors, as well as the performance of the Group.

The Group regularly reviews and determines the remuneration and compensation packages of the Directors by reference to, among other things, market level of remuneration and compensation paid by comparable companies, respective responsibilities of the Directors and performance of the Group.

The Remuneration Committee will review and determine the remuneration and compensation packages of the Directors with reference to their experience, responsibilities, workload and time devoted to the Group and performance of the Group.

CONTINUING DISCLOSURE OBLIGATION UNDER RULE 13.21 OF THE LISTING RULES

On 26 February 2020, regarding the Company as borrower entered into a facility letter (the aforesaid "Facility Letter") with a bank as lender in relation to an uncommitted revolving loan facility of HK$200,000,000 on 15 May 2019, the borrower confirmed the acceptance of the Facility Letter issued by the bank revising the Facility Letter up to an aggregate of HK$300,000,000. As a condition of the Facility Letter, it shall be an event of default if China Industrial Securities ceases to beneficially own (directly or indirectly) at least 51% of the issued share capital of the Company and ceases to maintain the absolute management control over the Company.

On 27 October 2020, the Company as borrower entered into a supplemental facility letter (the"Supplemental Facility Letter") with a bank as lender to renew an uncommitted revolving loan facility in an aggregate amount of up to HK$500,000,000 (or its equivalent in USD). As a condition of the Supplemental Facility Letter, it shall be an event of default if China Industrial Securities ceases to beneficially own (directly or indirectly) at least 51% of the issued share capital of the Company.

On 31 December 2020, the Company as borrower entered into a facility letter (the "Facility Letter") with a bank as lender to renew an uncommitted revolving loan facility in an aggregate amount of up to HK$800,000,000. As a condition of the Facility Letter, it shall be an event of default if China Industrial Securities ceases to remain as the single largest shareholder of the Company.

On 31 December 2020, the Company as borrower entered into a facility letter (the "Facility Letter") with a bank as lender to renew an uncommitted revolving loan facility in an aggregate amount of up to HK$200,000,000. As a condition of the Facility Letter, it shall be an event of default if China Industrial Securities ceases to beneficially own (directly or indirectly) at least 51% of the issued share capital of the Company and ceases to maintain the absolute management control over the Company.

As at the date of this report, the above specific performance obligations imposed on China Industrial Securities under the aforesaid facility letters continued to exist.

CONTINUING CONNECTED TRANSACTIONS

On 27 September 2016, the Company and Industrial Securities Consultancy Service (Shenzhen) Company Limited entered into a service agreement (the "Service Agreement") pursuant to which Industrial Securities Consultancy Service (Shenzhen) Company Limited agreed to provide consultancy services (the "Consultancy Services") to the Company, including the provision of consultancy service on economic information, and assisting the Company in collecting and analysing information on macroeconomics, industry news and market information in the PRC. The major reason for such arrangement is to lower the staff and other operating costs for the Group. The term of the Service Agreement is for three years from 1 January 2016 to 31 December 2018. The proposed cap amounts for the provision of abovementioned services by Industrial Securities Consultancy Service (Shenzhen) Company Limited to the Company was approximately HK$8.2 million, HK$10.2 million and HK$12.1 million for each of the three years ended 31 December 2018, respectively.

On 3 April 2018, pursuant to the Service Agreement, the Company and Industrial Securities Consultancy Service (Shenzhen) Company Limited entered into a supplemental service agreement (the "Supplemental Service Agreement"), pursuant to which, (a) in addition to the Consultancy Services, Industrial Securities Consultancy Service (Shenzhen) Company Limited would provide to the Group: (i) provision of services and support to the Group's clients in core regions in the PRC (non-regulated activities), for example, maintaining clients' relationships; (ii) brand establishment and promotion; and (iii) provision of cross-border information technology support (the "New Services"); and (b) the annual cap for the Consultancy Services or the New Services payable by the Company to Industrial Securities Consultancy Service (Shenzhen) Company Limited for the year ended 31 December 2018 was revised from HK$12.1 million to HK$36 million.

On 3 April 2018, the Company and Industrial Securities Consultancy Service (Shenzhen) Company Limited renewed the Service Agreement (as amended by the Supplemental Service Agreement) (the "Renewal Service Agreement") for a further term of three years from 1 January 2019 to 31 December 2021. The proposed cap amounts for the provision of the abovementioned services by Industrial Securities Consultancy Service (Shenzhen) Company Limited to the Company are HK$68 million, HK$105 million and HK$153 million for each of the three years ending 31 December 2021, respectively.

For the year ended 31 December 2020, the Group incurred a consultancy service fee of HK$15,780,454 to Industrial Securities Consultancy Service (Shenzhen) Company Limited.

The relevant pricing policy and guideline stated in the Prospectus have been complied with when determining the transaction price and terms. Industrial Securities (Hong Kong) Financial Holdings Limited, as the controlling shareholder of the Company, holds 51.93% interest of the Company. Industrial Securities (Hong Kong) Financial Holdings Limited holds 100% interest of Industrial Securities Consultancy Service (Shenzhen) Company Limited. Therefore, Industrial Securities (Hong Kong) Financial Holdings Limited is a connected person to the Company and transactions between the Company and the subsidiaries and/or associates of Industrial Securities (Hong Kong) Financial Holdings Limited constitute connected transactions of the Company under the Listing Rules.

The independent non-executive Directors have reviewed the continuing connected transactions for the year ended 31 December 2020 and confirmed that they were entered into in the ordinary and usual course of business of the Group on normal commercial terms and according to the agreement governing them on terms that are fair and reasonable and in the interests of the Shareholders as a whole.

The Company has engaged the Company's auditor to perform certain procedures in order to report on the Group's continuing connected transactions in accordance with Hong Kong Standard on Assurance Engagements 3000 (Revised) "Assurance Engagements Other Than Audits or Reviews of Historical Financial Information" and with reference to Practice Note 740 "Auditor's Letter on Continuing Connected Transactions under the Hong Kong Listing Rules" issued by the Hong Kong Institute of Certified Public Accountants. The auditor has issued an unqualified letter containing their conclusions in respect of the continuing connected transactions set out above in accordance with Rule 14A.56 of the Listing Rules. A copy of the auditor's letter has been provided by the Company to the Stock Exchange.

RELATED PARTY TRANSACTIONS

Save as disclosed above under Continuing Connected Transactions, the Company confirms that the signing and execution of the specific agreements under the Continuing Connected Transactions for the Year have been subject to the pricing principles of such continuing connected transactions.

The Company confirms that the related party transactions are not classified as defined in Chapter 14A of the Listing Rules in relation to the Connected Transactions or the Continuing Connected Transactions or are fully exempt, as the case may be, and have complied with Chapter 14A of the Listing Rules Disclosure requirements.

Details of the related party transactions during the Year are set out in note 42 to the consolidated financial statements.

DEED OF NON-COMPETITION

On 28 September 2016, China Industrial Securities, Industrial Securities (Hong Kong) Financial Holdings Limited and China Industrial Securities International Holdings Limited (the "Controlling Shareholders") entered into a deed of non-competition (the "Deed of Non-Competition") in favour of the Company (for itself and for the benefit of each member of the Group). Pursuant to the Deed of Non- Competition, during the period that the Deed of Non-Competition remains effective, each of the Controlling Shareholders irrevocably and unconditionally undertakes with the Company (for itself and for the benefit of each member of the Group) that it shall not, and shall procure its associates or companies controlled by it (other than members of the Group) not to, directly or indirectly engage, participate in or hold any right or interest in or render any services to or otherwise be involved in any business in competition with or likely to be in competition with the existing business activity of any member of the Group in Hong Kong or any other area in which the Group carries on business, save for the holding of not more than 5% shareholding interests (individually or with its associates) in any company listed on a recognised stock exchange and at any time the relevant listed company shall have at least one shareholder (individually or with its associates, if applicable) whose shareholding interests in the relevant listed company is higher than that of the relevant Controlling Shareholders (individually or with its associates).

On 8 May 2019, China Industrial Securities International Holdings Limited transferred all its interests in the Company to Industrial Securities (Hong Kong) Financial Holdings Limited. China Industrial Securities International Holdings Limited is no longer the Controlling Shareholder of the Company while China Industrial Securities and Industrial Securities (Hong Kong) Financial Holdings Limited are still the Controlling Shareholders of the Company.

During the Year, China Industrial Securities and Industrial Securities (Hong Kong) Financial Holdings Limited have confirmed in writing to the Company of their compliance with the Deed of Non-Competition, and the independent non-executive Directors have reviewed the status of compliance and confirmed that all the undertakings under the Deed of Non-Competition have been complied by each of the Controlling Shareholders.

DONATIONS

During the Year, the Group had no charitable donations.

CLOSURE OF REGISTER OF MEMBERS

For determining the entitlement to attend and vote at the AGM, the transfer books and register of members of the Company will be closed from Monday, 17 May 2021 to Friday, 21 May 2021, both days inclusive, during which period no share transfers can be registered. In order to qualify for attending and voting at the AGM, unregistered holders of shares of the Company should ensure that all share transfer documents accompanied by the relevant share certificates must be lodged with the Company's branch share registrar in Hong Kong, Tricor Investor Services Limited at Level 54, Hopewell Centre, 183 Queen's Road East, Hong Kong for registration not later than 4:30 p.m. on Friday, 14 May 2021.

PURCHASE, SALE OR REDEMPTION OF LISTED SECURITIES

Neither the Company nor any of its subsidiaries purchased, sold or redeemed any of the Company's listed securities during the Year.

PRE-EMPTIVE RIGHTS

There are no provisions for pre-emptive rights under the Company's Articles or the laws of the Cayman Islands, the jurisdiction in which the Company was incorporated, which would oblige the Company to offer new shares on a pro rata basis to the existing Shareholders.

PERMITTED INDEMNITY PROVISION

Pursuant to the Articles of Association and subject to the provisions of the Companies Law of the Cayman Islands, each Director, or other officer of the Company shall be entitled to be indemnified out of the assets of the Company against all actions, costs, charges, losses, damages and expenses incurred or sustained by him/her as a Director, or other officer of the Company. The Company has arranged appropriate Directors' and officers' liability insurance coverage for the Directors and officers of the Company during the Year in respect of any legal liabilities which may be assumed by the Directors and officers in the execution and discharge of their duties or in relation thereto.

COMPLIANCE WITH RELEVANT LAWS AND REGULATIONS

During the Year, as far as the Board and management are aware, there was no material breach of or non-compliance with the applicable laws and regulations by the Group that has a significant impact on the businesses and operations of the Group.

ENVIRONMENTAL POLICY

The Group emphasizes the importance of energy conservation and environmental protection as part of its corporate culture and encourages its employees to minimise the use of paper by promoting digitalisation of documents and better use of waste paper. The Group has also participated in a carbon reduction program by replacing all traditional fluorescent lamps with energy-saving lamps within the working area. Details of the relevant policies are set out in the Environment, Social and Governance Report on pages 39 to 51 of this report.

PUBLIC FLOAT

Based on the information that is publicly available to the Company and within the best knowledge of the Directors, there has been a sufficient public float of the issued Shares as required under the Listing Rules (i.e. at 25% of the issued Shares in public hands) throughout the year ended 31 December 2020 and up to the date of this report.

REVIEW BY AUDIT COMMITTEE

The audited consolidated financial statements of the Group for the year ended 31 December 2020 have been reviewed by the audit committee of the Company.

AUDITOR

KPMG were first appointed as auditors of the Company in 2019 upon the retirement of Deloitte Touche Tohmatsu.

KPMG will retire and, being eligible, offer themselves for re-appointment at the forthcoming annual general meeting of the Company. A resolution for their re-appointment as auditors of the Company will be proposed at the forthcoming annual general meeting of the Company.

The financial statements for the Year of the Company have been audited by KPMG.

On behalf of the Board

Huang Yilin Chairman

Hong Kong, 19 March 2021

* For identification purposes only

CORPORATE GOVERNANCE REPORT

CORPORATE GOVERNANCE PRACTICES

The Board is committed to maintaining high standards of corporate governance in the best interest of the shareholders of the Company (the "Shareholders"). The Company has been making an effort to enhance the corporate governance standard of the Company by reference to the code provisions and recommended best practices set out in the Corporate Governance Code (the "CG Code") contained in Appendix 14 to the Listing Rules. During the Year, the Company has complied with the code provisions of the CG Code except for the following deviation:

Mr. Cho Ka Wai resigned as the company secretary of the Company on 24 October 2020. The Company has identified and a suitable candidate, Ms Tsang Wing Man, to fill the vacancy of company secretary on 10 March 2021.

BOARD OF DIRECTORS

Responsibilities

The Board is responsible for the overall leadership of the Group, oversees the Group's strategic decisions and monitors business and performance. The Board has delegated the authority and responsibility for day-to-day management and operation of the Group to the senior management of the Group. To oversee particular aspects of the Company's affairs, the Board has established three Board committees including the Audit Committee, the Remuneration Committee and the Nomination Committee (together, the "Board Committees"). The Board has delegated to the Board Committees responsibilities as set out in their respective terms of reference.

All Directors shall ensure that they carry out duties in good faith, in compliance with applicable laws and regulations, and in the interests of the Company and its shareholders at all times.

Composition

As at the date of this report, the Board comprises of eight Directors including one non-executive Director, four executive Directors, and three independent non-executive Directors.

Non-executive Director

Mr. Huang Yilin (Chairman)

Executive Directors

Mr. Li Baochen (Chief Executive Officer) Mr. Wang Xiang

Ms. Zeng Yanxia

Ms. Zhang Chunjuan

Independent non-executive Directors Ms. Hong Ying

Mr. Tian Li

Mr. Qin Shuo

There was no financial, business, family or other material relationship among the Directors. The biographical details of each of the Directors are set out in the section headed "biographical details of directors" of this report.

BOARD MEETINGS

The Board meets regularly at least four times each year, and more frequently as the needs of the business demand, to formulate overall strategy, monitor business development as well as the financial performance of the Group. The Board has delegated certain duties and authorities to the management for the day-to-day management of the Group's operation.

Notices of regular Board meetings are served to all Directors at least 14 days before the meetings. For all other Board meetings, reasonable notices are given. The agenda together with all relevant meeting materials are sent to all Directors at least 3 days before each regular board meetings and at agreed periods for other meetings to enable them to make informed decisions with adequate information. The Board and each Director also have direct and independent access to the management whenever necessary.

All minutes of Board meetings and general meetings are kept by the company secretary and are open for inspection at reasonable time on reasonable notice by any Director. Every Director is entitled to have access to Board papers and related materials and access to the advice and services of the company secretary. In addition, the Company enables the Directors, in discharge of their duties, to seek independent professional advice in appropriate circumstances.

During the Year, the Directors' attendance at the Board meetings and general meetings is set out as follows:

Number of meetings attended/held

Annual
Board	General
Name	Meetings1	Meeting1
Non-executive Directors:
Mr. Huang Yilin (Chairman)	7/7	1/1
Executive Directors:
Mr. Li Baochen (Chief Executive Officer)2	7/7	1/1
Mr. Huang Jinguang (Chief Executive Officer and Vice Chairman)2	1/1	N/A
Mr. Wang Xiang	7/7	1/1
Ms. Zeng Yanxia	7/7	1/1
Ms. Zhang Chunjuan	7/7	1/1
Independent Non-executive Directors:
Ms. Hong Ying	7/7	1/1
Mr. Tian Li	7/7	1/1
Mr. Qin Shuo	7/7	1/1
Notes:

(1) The denominator represents the number of Board meetings and general meetings held during the tenure of each Director in the financial year ended 31 December 2020.

(2) Mr. Huang Jinguang resigned as Chief Executive Officer on 13 January 2020 and resigned as executive Director and Vice Chairman on 6 February 2020. Mr. Li Baochen was appointed as executive Director and Chief Executive Officer on 13 January 2020.

CORPORATE GOVERNANCE FUNCTIONS

The Board is responsible for performing the corporate governance duties set out in the code provision D.3.1 of the CG Code including:

• develop and review the Company's policies and practices on corporate governance and make recommendations to the Board;
• review and monitor the training and continuous professional development of Directors and senior management;
• review and monitor the Company's policies and practices on compliance with legal and regulatory requirements;
• develop, review and monitor the code of conduct and compliance manual (if any) applicable to employees and Directors; and
• review the Company's compliance with the CG Code and disclosure in the Corporate Governance Report.

BOARD DIVERSITY POLICY

The Company adopted a board diversity policy (the "Policy") which sets out the approach to achieve and maintain diversity on the Board in order to enhance the effectiveness of the Board.

Pursuant to the Policy, the Company seeks to achieve Board diversity through the consideration of a number of factors, including but not limited to gender, age, cultural and education background, ethnicity, professional experience, skills, knowledge and length of service. The Board will review such objectives from time to time to ensure their appropriateness and the progress made towards achieving those objectives. The Company will also take into consideration its own specific needs from time to time in determining the optimum composition of the Board.

CHAIRMAN AND CHIEF EXECUTIVE OFFICER

Pursuant to code provision A.2.1 of the CG Code, the roles of chairman and chief executive officer should be separate and should not be performed by the same individual. The division of responsibilities between the chairman and chief executive officer should be clearly established and set out in writing.

Mr. Huang Jinguang resigned as the Chief Executive Officer on 13 January 2020. Mr. Li Baochen was appointed as the Chief Executive Officer on 13 January 2020. Currently, Mr. Huang Yilin is the Chairman and Mr. Li Baochen is the Chief Executive Officer. There is a clear division of responsibilities between the chairman and the chief executive officer in that the chairman bears primary responsibility for the effective functioning of the Board, ensuring the establishment of business strategies and sound corporate governance practices of the Group, while the chief executive officer bears executive responsibility for implementing the Board's approved strategies and policies and supervising the Group's day-to-day business operations.

DIRECTORS' TRAINING AND CONTINUOUS PROFESSIONAL DEVELOPMENT

Each newly appointed Director is provided with necessary induction and information to ensure that he/she has a proper understanding of the Company's operations and businesses as well as his/her responsibilities under relevant statues, laws, rules and regulations. The Directors are also provided with regular updates on the Company's performance, position and prospects to enable the Board as a whole and each Director to discharge their duties. To assist Directors' continuing professional development, the Company recommends Directors to attend relevant seminars to develop and refresh their knowledge and skills.

During the Year, a record of the training attended/received by each of the Directors, is set out as follows:

Name	Type of training
Non-executive Director:
Mr. Huang Yilin	A&B
Executive Directors:
Mr. Li Baochen	A&B
Mr. Wang Xiang	A&B
Ms. Zeng Yanxia	A&B
Ms. Zhang Chunjuan	A&B
Independent Non-executive Directors:
Ms. Hong Ying	A&B
Mr. Tian Li	A&B
Mr. Qin Shuo	A&B
Notes:

A: attending courses/seminars/conferences
B: reading journals/written training materials/updates

APPOINTMENT AND RE-ELECTION OF DIRECTORS

The Articles provide that any Director appointed by the Board to fill a casual vacancy shall hold office until the first general meeting of the Company after his/her appointment and be subject to re-election at such meeting and any Director appointed by the Board as an addition to the existing Board shall hold office only until the next following AGM and shall then be eligible for re-election. In addition, at each AGM, one-third of the Directors for the time being (or, if their number is not a multiple of three, the number nearest to but not less than one-third) shall retire from office by rotation and that each Director shall be subject to retirement at least once every three years. The non-executive Directors and each of the independent non-executive Directors were appointed for a term of three years and subject to retirement by rotation (at least once every three years) and re- election in accordance with the Articles.

DIRECTORS' SECURITIES TRANSACTIONS

The Company has adopted a code of conduct regarding Directors' securities transactions on terms no less exacting than the Model Code. Having made specific enquiry of all Directors, all Directors have confirmed that they have complied with the required standard set out in the Model Code and the code of conduct regarding securities transactions by Directors adopted by the Company during the Year.

REMUNERATION OF DIRECTORS, CHIEF EXECUTIVE AND FIVE INDIVIDUALS WITH HIGHEST EMOLUMENTS

Details of the emolument of the Directors, chief executive and five individuals with highest emoluments are set out in note 11 to the consolidated financial statements.

During the Year, the Group has engaged KPMG as its external auditor. The remuneration paid/payable to the external auditor is set out as follows:

AUDITOR'S REMUNERATION

Services rendered

Fee paid/payable

HK$

Audit services Non-audit services

1,750,000 198,500

AUDIT COMMITTEE

The Company has established an audit committee (the "Audit Committee") with written terms of reference in compliance with the Listing Rules and the code provisions under the CG Code. The Audit Committee currently comprises a non-executive Director, namely Mr. Huang Yilin, and two independent non-executive Directors, namely Ms. Hong Ying and Mr. Tian Li. The chairlady of the Audit Committee is Ms. Hong Ying.

The primary duties of the Audit Committee include the following:

• to review and supervise financial reporting process;
• to nominate and monitor external auditor; and
• to oversee the risk management and internal control procedures of the Company.

During the Year, the major work performed by the Audit Committee included:

(i) reviewed the Group's annual results and 2019 Annual Report and the Group's interim results and 2020 Interim Report and made recommendations to the Board for approval;
(ii) reviewed and discussed with the auditor to ensure that the Group's financial statements had been prepared in accordance with the accounting principles; and
(iii) reviewed the financial reporting system, risk management and the internal control system of the Group.

During the Year, the members' attendance of the meetings of the Audit Committee is set out as follows:

Number of meetings of the Audit Committee

Name

attended/held

Ms. Hong Ying (Chairlady) 2/2

Mr. Huang Yilin 2/2

Mr. Tian Li 2/2

REMUNERATION COMMITTEE

The Company has established a remuneration committee (the "Remuneration Committee") with written terms of reference in compliance with the Listing Rules and the code provisions under the CG Code. The Remuneration Committee currently comprises one non-executive Director, namely Mr. Huang Yilin, and two independent non-executive Directors, namely Mr. Tian Li and Mr. Qin Shuo. Mr. Tian Li is the chairman of the Remuneration Committee.

The primary duties of the Remuneration Committee include the following:

• to make recommendation to the Board on the overall remuneration policy and structure relating to all Directors and senior management of the Company; and
• to ensure that none of the Directors determine their own remuneration.

During the Year, the major work performed by the Remuneration Committee included:

(i) reviewed the remuneration packages of the Directors;
(ii) made recommendation to the Board on the service contract of new executive Director;
(iii) made recommendation to the Board on the remuneration of new executive Director and Chief Executive Officer;
(iv) made recommendation to the Board on the supplemental service contracts of two executive Directors; and;
(v) made recommendation to the Board on the renewal of non-executive Director's service contracts.

During the Year, the member's attendance of the meetings of the Remuneration Committee is set out as follows:

Number of meetings of the Remuneration

CommitteeName

attended/held

Mr. Tian Li (Chairman) 4/4

Mr. Huang Yilin 4/4

Mr. Qin Shuo 4/4

NOMINATION COMMITTEE

The Company has established a nomination committee (the "Nomination Committee") with written terms of reference in compliance with the Listing Rules and the code provisions under the CG Code. The Nomination Committee currently comprises one non-executive Director, namely Mr. Huang Yilin, and two independent non-executive Directors, namely Mr. Tian Li and Mr. Qin Shuo. Mr. Huang Yilin is the chairman of the Nomination Committee.

The primary duties of the Nomination Committee include the following:

• to review the structure, size and composition of the Board annually;
• to formulate nomination policy and implement nomination policy;
• to identify individuals suitably qualified to become members of the Board;
• to assess the independence of the independent non-executive Directors; and
• to make recommendations to the Board on relevant matters relating to appointments of Directors.

During the Year, the major work performed by the Nomination Committee included:

(i) reviewed the structure, size and composition of the Board;
(ii) assessed the independence of the independent non-executive Directors; and
(iii) made recommendation to the Board on appointment of new executive Director, Chairman and Vice Chairman.

During the Year, the member's attendance of the meetings of the Nomination Committee is set out as follows:

Name

Number of meetings of the

Nomination Committee

attended/held

Mr. Huang Yilin (Chairman) 2/2

Mr. Tian Li 2/2

Mr. Qin Shuo 2/2

NOMINATION POLICY

Objective

The Nomination Committee is responsible for identifying and nominating qualified candidates for the Board's consideration and appointment when the board of the Company needs additional directors or to fill casual vacancies; and making recommendation to shareholders on re-electing retiring directors on general meetings.

Selection criteria

The Nomination Committee shall recommend candidates with reference to the following factors:

• Candidate shall not breach any applicable laws or regulations; nor have any conflicts of interests affecting proper execution of duties of a director;
• Whether skills, experience, independence and knowledge of the candidate is balanced;
• Candidate must be willing and able to devote sufficient time to the affairs of the Company and be diligent in accomplishing duties as a director and/or member of Board committee (if applicable); and
• Board diversity in various aspects, including but not limited to gender, age (18 years or above), cultural and educational background, ethnicity, professional experience, skills, knowledge and length of service etc..

The above factors are for reference only, and not meant to be exhaustive and decisive. The Nomination Committee has the discretion to nominate any person, as it considers appropriate.

Nomination procedures

Appointment of Directors

(i) The Nomination Committee shall identify candidates as Directors with reference to advice from the existing directors and senior management and/or recommendation from shareholders.

(ii) The Nomination Committee shall review qualifications of candidates and determine candidates most relevant to requirement and expected criteria of the Board.
(iii) The Nomination Committee shall report to the Board on assessment and selection process of candidates.
(iv) The Nomination Committee shall recommend candidates to the Board.
(v) The Board shall set out formal candidate list for election on general meetings or make the appointment itself to fill casual vacancies.

Re-election of Directors

(i) The Nomination Committee shall consider each retiring Director after due consideration of the nomination policy, board diversity policy and the CG Code and assess the independence of each retiring independent non-executive Director.

(ii) The Nomination Committee shall make recommendation to the Board.
(iii) The Board shall consider each retiring Director recommended by the Nomination Committee after due consideration of the nomination policy, board diversity policy and the CG Code.
(iv) The Board shall recommend retiring directors to be re-elected on general meetings in accordance with the Articles of Association of the Company.
(v) The shareholders shall approve re-election of directors on general meetings.

DIRECTORS' RESPONSIBILITIES FOR THE FINANCIAL STATEMENTS

The Directors acknowledge their responsibilities for overseeing the preparation of the financial statements which give a true and fair view of the state of affairs of the Group. In preparing the financial statements, appropriate accounting policies and standards are selected and applied consistently. The Directors are not aware of any material uncertainties relating to events or conditions which may cast significant doubt upon the Company's ability to continue as a going concern.

RISK MANAGEMENT AND INTERNAL CONTROL

The Board has the overall responsibility for reviewing the effectiveness of risk management and internal control systems of the Group. The Board is committed to implementing an effective and sound risk management and internal control systems to safeguard the interest of the Shareholders and the Group's assets. The Board has delegated to the management the implementation of the systems of risk management and internal control and review of all relevant financial, operational, compliance controls and risk management functions within the established framework. During the Year, the Board considered the Group's internal control system as adequate and effective and that the Company has complied with the code provisions of the CG Code.

COMPANY SECRETARY

During the Year, Mr. Cho Ka Wai has resigned as company secretary of the Company on 24 October 2020.

On 10 March 2021, the Company has engaged and appointed Ms. Tsang Wing Man ("Ms. Tsang"), a representative from an external secretarial services provider, as the company secretary of the Company. The primary contact person with the company secretary of the Company is Ms. Zhang Chunjuan, executive Director. Ms. Tsang is an associate member of The Chartered Governance Institute and The Hong Kong Institute of Chartered Secretaries. She has experience in company secretarial matters. Ms. Tsang has confirmed that she has taken no less than 15 hours of relevant professional training pursuant to Rule 3.29 of the Listing Rules.

INTERNAL AUDIT

The Company has an independent internal audit team, which is assigned with the task to perform regular reviews an annual basis on internal control system of the Group in respect of operational, financial and compliance aspects and will alert the management on the audit review findings or irregularities, if any, and advise them on the implementation of necessary steps and actions to enhance the internal controls of the Group.

INVESTOR RELATIONS

The Company believes that maintaining a high level of transparency is a key to enhancing investor relations. It is committed to a policy of open and timely disclosure of corporate information to its Shareholders and investment public.

The Company updates its Shareholders on its latest business developments and financial performance through its annual, interim reports. The Company's website (www.xyzq.com.hk) provides an effective communication platform to the public and the Shareholders.

COMMUNICATION WITH SHAREHOLDERS

The AGM provides a useful forum for the Shareholders to exchange views with the Board. The Chairman as well as chairlady/chairman of the Audit Committee, Remuneration Committee and Nomination Committee are pleased to answer the enquires raised by the Shareholders. Separate resolutions are proposed at general meetings on each substantially separate issue, including the election of individual directors. All the announcements and circulars are published on the Company's website (www.xyzq.com.hk) and on the Stock Exchange's website (www.hkexnews.hk).

DIVIDEND POLICY

The Board has adopted a dividend policy (the "Dividend Policy") on 27 December 2018. The Board endeavors to strike a balance between the interests of the Shareholders and prudent capital management with a sustainable Dividend Policy. Under the Dividend Policy, the total amount of dividend of the Company will be no less than 40% of the net profit attributable to owners of the Company during the year, subject to the following factors:

• the Group's current and future operations, liquidity position and capital requirements;
• restrictions under applicable laws and regulations;
• restrictions on payment of dividends that may be imposed by the Group's lenders;
• general economic conditions, business cycle of the Group's control business and other internal or external factors that may have an impact on the business, financial performance and position of the Company; and
• any other factors that the Board may consider relevant.

The Board will review the Dividend Policy as appropriate from time to time.

CONSTITUTIONAL DOCUMENTS

During the Year, there was no significant change in constitutional documents of the Company.

SHAREHOLDERS' RIGHTS

To safeguard shareholders' interests and rights, a separate resolution will be proposed for each issue raised at a general meeting, including the election of individual Directors. All resolutions put forward at a general meeting will be voted on by poll pursuant to the Listing Rules and poll results will be posted on the websites of the Company and the Stock Exchange in a timely manner after each general meeting.

Procedures for the Shareholders to Convene Extraordinary General Meeting

The general meetings of the Company provide an opportunity for communication between the Shareholders and the Board. An AGM is held each year and at the place as determined by the Board. Each general meeting, other than the AGM, shall be called an extraordinary general meeting (the "EGM").

Pursuant to the Articles, the Shareholders, holding at the date of deposit of the written requisition to the Board or the Company Secretary not less than one-tenth of the paid up capital of the Company carrying the right of voting at general meetings of the Company, may require an EGM to be called by the Board for the transaction of any business specified in such requisition; and such meeting shall be held within 2 months after the deposit of such requisition. If the Board fails to proceed to convene such meeting within 21 days of such deposit, the requisitionists may do so themselves.

The requisition must state the purposes of the EGM and must be signed by the requisitionists and deposited to the Board or the Company Secretary at the Company's principal place of business in Hong Kong at 32/F, Infinitus Plaza, 199 Des Voeux Road Central, Hong Kong.

Procedures for Putting Forward Proposals at General Meetings by Shareholders

If a Shareholder wishes to put forward proposals at the AGM/EGM which is to be held, such Shareholder should submit a written notice of the proposal with his/her detailed contact information to the Company Secretary at the Company's principal place of business in Hong Kong at 32/F, Infinitus Plaza, 199 Des Voeux Road Central, Hong Kong.

Procedures for the Shareholders to Put their Enquiries to the Board

The enquiries must be in writing with the detailed contact information of the requisitionists and deposited to the Board or the Company Secretary at the Company's principal place of business in Hong Kong at 32/F, Infinitus Plaza, 199 Des Voeux Road Central, Hong Kong or by email toir@xyzq.com.hk.

Procedures for the Shareholders to Propose a Person for Election as a Director

Pursuant to the Articles, a written notice signed by a Shareholder (other than the person to be proposed) duly qualified to attend and vote at the general meeting of the Company for which such notice is given of his intention to propose such person for election and also a written notice signed by the person to be proposed of his willingness to be elected shall have been lodged at the Company's principal place of business in Hong Kong at 32/F, Infinitus Plaza, 199 Des Voeux Road Central, Hong Kong provided that the minimum length of the period, during which such notices are given, shall be at least seven days and that the period for lodgment of such notices shall commence on the day after the despatch of the notice of the general meeting of the Company appointed for such election and end no later than seven days prior to the date of such general meeting. The written notice must state that person's biographical details as required by Rule 13.51(2) of the Listing Rules. The procedures for Shareholders to propose a person for election as a Director are posted on the Company's website.

ENVIRONMENTAL, SOCIAL AND

GOVERNANCE REPORT

China Industrial Securities International Financial Group Limited (the "Company", together with its subsidiaries, the "Group") recognizes the importance of strong environmental, social, and governance ("ESG") performance in meeting the changing expectations of stakeholders and enhancing the performance of the Group. The board of directors (the "Board") of the Company is the Group's highest governing body for ESG, and is ultimately accountable for leading and overseeing the overall strategic direction and performance of the Group towards sustainability. The direction of the Group's ESG efforts is overseen by the Board of the Company to ensure that the ESG strategies reflect the Group's core values. The Group hereby presents this Environmental, Social and Governance report ("this report") for the year ended 31

December 2020.

This report is prepared in accordance with Appendix 27 "Environmental, Social and Governance Reporting Guide" of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited.

The Group is principally engaged in the provision of brokerage services, loans and financing services, corporate finance services, asset management services and finance products and investments. The Group strives to create positive values for shareholders, stakeholders and customers and commits to fulfilling the objectives as follows:

Enhancing the sustainable value of stakeholders. The Group attaches great importance to the multi-channel interaction with the stakeholders. Adhering to the core values of "advancing employee value and creating customer value", the Group can meet the various demands of customers through the creation of specialised and diversified products. The Group respects employee diversity, and develops competitive compensation system, benefit scheme, prospective career path and training for employees. The Group dedicates itself in achieving the best interests for shareholders and investors and satisfying our vision of sustainable development. Meanwhile, in order to achieve the harmonious and sustainable development between the Group and the society, the Group is concerned with and actively involved in the construction of community livelihood, and considers it as one of the important ways to pay back the society.

Integrating sustainability into business practices. The Group is very concerned about the impact of its operations on the environment, and therefore actively promotes green office and low carbon policies among the employees to reduce energy consumption, greenhouse gas emissions and air pollutants emissions. In order to achieve a more prominent environmental performance, the Group plans to promote the use of renewable energy and preserves environmental resources through various measures to achieve its sustainable development.

Committing to the development of sustainable finance. As a financial services provider, the Group is eager to provide green financial services for upstream and downstream companies, thus to protect and improve the ecological environment. The Group has been attempting to assess environmental and social factors in various businesses. The Group plans to increase investment and financing projects in environmental and social fields step by step, thereby gradually achieving the coordinated development of the Group, the environment and the society.

Fulfilling social and environmental responsibilities the mission of the Group. The Group will keep creating greater value for stakeholders, and supporting charities and environmental protection. By participating in the improvement of people's livelihood, the Group can contribute to the sustainable development of society and the environment.

The Group attaches great importance to the views of stakeholders and applies diversified channels and platforms to interact effectively with different stakeholders. The Group communicates with stakeholders through different channels to develop mutually beneficial relationships and promote sustainable development.

INTERACTION WITH STAKEHOLDERS

EMPHASIS ON SHAREHOLDERS AND INVESTORS VALUE

To achieve the best interests of shareholders and investors and to meet the Group's vision of sustainable development, the Group spares no effort to build a wide range of products and professional services. The Group is determined to help shareholders and investors to understand the market deeply and to become an international integrated financial services company.

Through multi-channel communication, including the latest market research reports on Wechat official account, real-time market information, regular seminars, lectures and forums, the Group can increase the awareness of shareholder and investors in regard of investment. Meanwhile, the Group can strengthen the communication between the management and the shareholders through the annual general meeting.

Based on the feedback from stakeholders, material issues are identified as follows. The performance of the Group on these issues will be discussed in this report.

Material issues

Operating practices	•	Customer privacy protection
•	Anti-corruption
•	Intellectual property rights
•	Compliance with laws and regulations
Workplace	•	Employment and labour practices
•	Diversity and equal opportunities
•	Career development and training
•	Balancing work and life
•	Occupational health and safety
Community	•	Community fundraising
Environment	•	Energy conservation
•	Waste recycling

To improve service standard and to better win the trust of customers, the compliance department of the Group has built a complete complaint management system in compliance with the regulatory requirements of the Securities and Futures Commission for licensed companies and subsidiaries so as to conduct and strengthen the handling of customer complaints. Establishing a "customer-oriented" quality service awareness, the Group carefully handle any complaints, and follow the complaints handling procedures to ensure all complaints are to be handled fairly, timely and promptly. The compliance department head is appointed as the complaints officer by the Group to facilitate the customer complaints handling. Through the induction and analysis of the situations involved in the customer complaints, the compliance department and the responsible department should bring suggestions forward for business compliance and improvement, as well as strengthening and improving the weaknesses reflected in the customer complaints. Upon completion of the handling of the complaints, the Group regularly follow up with the complainants.

OPERATING PRACTICES FOR CREATING CUSTOMER VALUE

Customer Complaints Handling and Improving mechanism

Customers Complaint Handling Procedure

serious complaint

The compliance department shall submit a written report to the Board of Directors of the Group as soon as possible after e ective and thorough investigation for their decision

After the Board of Directors make a decision, the compliance department should inform the customer of the result and decision of the investigation and provide appropriate advice within 3 days

general complaint

Responsible departments verify the complaint and return feedback to the compliance department. If serious violation of sta is involved, the compliance department will handle the investigation directly

Inform Customer of Result

Customer Privacy Protection and Customer Information Management

In order to induce the Company and encourage all employees to strive to comply with the highest standards of business ethics when serving customers, and to help the Group enhance self-restraint for lawful operation and compliance of the Company, the Group has developed a code of ethics - "Compliance Manual". Protecting customer privacy is the foundation and professionalism of being responsible for clients. The Group has always been pursuing the following strict confidentiality principles: adopting appropriate measures to protect the Company's confidential information, disallowing to disclose confidential information to others in any way, and forbidding the inappropriate use of information technology. The Group does not disclose any confidential information except to disclose and provide confidential information in accordance with legal and regulatory requirements. To this end, the Group has taken a number of specific measures to warn all employees to pay attention to customer privacy issues when serving clients. Employees, for example, who are employed or were employed by the Group should be responsible for information confidentiality. Moreover, employees should be careful when discussing the confidential information outside the office especially with those who are not authorised to access to. In addition, the documents containing confidential information should be kept in good condition and discarded properly after use.

Additionally, on the basis of the relevant provisions of the "Personal Data (Privacy) Ordinance" and the "New Guidance on Direct Marketing" issued by the Office of Privacy Commissioner for Personal Data in Hong Kong, the Group has formulated the "Regulations on Direct Marketing Act" to ensure adequate monitoring of customer information used in direct marketing so as to manage the Group's customer information effectively. The Group requires that customer consent should be granted before the personal data is used for any direct promotion purpose. However, the customer can change the preference on the use of personal information for direct promotion purpose at any time, and the Group shall update customers' latest orders timely. During this reporting period, the Group did not receive any substantiated complaints on the loss of customer information.

Protection of Intellectual Property Rights

The Group does realize that intellectual property rights are essential assets of the Company, and so it is dedicated to safeguarding these rights and making use of them effectively. It protects its intellectual property rights by using and registering its domain names and various trademarks on an ongoing basis. It monitors its trademarks and domain names on an ongoing basis and renews them upon expiration.

Anti-corruption/Anti-money Laundering

The financial service industry plays a very key and fundamental role in supporting the society's fight against corruption, while the Group always aims to push forward with the creation of a social environment that is honest and uncorrupted. All of our employees are required to maintain due integrity and conduct, to comply with due ethical standards when handling various matters and to adhere to the principles of integrity and fairness. All of our employees are governed by the Prevention of Bribery Ordinance, and employees outside Hong Kong must also comply with local laws on the prevention of bribery. Since anti-money laundering not only affects the security and stability of the financial market as well as the fairness and justice in society, but also has direct bearing on the national strategic interests, the Group strives to stringently comply with applicable laws and regulatory requirements for combating money laundering and terrorist financing by formulating the "Rules on Combating Money Laundering/Terrorist Financing" as a means to take measures to fulfill the responsibilities of combating money laundering and terrorist financing, and to raise our employees' awareness about their obligations and responsibilities towards such activities. To address and reduce relevant risks, the Group has developed, pursuant to relevant laws, regulations and guidelines published by the regulatory authorities, the practices for customer screening and monitoring and "know your customers", as well as the procedures for keeping records and reporting suspicious cases.

Our employees must have a better understanding of bribery, extortion, corruption and acts related thereto. To address and reduce the risk of corruption, the Group has drawn up guidelines for giving away and accepting gifts by setting out the circumstances in which gifts may be accepted or should be declined during the course of our employees' daily business activities to make sure each employee complies with applicable legal requirements and makes business decisions based on ethical principles.

The Group has been adopting policies for combating money laundering and terrorist financing by having established a general framework for combating potential money laundering and terrorist financing crimes to prevent money laundering, financing of terrorism or other financial crimes. It monitors the account activities of existing customers and employees' trading activities on an ongoing basis so as to identify suspicious transactions.

The Group has established reporting policies and procedures so that our employees can report any improper and illegal acts in confidence that may affect the Group.

During the reporting period, the Group was not involved in any lawsuits relating to corruption and money laundering.

Compliance with Laws and Regulations

It is a primary requirement and priority for the Group to comply with all laws and regulations. Appropriate regulatory measures have been established to detect any potential violations to make sure the Group will not be subject to legal and regulatory sanctions. The employees and business units concerned are able to get informed from time to time of any updates on relevant applicable laws, rules and regulations. The Group holds relevant licences required to provide various services, such as the licences for dealing in securities and futures contracts, advising on securities and futures contracts, advising on corporate financing and asset management as well as insurance brokers. The management must make sure the businesses the Group is engaged in are in compliance with applicable laws and regulations.

ENHANCE EMPLOYEES VALUE

Workplace Quality

Respect for Diversity of Employees

In order to standardise the Group's recruitment management to ensure a scientific, timely and effective selection process, thus attracting all kinds of excellent and suitable calibre to meet the needs for talents of the Group, the Group follows the principle of "professionalism orientation, scientific selection, standardised management and relative avoidance" in the recruitment management. The Group emphasizes the specialisation, marketisation, equality and fairness. On the basis of the Code of Practice in Employment on the Ground of Sexual Orientation issued by the Society for Community Organization, the Disability Discrimination Ordinance issued by the Equal Opportunities Commission, the Family Status Discrimination Ordinance, the Race Discrimination Ordinance, and Code of Practice against Discrimination in Employment on the Ground of Sexual Orientation issued by the Hong Kong Government Constitution and Mainland Affairs Bureau and other relevant laws and regulations, the Group has drawn up an "employee handbook" that all employees must follow to ensure that employees, regardless of sex, age, nationality, physical defects, etc., are respected in the Group and have equal opportunities for employment and career development. The Group prohibits employment discrimination and forced labor, and resolutely put an end to the employment of child labor.

2020

Unit

113

57 90 45 14

118

21.18% 17.88%

10.35% 18.35% 7.06% 3.29%

The Group had a total of 206 employees (including directors) for the year ended 31 December 2020, of whom 113 were male and 93 were female, representing 55% and 45% of the total number of employees respectively. Employees between 31 to 40 years old were the main force of the Group, accounting for 44% of the total number of employees. The Group tended to provide more developing opportunities for the younger generation as there were 57 employees under 30 years old, and only 14 employees were above 50 years old. The Group pushed on localization process, with 118 local employees, 85 employees from the Mainland, 1 employee from Australia, 1 employee from Norway, and 1 employee from Taiwan. During the reporting period, the Group did not receive any complaints about discrimination cases.

CAREER DEVELOPMENT AND TRAINING

The Group has committed to providing employees with an ideal career development and training platform, and to constantly improving the performance appraisal system for employees to create a fair development environment. Meanwhile, the Group provides a smooth career path and upstream development for employees. To foster an open and interactive culture and encourage employees to communicate with supervisors about career aspiration and ideas, the Group conducts a review of employee performance on a regular basis, giving the supervisor a better understanding of the strengths and merits of each employee and then co-exploring the career development opportunities. The appointment and promotion of an employee is determined by the performance, ability and appraisal result. Employees with outstanding performance could be promoted exceptionally.

The Group has always been concerned about the growth of employees, devoting sufficient resources in training and development to maintain competitiveness of our employees. The Group attaches great importance to and encourages its employees to receive training. Each licensed employee intended to take the continuous training course offered by the Hong Kong Securities and Futures Commission can receive a subsidy of HK$500 per supervised category. The annual maximum subsidy amount per person is HK$1,000. Additionally, with the intention to help employees to achieve better work performance within the Group and in their future career, the Group provides a variety of training resources and channels, and dedicated to build a sound training system, including new employee orientation, on-the-job training, continuing education and manager-enhance training.

During the reporting period, the Group organized various in-house seminars and training sessions covering details about the latest information on anti-money laundering, laws, codes, rules and regulations as well as other topics related to licensed and regulated activities so as to enable our employees to observe the highest standards of professional conduct and ethical behaviour. These seminars and training sessions were approved by the Securities and Futures Commission to make sure our licensed employees meet the requirements of continuous professional training.

SALARY, COMPENSATION AND BENEFITS

The Group strictly abides by the laws and regulations on labor and human rights in the place of operation. Through the establishment of a sound labor contract system, comprehensive compensation and welfare system, occupational health management and other related measures, the Group can protect the legitimate rights and interests of employees. According to the salary assessment system, the Group takes employee's development, personal performance, and organizational performance into considerations when assessing employee compensation. In order to attract talented people, the Group provides employees with market-competitive remuneration package. At the same time, the Group also provides comprehensive welfare protection, including discretionary performance bonus, compulsory provident fund schemes, medical insurance, major diseases and accident insurance, and work injury compensation in accordance with the Employees' Compensation Ordinance.

BALANCING WORK AND LIFE

The Group is committed to providing employees with a safe, healthy, and humanised working environment. The Group has four offices with a total area of approximately 35,951 square feet in Infinitus Plaza on Des Voeux Road Central, Three Exchange Square on Connaught Place, Hong Kong, and a disaster recovery office. The office area has installed emergency power systems and continuous lighting systems. The exit aisles are equipped with lighting panels "Exit" in both Chinese and English to guide the way out of the workplace when an emergency (especially fire) occurs. Rest area, coffee break area and informal meeting area are also provided, so that employees can take a short break during working to ensure more efficient work.

The Group believes that employees will have a better performance when achieving a work-life balance, thus encouraging employees to pursue personal interests and achieve physical and mental health. The Group attaches importance to the family-harmony attitude, and strives to create a working environment that concerns the needs of the family. Provided with paternity leave, maternity leave, marriage leave, and bereavement leave, employees can manage their work and life effectively. On the other hand, the Company offered employees moon cake coupons as a token of solicitude and to celebrate the Mid-autumn Day.

OCCUPATIONAL HEALTH AND SAFETY

Since the outbreak of the coronavirus at the beginning of 2020, the Group has worked out a contingency plan and made sure proper preventive measures are in place. To protect the health of our employees, the Group purchased surgical masks and disinfectants through various means to reduce the stress on employees from the search for the relevant supplies. Each employee can ask for surgical masks, hand sanitizers, disinfectant wet wipes and disinfectant sprays. Moreover, the disinfection and cleaning of offices were stepped up to maintain good environmental hygiene. To cope with the severity of the coronavirus in Hong Kong and to ensure the safety of our employees, the Group took further measures by arranging for our employees to work from home based on business needs to protect their health.

The Group achieved outstanding performance in operating results, public image, overseas expansion and overseas brands establishment.

- 2020 Regional Award for Best New Product Equity, organized by Insights & Mandate
- Highly Commended Investor among The Most Astute Investors in Asian G3 Bonds for 2020 (Hong Kong, China), organized by the Assets

"The Best Chinese Securities

Dealer" at the 10th "Golden Bauhinia Awards" organized b y

China Securities

"Most Innovative" Award for the Best Listed Company in Great China for 2020 organized by gelonghui.com

No. 1 among the best analysts for Hong Kong stocks and overseas research at the 2nd Sina Golden Unicorn Analysts

Selection in 2020

The "Best Financial Company" Award at the 5th Golden Hong Kong Stock

The "Best Research" Award 2020 for Offshore China Funds organized by

Bloomberg

Annual Awards and

"Best Research Securities Team" and "Best Asset Management Business Performance" of the second Golden

No. 1 among the best analysts for Hong Kong stocks and overseas research at the 21st Century Gold Medal

Analysts Selection in 2020

Central Award

2020 "Model Chinese Futures Dealer" from the Hong Kong Stock Exchange

Community Investment

In addition to providing high-quality products and services to customers, the Group also actively participates in various social developments and public welfare projects which focus on groups in need.

On the 2020 CISI Charity Day, employees of the Group made donations, which will be used to provide funding for various charity projects such as education, poverty alleviation, and disaster relief.

ECOLOGICAL AND ENVIRONMENTAL VALUE

The Group is highly concerned about the impact of its own operations on the environment. Energy saving policy and improvement of resource utilization efficiency, green office policy, plus green financial services are all encouraged. In March 2020, the Group joined the millions of people around the globe to save energy and turned off its office lights in support of WWF's annual Earth Hour, and is committed to fulfilling its mission of environmental protection and realizing the harmonious and sustainable co-development between the Group and the environment.

Environmental performance and low Carbon policy

2020 Emissions

(in tonnes of CO2e)

15.08 349.58 74.93 439.59

The Group has adopted a series of measures to reduce GHG emissions. For example, encourage employees to select direct flights for unavoidable business trips and take an advantage of video conferencing seminars to replace non-essential overseas business trips. The Group plans to purchase carbon emissions quota and participate in carbon offset program to promote renewable energy and protect environmental resources. During the reporting period, total Green House Gas ("GHG") emissions included emissions of carbon dioxide, methane and nitrous oxide, where methane and nitrous oxide emissions were converted to carbon dioxide emissions based on global warming potential (GWP). Therefore, the total amount of GHG emissions is the total amount of carbon dioxide emissions equivalent, including Scope 1,2 and 3. Scope 1 calculated GHG emissions of the Group's vehicle, generating a total of 15.08 tCO2e (2019: 23.75 tCO2e); Scope 2 calculated GHG emissions of electricity use, generating 349.58 tCO2e (2019: 364 tCO2e); Scope 3 calculated the GHG emissions of waste paper recycled to landfill generating 74.93 tCO2e (2019: 70.20 tCO2e). The total amount of GHG emissions produced by the Group as a whole was 439.59 tCO2e (2019: 457.95 tCO2e).

Indirect Energy Use

Total amount of electricity used Intensity of electricity used

455,000 kWh 159.08 kWh/m2

Energy Conservation

The Group actively promotes green operations and takes a number of measures to conserve electricity: turning off unnecessary lighting during lunch, overtime and non-office hours; posting tips/slogans next to lighting switches and office equipment (e.g. copiers, printers, etc.) to remind employees to turn off lighting fixtures and printers after use. The Group has four offices with a total area of 35,951 square feet (approximately 3,339.96 square meters) in Infinite Plaza and Exchange Square, and electricity from which is purchased from the Hong Kong Electric Co., Ltd. Hence, there is no potential risk for power supply shortage. Payment for water usage has been included in the management fee to the landlord, thus related consumption data cannot be obtained. Meanwhile, the Group did not have problems on shortage of water supply. During the reporting period, the total electricity consumption was 436,972 kWh (2019: 455,000 kWh), and the energy consumption intensity was 130.83 kWh/m2 (2019: 159.08 kWh/m2) based on the office area, generating 349.58 tCO2e (2019: 364 tCO2e) GHG emissions.

The Group promotes green and low-carbon travel, and encourages employees to take public transport and make efficient use of transport. The two company vehicles are the passenger cars that are fueled by unleaded petrol in line with Euro 5 emission standards. The Group has regularly maintained the vehicle for the purpose of avoiding unnecessary fuel consumption and thus air pollutants due to low fuel efficiency accordingly. Tires are inspected and inflated to ensure proper tire pressure. Engine is required to be idle when the vehicle is not in motion. During the reporting period, the driving distance of the vehicle was 19,326 km (2019: 44,000 km), and consumed 5,570 L (2019: 8,772 L) unleaded petrol with intensity of 3.47 km/L (2019: 5.02 km/L) based on driving distance, and generated GHG emission of 15.08 tCO2e (2019: 23.75 tCO2e).

Non-Hazardous Waste

2020

15,610 kg

WASTE RECYCLING AND PAPER REDUCTION

The Group encourages employees to participate in waste disposal. Recycled bags are also placed in the office to collect wastepaper for recycling. The Group actively promotes paperless office policies to reduce the consumption of paper and the impact on the environment. The Group has implemented paperless internal processes, such as leave applications and approval memos. Employees are encouraged to communicate electronically (e.g. via e-mail), to use electronic devices to reduce photocopying. For example, using electronic scanning and electronic faxing etc. to reduce the amount of printing and reduce printing documents and reports by electronic devices such as projector. Furthermore, double-sided printing and ink-saving mode are set as default for computers and printers. The Group collaborates with its printing solutions provider to adopt "Follow You" print solution in the Hong Kong office, helping the Group becoming more cost efficient through smarter printing. The print solution enables the Group to achieve environmental objectives by reducing unclaimed printing, as printing is released only upon presentation of a staff card from the particular staff who gives the printing instruction, which tremendously reduces paper consumption and saves costs.

The Group aims to promote environmental awareness, not only within the organisation, but also through engaging customers, encouraging a co-operative approach to minimising its environmental impact. The Group has established electronic billing services for customers.

During the reporting period, the Group used a total of 15,610 kg (2019: 14,624 kg) of paper for daily office operations, generating emission of 74.93 tCO2e (2019: 70.20 tCO2e).

PROMOTE GREEN FINANCE SERVICE

As a financial service institution, the Group not only focuses on the impact of its operations on the environment but also attempts to provide green finance service to upstream and downstream companies for protecting and improving the ecological environment. The Group has been actively exploring the green finance sector. In addition to integrating environmental and social factors into the due diligence consideration in Know Your Customers, the Group will gradually increase the environmental and social assessment when evaluating investment and financing projects.

INDEPENDENT AUDITOR'S REPORT

To the shareholders of China Industrial Securities International Financial Group Limited (incorporated in the Cayman Islands with limited liability)

OPINION

We have audited the consolidated financial statements of China Industrial Securities International Financial Group Limited ("the Company") and its subsidiaries ("the Group") set out on pages 57 to 171, which comprise the consolidated statement of financial position as at 31 December 2020, the consolidated statement of profit or loss and other comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended and notes to the consolidated financial statements, including a summary of significant accounting policies.

In our opinion, the consolidated financial statements give a true and fair view of the consolidated financial position of the Group as at 31 December 2020 and of its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with Hong Kong Financial Reporting Standards ("HKFRSs") issued by the Hong Kong Institute of Certified Public Accountants ("HKICPA") and have been properly prepared in compliance with the disclosure requirements of the Hong Kong Companies Ordinance.

BASIS FOR OPINION

We conducted our audit in accordance with Hong Kong Standards on Auditing ("HKSAs") issued by the HKICPA. Our responsibilities under those standards are further described in the Auditor's responsibilities for the audit of the consolidated financial statements section of our report. We are independent of the Group in accordance with the HKICPA's Code of Ethics for Professional Accountants ("the Code") together with any ethical requirements that are relevant to our audit of the consolidated financial statements in the Cayman Islands, and we have fulfilled our other ethical responsibilities in accordance with these requirements and the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

KEY AUDIT MATTERS

Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

Impairment assessment for margin loans

Refer to note 21 to the consolidated financial statements and the accounting policies on page 75-79.

The Key Audit Matter

At 31 December 2020, the gross amount of margin loans and its related impairment allowance amounted to HK$2,766 million (2019: HK$4,249 million) and HK$741 million (2019: HK$406

How the matter was addressed in our audit

Our audit procedures for the impairment assessment for margin loans included the following:

million) respectively. The net carrying amount represented 11% of	•	understanding and assessing the design, implementation
the Group's total assets.	and operating effectiveness of the key internal controls
over the approval, recording and monitoring of margin
Management exercises significant judgement in determining the	loans and collateral shortfalls and the ECL assessment
expected credit loss ("ECL") of margin loans. The ECL is subject	procedures. For the key underlying systems used for the
to a number of key parameters and assumptions, including the	processing of transactions in relation to margin loans, this
classification of loss stages, estimates of probability of default, loss	included involving our information technology specialists
given default, exposures at default and discount rate, adjustments	to assess the design, implementation and operating
for forward-looking information and other adjustment factors.	effectiveness of a selection of relevant key internal controls
Management judgment is involved in the selection of those	over access to these systems and controls over data and
parameters and the application of the assumptions.	change management;
Margin loans is categorized as Stage 3 when it is credit-impaired.	•	understanding and assessing the established policies
Management performs individual assessment for each client by	and procedures on impairment assessment including the
considering various factors including the credit enhancements	staging criteria, application of assumptions and inputs into
provided to the Group. This is primarily in the form of securities of	the model;
which the value can be referenced to quoted prices. In cases of
collateral shortfalls, management will consider other factors such	•	evaluating, with the assistance of our internal valuation
as remedies available for recovery and the financial situation of	specialists, the reasonableness and appropriateness of
the borrower.	the ECL model and the critical assumptions, inputs and
parameters used in the model;
We identified the impairment assessment for margin loans as
a key audit matter due to its significance to the consolidated	•	assessing the valuation of collateral held for a sample of
financial statements and the significant management estimates	margin loan balances with publicly available market prices;
and judgement required in the measurement.
•	assessing the existence of collateral by comparing a sample
of securities held as collateral as extracted from the Group's
records with independent confirmations or third party
statements from brokers or clearing houses; and
•	assessing the existence and quality of collateral, guarantees
or other forms of credit support in evaluating the adequacy
of impairment allowance made by the Group for material
margin loans classified as Stage 3.

INFORMATION OTHER THAN THE CONSOLIDATED FINANCIAL STATEMENTS AND AUDITOR'S REPORT THEREON

The directors are responsible for the other information. The other information comprises all the information included in the annual report, other than the consolidated financial statements and our auditor's report thereon.

Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.

In connection with our audit of the consolidated financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated.

If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

RESPONSIBILITIES OF THE DIRECTORS FOR THE CONSOLIDATED FINANCIAL STATEMENTS

The directors are responsible for the preparation of the consolidated financial statements that give a true and fair view in accordance with HKFRSs issued by the HKICPA and the disclosure requirements of the Hong Kong Companies Ordinance and for such internal control as the directors determine is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, the directors are responsible for assessing the Group's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so.

The directors are assisted by the Audit Committee in discharging their responsibilities for overseeing the Group's financial reporting process.

AUDITOR'S RESPONSIBILITIES FOR THE AUDIT OF THE CONSOLIDATED FINANCIAL STATEMENTS

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. This report is made solely to you, as a body and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report.

Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with HKSAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.

As part of an audit in accordance with HKSAs, we exercise professional judgement and maintain professional scepticism throughout the audit. We also:

• Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations or the override of internal control.
• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances but not for the purpose of expressing an opinion on the effectiveness of the Group's internal control.
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors.
• Conclude on the appropriateness of the directors' use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Group to cease to continue as a going concern.

AUDITOR'S RESPONSIBILITIES FOR THE AUDIT OF THE CONSOLIDATED FINANCIAL

STATEMENTS (Continued)

• Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

We communicate with the Audit Committee regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide the Audit Committee with a statement that we have complied with relevant ethical requirements regarding independence and communicate with them all relationships and other matters that may reasonably be thought to bear on our independence and, where applicable, actions taken to eliminate threats or safeguards applied.

From the matters communicated with the Audit Committee, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor's report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

The engagement partner on the audit resulting in this independent auditor's report is Ko Sze Man.

KPMG

Certified Public Accountants

8th Floor, Prince's Building 10 Chater Road

Central, Hong Kong 19 March 2021

CONSOLIDATED STATEMENT OF PROFIT OR LOSS

AND OTHER COMPREHENSIVE INCOME

For the year ended 31 December 2020

2020	2019
Notes	HK$	HK$
Commission and fee income from customers	5	343,666,019	358,648,790
Interest revenue	5	209,589,015	535,096,512
Net investment income and gains or losses	5	23,445,137	367,817,965
Total revenue	5	576,700,171	1,261,563,267
Other income	5	110,664,967	131,340,135
Share of result of a joint venture	16	3,840,787	(7,188,844)
Finance costs	7	(487,532,792)	(569,952,191)
Commission and fee expenses	8	(90,921,460)	(72,846,533)
Staff costs	9	(169,962,057)	(232,101,080)
Other operating expenses	(160,608,855)	(175,163,993)
Impairment losses on financial assets	9	(368,491,609)	(874,301,268)
Other gains or losses	9	55,063,772	1,027,010
Loss before taxation	9	(531,247,076)	(537,623,497)
Taxation	10	38,709,493	75,764,050
Loss for the year	(492,537,583)	(461,859,447)
Total comprehensive income for the year attributable to
owners of the Company	(492,537,583)	(461,859,447)
Loss per share
Basic (expressed in HKD)	13	(0.1231)	(0.1155)

The notes on pages 63 to 171 form part of these financial statements. Details of dividends declared for the year are set out in note 12.

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

At 31 December 2020

Non-current assets

Property and equipment Intangible assets Interest in a joint venture

Financial assets at fair value through profit or loss Reverse repurchase agreements

Statutory deposits

Deferred tax assets

Deposits, other receivables, prepayments and other assetsNotes

2019 HK$

97,076,576 29,522,322

11,724,831 6,897,819

36,186,205 32,345,418

51,235,662 48,004,707

90,799,345 169,074,404

26,919,725 12,094,229

124,540,847 84,368,068

16,820,086 48,187,079

455,303,277

Current assets

Accounts receivable

Reverse repurchase agreements

Financial assets at fair value through profit or loss Statutory deposits

Deposits, other receivables, prepayments and other assets Tax receivable

Bank balances - trust accounts

Bank balances - general accounts and cash

3,481,413,395 398,139,045 7,965,083,925 24,096,174

430,494,046

5,543,114,617 856,955,362 9,077,929,636 14,133,035

20 22 22

332,617,739 1,171,699,907

6,160,483

64,522

3,314,652,509 1,850,331,251

2,286,224,348 5,359,950,333

17,808,387,618

Current liabilities

Accounts payable

Accruals and other payables Amount due to a fellow subsidiary Contract liabilities

Tax payable

Financial liabilities at fair value through profit or loss Repurchase agreements

Bank borrowings

Other borrowings Notes

Bonds

Lease liabilities Other liabilities

25 26 23

4,012,906,529

23,874,178,663

3,411,501,538

172,261,819 179,145,153

1,351,510 5,744,417

426,924

179,333

5,949,647 66,906,352

151,539,955 39,401,016

3,235,028,200 3,101,099,261

3,823,475,258 6,371,479,379

766,958,032 196,217,064

69,769,800 31,302,195

2,173,672,130

35,251,162 13,404,498

301,753,853 546,215,309

12,576,672,689

16,136,267,645

Net current assets

5,231,714,929

7,737,911,018

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

At 31 December 2020

2020	2019
Notes	HK$	HK$
Non-current liabilities
Financial liabilities at fair value through profit or loss	24	-	639,840,032
Repurchase agreements	28	-	340,765,474
Bank borrowings	29	-	3,348,128,927
Deferred tax liabilities	27	22,429	28,715
Amount due to the immediate holding company	23	2,286,899,000	-
Lease liabilities	32	52,992,444	-
2,339,913,873	4,328,763,148
Net assets	3,347,104,333	3,839,641,916
Capital and reserves
Share capital	33	400,000,000	400,000,000
Share premium	3,379,895,424	3,379,895,424
Accumulated loss	(886,810,756)	(394,273,173)
Other reserve	11,577,844	11,577,844
Capital reserve	34	442,441,821	442,441,821
Equity attributable to owners of the Company	3,347,104,333	3,839,641,916

The consolidated financial statements on pages 63 to 171 were approved and authorised for issue by the Board of Directors on 19 March 2021 and are signed on its behalf by:

Li Baochen DIRECTORZhang Chunjuan

DIRECTOR

For the year ended 31 December 2020

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

Equity attributable to owners of the CompanyShare capital

Share premiumCapital reserveOther reserve

Retained earnings/ (Accumulated loss)

Total equity

HK$ (Note 33)

HK$

HK$ (Note 34)

HK$

At 1 January 2019

Dividends recognised as distribution

(note 12)

Loss and total comprehensive income for the year

400,000,000

3,379,895,424

442,441,821

11,577,844

159,586,274

4,393,501,363

(92,000,000) (92,000,000)
(461,859,447) (461,859,447)At 31 December 2019 and 1 January 2020 Loss and total comprehensive income for the year

400,000,000

3,379,895,424

442,441,821

11,577,844

(394,273,173) 3,839,641,916
(492,537,583) (492,537,583)At 31 December 2020

400,000,000

3,379,895,424

The notes on pages 63 to 171 form part of these financial statements.

442,441,821

11,577,844

(886,810,756)

3,347,104,333

CONSOLIDATED STATEMENT OF

CASH FLOWS

For the year ended 31 December 2020

2020	2019
Notes	HK$	HK$
OPERATING ACTIVITIES
Loss before taxation	(531,247,076)	(537,623,497)
Adjustments for:
Finance costs	7	487,532,792	569,952,191
Depreciation of property and equipment	9	44,307,542	44,358,192
Amortisation of intangible assets	9	3,088,438	1,850,322
Impairment losses on financial assets	9	368,491,609	874,301,268
Fair value changes of interest held by third-party unitholders/
shareholders of consolidated investment funds	9	(22,236,173)	(29,298,504)
Share of result of a joint venture	(3,840,787)	7,188,844
Operating cash flows before movements in working capital	346,096,345	930,728,816
Increase in statutory deposits	(24,788,635)	(3,235,278)
Decrease/(increase) in deposits, other receivables, prepayments and other assets	870,449,161	(812,125,767)
Decrease/(increase) in financial assets at fair value through profit or loss	1,109,614,756	(342,533,744)
Decrease in accounts receivable	1,692,660,595	490,415,720
Decrease in loans receivable	-	71,614,048
Decrease/(increase) in reverse repurchase agreements	537,869,468	(691,712,374)
(Increase)/decrease in bank balances - trust accounts	(1,464,550,332)	3,378,498,046
Increase/(decrease) in accounts payable	601,404,991	(2,579,693,089)
(Decrease)/increase in accruals and other payables	(6,883,334)	181,635
(Decrease)/increase in financial liabilities at fair value through profit or loss	(527,889,781)	389,156,241
(Decrease)/increase in repurchase agreements	(204,129,565)	1,891,414,430
Increase in contract liabilities	247,591	53,333
(Decrease)/increase in amount due to a related party	(4,392,907)	2,569,802
Cash generated from operations	2,925,708,353	2,725,331,819
Tax paid	(68,522,238)	(25,535,596)
NET CASH GENERATED FROM OPERATING ACTIVITIES	2,857,186,115	2,699,796,223
INVESTING ACTIVITIES
Purchase of property and equipment	14	(4,529,937)	(3,299,697)
Proceeds from disposal of property and equipment	-	129,802
Purchase of intangible assets	15	(7,915,450)	(5,925,243)
Net cash acquired from a consolidated structured entity	-	302,964
NET CASH USED IN INVESTING ACTIVITIES	(12,445,387)	(8,792,174)

CONSOLIDATED STATEMENT OF CASH FLOWS

FINANCING ACTIVITIES Interest paid

Bank borrowings raised Repayments of bank borrowings Other borrowings raised Repayments of other borrowings Proceeds from issue of notes Redemption of notes Proceeds from issue of bonds Redemption of bonds

Capital element of lease rentals paid Interest element of lease rentals paid Dividends paid

Contributions from third-party unitholders/shareholders of consolidated investment funds

Withdrawals from third-party unitholders/shareholders of consolidated investment funds

Loan from the immediate holding company

Notes

2019 HK$

(506,457,552)

51,459,549,368

(57,379,549,368)

4,023,489,227

(3,452,567,221)

69,769,800

(31,014,800)

(2,131,332,500)

(509,060,046)

18,298,700,000

(17,518,700,000)

663,357,145

(1,937,874,069)

31,148,400

(62,650,400)

2,139,012,259 -

(32,492,751) (31,806,509)

(2,534,633) (1,142,215)

- (92,000,000)

128,836,418

(351,061,701) 2,286,899,000

201,718,606

(28,983,717)

NET CASH (USED IN)/GENERATED FROM FINANCING ACTIVITIES

(5,918,466,713)

1,151,719,454

NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT BEGINNING OF THE YEAR

(3,073,725,985) 3,842,723,503

5,359,950,333 1,517,226,830

CASH AND CASH EQUIVALENTS AT END OF THE YEAR

2,286,224,348

5,359,950,333

ANALYSIS OF THE BALANCES OF CASH AND CASH EQUIVALENTS Bank balances - general accounts and cash

2,286,224,348

5,359,950,333

NET CASH FLOWS FROM OPERATING ACTIVITIES INCLUDE Interest received

Dividend received

The notes on pages 63 to 171 form part of these financial statements.

785,042,572 1,034,352,170

13,038,502

8,210,326

NOTES TO THE CONSOLIDATED

FINANCIAL STATEMENTS

For the year ended 31 December 2020

1. GENERAL
The Company was incorporated and registered as an exempted company with limited liability in the Cayman Islands under the Cayman Companies Law on 21 July 2015. The addresses of the registered office and principal place of business of the Company are disclosed in the corporate information section of the annual report.
The shares of the Company have been listed in GEM of The Stock Exchange of Hong Kong Limited (the "Stock Exchange") with effect from 20 October 2016. On 3 January 2019, the Company has successfully transferred the shares listed on GEM of the Stock Exchange to the Main Board of the Stock Exchange.
The consolidated financial statements are presented in Hong Kong dollars ("HK$"), which is the same as the functional currency of the Company.
2. SIGNIFICANT ACCOUNTING POLICIES
- (a) Statement of compliance
  These financial statements have been prepared in accordance with all applicable Hong Kong Financial Reporting Standards ("HKFRSs"), which collective term includes all applicable individual Hong Kong Financial Reporting Standards, Hong Kong Accounting Standards ("HKASs) and Interpretations issued by the Hong Kong Institute of Certified Public Accountants ("HKICPA"), accounting principles generally accepted in Hong Kong and the requirements of the Hong Kong Companies Ordinance. These financial statements also comply with the applicable disclosure provisions of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited. Significant accounting policies adopted by the Group are disclosed below.
  The HKICPA has issued certain amendments to HKFRSs that are first effective or available for early adoption for the current accounting period of the Group. Note 3 provides information on any changes in accounting policies resulting from initial application of these developments to the extent that they are relevant to the Group for the current accounting periods reflected in these financial statements.
- (b) Basis of preparation of the financial statements
  The consolidated financial statements for the year ended 31 December 2020 comprise the Company and its subsidiaries (together referred to as the "Group") and the Group's interest in a joint venture.
  The measurement basis used in the preparation of the financial statements is the historical cost basis except that the following assets and liabilities are stated at their fair value as explained in the accounting policies set out below:
  - - investments in debt and equity securities (see note 2(k));
  - - derivative financial instruments (see note 2(k)); and
  - - net assets attributable to third-party unit holder/shareholders' interests in consolidated investment funds (see note 2(k)).

(b) Basis of preparation of the financial statements (Continued)
The preparation of financial statements in conformity with HKFRSs requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets, liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.
Judgements made by management in the application of HKFRSs that have significant effect on the financial statements and major sources of estimation uncertainty are discussed in note 4.
(c) Basis of consolidation
The consolidated financial statements incorporate the financial statements of the Company and entities (including structured entities) controlled by the Company and its subsidiaries. Control is achieved when the Company:
- • has power over the investee;
- • is exposed, or has rights, to variable returns from its involvement with the investee; and
- • has the ability to use its power to affect its returns.
The Group reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control listed above.
When the Group has less than a majority of the voting rights of an investee, but possesses the practical ability to direct the relevant activities of the investee, the Group considers all relevant facts and circumstances in assessing whether or not the Group has power over the investee, including:
- • the size of the Group's holding of voting rights relative to the size and dispersion of holdings of the other vote holders;
- • potential voting rights held by the Group, other vote holders or other parties;
- • rights arising from other contractual arrangements; and
- • any additional facts and circumstances that indicate that the Group has, or does not have, the current ability to direct the relevant activities at the time that decisions need to be made, including voting patterns at previous shareholders' meetings.

When the Group, which is acting as a fund manager, manages and has an investment in a fund, it may determine that its decision-making powers over the relevant activities of the fund are exercised in the capacity of an agent of the investors as a group and, therefore, that it does not control the fund.

An agent is a party primarily engaged to act on behalf and for the benefit of another party or parties (the principal(s)) and therefore does not control the investee when it exercises its decision-making authority. In determining whether it is an agent to the fund, the Group would assess:

• the scope of its decision-making authority over the investee;
• the rights held by other parties;
• the remuneration to which it is entitled in accordance with the remuneration agreement(s); and
• the decision maker's exposure to variability of returns from other interests that it holds in the investee.

Different weightings shall be applied by the Group to each of the factors on the basis of particular facts and circumstances unless a single party holds substantive rights to remove the decision maker (removal rights) and can remove the decision maker without cause.

Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. Specifically, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated statement of profit or loss and other comprehensive income from the date the Group gains control until the date when the Group ceases to control the subsidiary.

Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies in line with the Group's accounting policies.

All intra-group assets, liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation.

(d) Structured entities
A structured entity is an entity that has been designed so that voting or similar rights are not the dominant factor in deciding who controls the entity, such as when any voting rights relate to administrative tasks only, and the relevant activities are directed by means of contractual arrangements. A structured entity often has restricted activities and a narrow and well defined objective, such as to provide investment opportunities for investors by passing on risks and rewards associated with the assets of the structured entity. Consequently, investment funds managed by the Group are considered as "structured entities".
The Group serves as the investment manager of investment funds. These investment funds invest mainly in equities, debt securities and cash and cash equivalents. The Group's percentage ownership in these structured entities can fluctuate from day to day according to the Group's and third-party participation in them. Where the Group is deemed to control such investment funds, with control determined based on an analysis of the guidance in HKFRS 10 Consolidated financial statements, they are consolidated, with the interests of parties other than the Group being classified as liabilities because there is a contractual obligation for the relevant group entity as an issuer to repurchase or redeem units/shares in such investment funds for cash. These are presented as "Third-party interests in consolidated structured entities" within other liabilities in the consolidated statement of financial position, if any.
(e) Investment in a joint venture
A joint venture is an arrangement whereby the Group or Company and other parties contractually agree to share control of the arrangement, and have rights to the net assets of the arrangement.
An investment in a joint venture is accounted for in the consolidated financial statements under the equity method. Under the equity method, the investment is initially recorded at cost, adjusted for any excess of the Group's share of the acquisition-date fair values of the investee's identifiable net assets over the cost of the investment (if any). The cost of the investment includes purchase price, other costs directly attributable to the acquisition of the investment, and any direct investment into the joint venture that forms part of the Group's equity investment. Thereafter, the investment is adjusted for the post acquisition change in the Group's share of the investee's net assets and any impairment loss relating to the investment (see notes 2(i)). Any acquisition-date excess over cost, the Group's share of the post-acquisition, post-tax results of the investees and any impairment losses for the year are recognised in the consolidated statement of profit or loss, whereas the Group's share of the post-acquisition post-tax items of the investees' other comprehensive income is recognised in the consolidated statement of profit or loss and other comprehensive income.
When the Group's share of losses exceeds its interest in the joint venture, the Group's interest is reduced to nil and recognition of further losses is discontinued except to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the investee. For this purpose, the Group's interest is the carrying amount of the investment under the equity method, together with any other long-term interests that in substance form part of the Group's net investment in the joint venture (after applying the ECL model to such other long-term interests where applicable (see 2(k)).
Unrealised profits and losses resulting from transactions between the Group and its joint venture are eliminated to the extent of the Group's interest in the investee, except where unrealised losses provide evidence of an impairment of the asset transferred, in which case they are recognised immediately in profit or loss.

(e) Investment in a joint venture (Continued)
If an investment in an joint venture becomes an investment in an associate, the retained interest is not remeasured. Instead, the investment continues to be accounted for under the equity method.
In all other cases, when the Group ceases to have joint control over a joint venture, it is accounted for as a disposal of the entire interest in that investee, with a resulting gain or loss being recognised in profit or loss. Any interest retained in that former investee at the date when significant influence or joint control is lost is recognised at fair value and this amount is regarded as the fair value on initial recognition of a financial asset (see note 2(k)).
In the Company's statement of financial position, investment in a joint venture is stated at cost less impairment losses (see note 2(i)).
(f) Revenue from contracts with customers
The Group recognises revenue when (or as) a performance obligation is satisfied, i.e. when "control" of the services underlying the particular performance obligation is transferred to the customer, at the amount of promised consideration to which the Group is expected to be entitled, excluding those amounts collected on behalf of third parties. Revenue excludes value added tax or other sales taxes and is after deduction of any trade discounts.
A performance obligation represents a good or service (or a bundle of goods or services) that is distinct or a series of distinct goods or services that are substantially the same.
Control is transferred over time and revenue is recognised over time by reference to the progress towards complete satisfaction of the relevant performance obligation if one of the following criteria is met:
- • the customer simultaneously receives and consumes the benefits provided by the Group's performance as the Group performs;
- • the Group's performance creates or enhances an asset that the customer controls as the Group performs; or
- • the Group's performance does not create an asset with an alternative use to the Group and the Group has an enforceable right to payment for performance completed to date.
Otherwise, revenue is recognised at a point in time when the customer obtains control of the distinct good or service.
Where the contract contains a financing component which provides a significant financing benefit to the customer for more than 12 months, revenue is measured at the present value of the amount receivable, discounted using the discount rate that would be reflected in a separate financing transaction with the customer, and interest income is accrued separately under the effective interest method. Where the contract contains a financing component which provides a significant financing benefit to the group, revenue recognised under that contract includes the interest expense accreted on the contract liability under the effective interest method. The group takes advantage of the practical expedient in paragraph 63 of HKFRS 15 and does not adjust the consideration for any effects of a significant financing component if the period of financing is 12 months or less.

(f) Revenue from contracts with customers (Continued)

A contract asset represents the Group's right to consideration in exchange for goods or services that the Group has transferred to a customer that is not yet unconditional. It is assessed for impairment in accordance with HKFRS 9. In contrast, a receivable represents the Group's unconditional right to consideration, i.e. only the passage of time is required before payment of that consideration is due.

A contract liability represents the Group's obligation to transfer goods or services to a customer for which the Group has received consideration (or an amount of consideration is due) from the customer.

A contract asset and a contract liability relating to the same contract are accounted for and presented on a net basis.

Details of the Group's performance obligations for revenue for contracts with customers resulting from application of HKFRS 15 are set out in note 5.

Contracts with multiple performance obligations (including allocation of transaction price)

For contracts that contain more than one performance obligations, the Group allocates the transaction price to each performance obligation on a relative stand-alone selling price basis.

The stand-alone selling price of the distinct good or service underlying each performance obligation is determined at contract inception. It represents the price at which the Group would sell a promised good or service separately to a customer. If a stand- alone selling price is not directly observable, the Group estimates it using appropriate techniques such that the transaction price ultimately allocated to any performance obligation reflects the amount of consideration to which the Group expects to be entitled in exchange for transferring the promised goods or services to the customer.

Over time revenue recognition: measurement of progress towards complete satisfaction of a performance obligation

Output method

The progress towards complete satisfaction of a performance obligation is measured based on output method, which is to recognise revenue on the basis of direct measurements of the value of the services transferred to the customer to date relative to the remaining services promised under the contract, that best depict the Group's performance in transferring control of services.

Variable consideration

For contracts that contain variable consideration, the Group estimates the amount of consideration to which it will be entitled using either (a) the expected value method or (b) the most likely amount, depending on which method better predicts the amount of consideration to which the Group will be entitled.

The estimated amount of variable consideration is included in the transaction price only to the extent that it is highly probable that such an inclusion will not result in a significant revenue reversal in the future when the uncertainty associated with the variable consideration is subsequently resolved.

(f) Revenue from contracts with customers (Continued)

Variable consideration (Continued)

At the end of each reporting period, the Group updates the estimated transaction price (including updating its assessment of whether an estimate of variable consideration is constrained) to represent faithfully the circumstances present at the end of the reporting period and the changes in circumstances during the reporting period.

Further details of the Group's revenue and other income recognition policies are as follows:

(i) Commission income arising from broking business of securities, and futures and option contracts dealings is recorded as income on a trade-date basis;
(ii) Commission income arising from insurance brokerage business is recognised as income in accordance with the terms of underlying agreements when the relevant significant acts have been completed, generally at the effective date of the applicable insurance policies;
(iii) Corporate advisory fee and sponsor fee, asset management fee, investment advisory fee, custodian and handling fee income and arrangement fee income are recognised when the Group has fulfilled its obligations under the respective contracts. Depending on the nature of the services and the contract terms, corporate advisory fee and sponsor fee are recognised in profit or loss over time using a method that depicts the Group's performance, or at point in time when the service is completed;
(iv) Commission income arising from placing, underwriting and sub-underwriting is recognised as income when the Group has fulfilled its obligations in accordance with the terms of the agreements;
(v) Realised profits or losses from financial assets/financial liabilities at fair value through profit or loss ("FVTPL") and derivatives are recognized on the transaction dates when the relevant contract notes are executed whilst the unrealised profits or losses of financial assets/financial liabilities at FVTPL and derivatives are recognised from valuation at the end of the reporting period in accordance with the accounting policies for financial instruments;
(vi) Interest income is recognised as it accrues under the effective interest method using the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to the gross carrying amount of the financial asset. For financial assets measured at amortised cost that are not credit-impaired, the effective interest rate is applied to the gross carrying amount of the asset. For credit-impaired financial assets, the effective interest rate is applied to the amortised cost (i.e. gross carrying amount net of loss allowance) of the asset (see note 2(k)); and
(vii) Dividend income from unlisted investments is recognised when the shareholder's right to receive payment is established. Dividend income from listed investments is recognised when the share price of the investment goes ex-dividend.

(g) Property and equipment

The following items of property and equipment are stated at cost less accumulated depreciation and impairment losses (see note 2(i)):

- right-of-use assets arising from leases over freehold or leasehold properties where the Group is not the registered owner of the property interest; and
- items of equipment, including right-of-use assets arising from leases of underlying equipment (see note 2(q)).

Gains or losses arising from the retirement or disposal of an item of property, plant and equipment are determined as the difference between the net disposal proceeds and the carrying amount of the item and are recognised in profit or loss on the date of retirement or disposal.

Depreciation is calculated to write off the cost or valuation of items of property and equipment, less their estimated residual value, if any, using the straight-line method over their estimated useful lives as follows:

Leasehold improvement	Over the lease term
Motor vehicles	12.5%
Furniture and fixtures	20%
Computer equipment	20% - 33.3%
Properties leased for own use	Over the lease term

Where parts of an item of property and equipment have different useful lives, the cost or valuation of the item is allocated on a reasonable basis between the parts and each part is depreciated separately. Both the useful life of an asset and its residual value, if any, are reviewed annually.

(h) Intangible assets

Intangible assets acquired separately and with finite useful lives are carried at costs less accumulated amortisation and any accumulated impairment losses. Amortisation for intangible assets with finite useful lives is recognised on a straight-line basis over their estimated useful lives. The estimated useful life and amortisation method are reviewed at the end of each reporting period, with the effect of any changes in estimate being accounted for on a prospective basis. Intangible assets with indefinite useful lives that are acquired separately are carried at cost less any subsequent accumulated impairment losses (see the accounting policy in respect of impairment losses on tangible and intangible assets below).

(h) Intangible assets (Continued)
Amortisation of intangible assets with finite useful lives is charged to profit or loss on a straight-line basis over the assets' estimated useful lives. The following intangible assets with finite useful lives are amortised from the date they are available for use and their estimated useful lives are as follows:
Software
3 years
Both the period and method of amortisation are reviewed annually.
Intangible assets are not amortised while their useful lives are assessed to be indefinite. Any conclusion that the useful life of an intangible asset is indefinite is reviewed annually to determine whether events and circumstances continue to support the indefinite useful life assessment for that asset. If they do not, the change in the useful life assessment from indefinite to finite is accounted for prospectively from the date of change and in accordance with the policy for amortisation of intangible assets with finite lives as set out above.
An intangible asset is derecognised on disposal, or when no future economic benefits are expected from use or disposal. Gain or losses arising from derecognition of an intangible asset, measured as the difference between the net disposal proceeds and the carrying amount of the asset, are recognised in profit or loss in the period when the asset is derecognised.
(i) Impairment losses on tangible and intangible assets
At the end of each reporting period, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss, if any. The recoverable amount of tangible and intangible assets are estimated individually. When it is not possible to estimate the recoverable amounts individually, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. When a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-generating units, or otherwise they are allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation basis can be identified.
Intangible assets with indefinite useful lives are tested for impairment at least annually, and whenever there is an indication that the asset may be impaired.
Recoverable amount is the higher of fair value less costs of disposal and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.

(i) Impairment losses on tangible and intangible assets (Continued)
If the recoverable amount of an asset (or a cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or the cash-generating unit) is reduced to its recoverable amount. In allocating the impairment loss, the impairment loss is allocated first to reduce the carrying amount of any goodwill (if applicable) and then to the other assets on a pro- rata basis based on the carrying amount of each asset in the unit. The carrying amount of an asset is not reduced below the highest of its fair value less costs of disposal (if measurable), its value in use (if determinable) and zero. The amount of the impairment loss that would otherwise have been allocated to the asset is allocated pro rata to the other assets of the unit. An impairment loss is recognised immediately in profit or loss.
In respect of assets other than goodwill, an impairment loss is reversed if there has been a favourable change in the estimates used to determine the recoverable amount. An impairment loss in respect of goodwill is not reversed.
When an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (or cash-generating unit) in prior years. A reversal of an impairment loss is recognised immediately in profit or loss.
(j) Foreign currencies
In preparing the financial statements of each individual group entity, transactions in currencies other than the functional currency of that entity (foreign currencies) are recognised at the rates of exchanges prevailing on the dates of the transactions. At the end of each reporting period, monetary items denominated in foreign currencies are retranslated at the rates prevailing on that date. Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing on the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.
Exchange differences arising on the settlement of monetary items, and on the retranslation of monetary items, are recognised in profit or loss in the period in which they arise.
For the purposes of presenting the consolidated financial statements, the assets and liabilities of the Group's foreign operations are translated into the presentation currency of the Group (i.e. Hong Kong dollars) using exchange rates prevailing at the end of each reporting period. Income and expenses items are translated at the average exchange rates for the year. Exchange differences arising, if any, are recognised in other comprehensive income and accumulated in equity under the heading of exchange reserve.
On the disposal of a foreign operation (i.e. a disposal of the Group's entire interest in a foreign operation, or a disposal involving loss of control over a subsidiary that including a foreign operation of which the retained interest becomes a financial asset), all of the exchange differences accumulated in equity in respect of that operation attributable to owners of the Company are reclassified to profit or loss.

(k) Financial instruments

Financial assets and financial liabilities are recognised when a group entity becomes a party to the contractual provisions of the instrument. All regular way purchases or sales of financial assets are recognised and derecognised on a trade date basis. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the time frame established by regulation or convention in the market place.

Financial assets and financial liabilities are initially measured at fair value except for accounts receivable arising from contracts with customers which are initially measured in accordance with HKFRS 15. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets or financial liabilities at FVTPL) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognised immediately in profit or loss.

The effective interest method is a method of calculating the amortised cost of a financial asset or financial liability and of allocating interest income and interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts and payments (including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the financial asset or financial liability, or, where appropriate, a shorter period, to the gross carrying amount of a financial asset or the amortised cost of a financial liability.

Interest/dividend income which are derived from the Group's ordinary course of business are presented as revenue.

Financial assets

Classification and subsequent measurement of financial assets

Financial assets that meet the following conditions are subsequently measured at amortised cost:

• the financial asset is held within a business model whose objective is to collect contractual cash flows; and
• the contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

Financial assets that meet the following conditions are subsequently measured at fair value through other comprehensive income ("FVTOCI"):

• the financial asset is held within a business model whose objective is achieved by both collecting contractual cash flows and selling; and
• the contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

(k) Financial instruments (Continued)

Financial assets (Continued)

Classification and subsequent measurement of financial assets (Continued)

All other financial assets are subsequently measured at FVTPL, except that at the date of initial application/initial recognition of a financial asset the Group may irrevocably elect to present subsequent changes in fair value of an equity investment in other comprehensive income if that equity investment is neither held for trading nor contingent consideration recognised by an acquirer in a business combination to which HKFRS 3 Business Combinations applies.

A financial asset is classified as held for trading if:

• it has been acquired principally for the purpose of selling in the near term; or
• on initial recognition it is a part of a portfolio of identified financial instruments that the Group manages together and has a recent actual pattern of short-term profit-taking; or
• it is a derivative that is not designated and effective as a hedging instrument.

In addition, the Group may irrevocably designate a financial asset that is required to be measured at the amortised cost or FVTOCI as measured at FVTPL if doing so eliminates or significantly reduces an accounting mismatch.

(i) Amortised cost and interest income

Interest income is recognised using the effective interest method for financial assets measured subsequently at amortised cost and debt instruments/receivables subsequently measured at FVTOCI. Interest income is calculated by applying the effective interest rate to the gross carrying amount of a financial asset, except for financial assets that have subsequently become credit-impaired (see below). For financial assets that have subsequently become credit-impaired, interest income is recognised by applying the effective interest rate to the amortised cost of the financial asset from the next reporting period. If the credit risk on the credit-impaired financial instrument improves so that the financial asset is no longer credit-impaired, interest income is recognised by applying the effective interest rate to the gross carrying amount of the financial asset from the beginning of the reporting period following the determination that the asset is no longer credit impaired.

(k) Financial instruments (Continued)

Financial assets (Continued)

Classification and subsequent measurement of financial assets (Continued)

(ii) Financial assets at FVTPL

Financial assets that do not meet the criteria for being measured at amortised cost or FVTOCI or designated as FVTOCI are measured at FVTPL.

Financial assets at FVTPL are measured at fair value at the end of each reporting period, with any fair value gains or losses recognised in profit or loss. The unrealised gain or loss is determined as the change in the fair values of the financial asset between the reporting period, whilst realised gain is determined as difference between the transaction price and the fair value at the prior period-end. The net gain or loss recognised in profit or loss excludes any dividend or interest earned on the financial asset and is included in the "net investment income and gains or losses" line item.

Impairment of financial assets

The Group recognises a loss allowance for ECL on financial assets which are subject to impairment under HKFRS 9 (including accounts receivable, loans receivable, reverse repurchase agreements, deposits and other receivables, bank balances and loan commitment). The amount of ECL is updated at each reporting date to reflect changes in credit risk since initial recognition.

Lifetime ECL represents the ECL that will result from all possible default events over the expected life of the relevant instrument. In contrast, 12m ECL represents the portion of lifetime ECL that is expected to result from default events that are possible within 12 months after the reporting date. Assessment are done based on the Group's historical credit loss experience, adjusted for factors that are specific to the debtors, general economic conditions and an assessment of both the current conditions at the reporting date as well as the forecast of future conditions.

The Group always recognises lifetime ECL for accounts receivable that result from transactions within the scope of HKFRS 15. The ECL on these assets are assessed individually for debtors with significant balances and/or collectively using a provision matrix with appropriate groupings.

For all other instruments, the Group measures the loss allowance equal to 12m ECL, unless when there has been a significant increase in credit risk since initial recognition, the Group recognises lifetime ECL. The assessment of whether lifetime ECL should be recognised is based on significant increases in the likelihood or risk of a default occurring since initial recognition.

(i) Significant increase in credit risk

In assessing whether the credit risk has increased significantly since initial recognition, the Group compares the risk of a default occurring on the financial instrument as at the reporting date with the risk of a default occurring on the financial instrument as at the date of initial recognition. In making this assessment, the Group considers both quantitative and qualitative information that is reasonable and supportable, including historical experience and forward-looking information that is available without undue cost or effort.

(k) Financial instruments (Continued)

Financial assets (Continued)

Impairment of financial assets (Continued)

(i) Significant increase in credit risk (Continued)

In particular, the following information is taken into account when assessing whether credit risk has increased significantly:

• an actual or expected significant deterioration in the financial instrument's external (if available) or internal credit rating;
• significant deterioration in external market indicators of credit risk, e.g. a significant increase in the credit spread, the credit default swap prices for the debtor;
• existing or forecast adverse changes in business, financial or economic conditions that are expected to cause a significant decrease in the debtor's ability to meet its debt obligations;
• an actual or expected significant deterioration in the operating results of the debtor;
• an actual or expected significant adverse change in the regulatory, economic, or technological environment of the debtor that results in a significant decrease in the debtor's ability to meet its debt obligations.

Despite the aforegoing, the Group assumes that the credit risk on a debt instrument has not increased significantly since initial recognition if the debt instrument is determined to have low credit risk at the reporting date. A debt instrument is determined to have low credit risk if i) it has a low risk of default, ii) the borrower has a strong capacity to meet its contractual cash flow obligations in the near term and iii) adverse changes in economic and business conditions in the longer term may, but will not necessarily, reduce the ability of the borrower to fulfil its contractual cash flow obligations. The Group considers a debt instrument to have low credit risk when it has an internal or external credit rating of 'investment grade' as per globally understood definitions.

For loan commitments, the date that the Group becomes a party to the irrevocable commitment is considered to be the date of initial recognition for the purposes of assessing the financial instrument for impairment. In assessing whether there has been a significant increase in the credit risk since initial recognition of a loan commitment, the Group considers changes in the risk of a default occurring on the loan to which a loan commitment relates.

The Group regularly monitors the effectiveness of the criteria used to identify whether there has been a significant increase in credit risk and revises them as appropriate to ensure that the criteria are capable of identifying significant increase in credit risk before the amount becomes past due.

(k) Financial instruments (Continued)

Financial assets (Continued)

Impairment of financial assets (Continued)

(ii) Definition of default
For internal credit risk management, the Group considers an event of default occurs when information developed internally or obtained from external sources indicates that the debtor is unlikely to pay its creditors, including the Group, in full.
Irrespective of the above, the Group considers that default has occurred when a financial asset is more than 90 days past due (except for secured margin loans where a shorter period of 30 days past due has been applied by the directors in view of the nature of business operation and practice in managing the credit risk), unless the Group has reasonable and supportable information to demonstrate that a more lagging default criterion is more appropriate.
(iii) Credit-impaired financial assets
A financial asset is credit-impaired when one or more events that have a detrimental impact on the estimated future cash flows of that financial asset have occurred. Evidence that a financial asset is credit-impaired includes observable data about the following events:
- (a) significant financial difficulty of the issuer or the borrower;
- (b) a breach of contract, such as a default or past due event;
- (c) the lender(s) of the borrower, for economic or contractual reasons relating to the borrower's financial difficulty, having granted to the borrower a concession(s) that the lender(s) would not otherwise consider; or
- (d) it is becoming probable that the borrower will enter bankruptcy or other financial reorganisation.
(iv) Write-off policy
The Group writes off a financial asset when there is information indicating that the counterparty is in severe financial difficulty and there is no realistic prospect of recovery, for example, when the counterparty has been placed under liquidation or has entered into bankruptcy proceedings, or in the case of accounts receivable, when the amounts are over two years past due, whichever occurs sooner. Financial assets written off may still be subject to enforcement activities under the Group's recovery procedures, taking into account legal advice where appropriate. A write-off constitutes a derecognition event. Any subsequent recoveries are recognised in profit or loss.

(k) Financial instruments (Continued)

Financial assets (Continued)

Impairment of financial assets (Continued)

(v) Measurement and recognition of ECL

The measurement of ECL is a function of the probability of default, loss given default (i.e. the magnitude of the loss if there is a default) and the exposure at default. The assessment of the probability of default and loss given default is based on historical data adjusted by forward-looking information. Estimation of ECL reflects an unbiased and probability-weighted amount that is determined with the respective risks of default occurring as the weights.

Generally, the ECL is the difference between all contractual cash flows that are due to the Group in accordance with the contract and the cash flows that the Group expects to receive, discounted at the effective interest rate determined at initial recognition.

Where ECL is measured on a collective basis, the financial instruments are grouped on the following basis:

• Nature of financial instruments (i.e. the Group's accounts receivable, loans receivable, reverse repurchase agreements, deposits and other receivables and bank balances are each assessed as a separate group);
• Past-due status; and
• External credit ratings where available.

The grouping is regularly reviewed by management to ensure the constituents of each group continue to share similar credit risk characteristics.

Interest income is calculated based on the gross carrying amount of the financial asset unless the financial asset is credit impaired, in which case interest income is calculated based on amortised cost of the financial asset.

For undrawn loan commitments, the loss allowances are the present value of the difference between:

(a) the contractual cash flows that are due to the Group if the holder of the loan commitment draws down the loan; and
(b) the cash flows that the Group expects to receive if the loan is drawn down.

The Group recognises an impairment gain or loss in profit or loss for all financial instruments by adjusting their carrying amount, with the exception of accounts receivable and loans receivable where the corresponding adjustment is recognised through a loss allowance account.

(k) Financial instruments (Continued)

Financial assets (Continued)

Impairment of financial assets (Continued)

(vi) Financial guarantee contracts held

Financial guarantee contracts is a contract that requires the issuer to make specified payments to reimburse the holder for a loss that it incurs because a specified debtor fails to make payment when it is due in accordance with the original or modified terms of a debt instrument. A contract is classified as a financial guarantee contract when the following conditions are satisfied:

- The reference obligation is a debt instrument
- The holder is compensated only for a loss that it incurs
- The contract does not compensate the holder for more than the actual loss that it incurs.

The Group assesses whether a financial guarantee contract held is an integral element of a financial asset that is accounted for as a component of that instrument or is a contract that is accounted for separately. The factors that the Group considers when making this assessment include whether:

- the guarantee is implicitly part of the contractual terms of the debt instrument;
- the guarantee is required by laws and regulations that govern the contract of the debt instrument;
- the guarantee is entered into at the same time as and in contemplation of the debt instrument; and
- the guarantee is given by the parent of the borrower or another company within the borrower's group.

If the Group determines that the guarantee is an integral element of the financial asset, then any premium payable in connection with the initial recognition of the financial asset is treated as a transaction cost of acquiring it. The Group considers the effect of the protection when measuring the fair value of the debt instrument and when measuring ECL.

If the Group determines that the guarantee is not an integral element of the debt instrument, then it recognises an asset representing any prepayment of guarantee premium and a right to compensation for credit losses. A prepaid premium asset is recognised only if the guaranteed exposure neither is credit-impaired nor has undergone a significant increase in credit risk when the guarantee is acquired. These assets are recognised in 'other assets'. The Group presents gains or losses on a compensation right in profit or loss in the line item 'impairment losses on financial asset'.

(k) Financial instruments (Continued)

Financial assets (Continued)

Derecognition of financial assets

The Group derecognises a financial asset only when the contractual rights to the cash flows from the asset expire or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity. If the Group neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Group recognises its retained interest in the asset and an associated liability for amounts it may have to pay. If the Group retains substantially all the risks and rewards of ownership of a transferred financial asset, the Group continues to recognise the financial asset and also recognises a collateralised borrowing for the proceeds received.

On derecognition of a financial asset other than equity investment, the difference between the asset's carrying amount and the sum of the consideration received and receivable and the cumulative gain or loss that had been recognised in other comprehensive income and accumulated in equity is recognised in profit or loss.

Financial liabilities and equity

Classification as debt or equity

Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangements and the definitions of a financial liability and an equity instrument.

Equity instruments

An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the Company are recognised at the proceeds received, net of direct issue costs.

Repurchase of the Company's own equity instruments is recognised and deducted directly in equity. No gain or loss is recognised in profit or loss on the purchase, sale, issue or cancellation of the Company's own equity instruments.

Financial liabilities at amortised cost

Financial liabilities not classified as at FVTPL (including amount due to related parties, accounts payable, bank borrowings, other borrowings, notes, repurchase agreements, contract liabilities, other liabilities, lease liabilities and other payables) are subsequently measured at amortised cost using the effective interest method.

(k) Financial instruments (Continued)

Financial liabilities and equity (Continued)

Financial liabilities at FVTPL

Financial liabilities are classified as at FVTPL when the financial liability is (i) contingent consideration of an acquirer in a business combination to which HKFRS 3 applies, (ii) held for trading or (iii) it is designated as at FVTPL.

A financial liability is classified as held for trading if:

• it has been acquired principally for the purpose of repurchasing it in the near term; or
• on initial recognition it is part of a portfolio of identified financial instruments that the Group manages together and has a recent actual pattern of short-term profit-taking; or
• it is a derivative, except for a derivative that is a financial guarantee contract or a designated and effective hedging instrument.

A financial liability other than a financial liability held for trading or contingent consideration of an acquirer in a business combination may be designated as at FVTPL upon initial recognition if:

• such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise; or
• the financial liability forms part of a group of financial assets or financial liabilities or both, which is managed and its performance is evaluated on a fair value basis, in accordance with the Group's documented risk management or investment strategy, and information about the grouping is provided internally on that basis; or
• it forms part of a contract containing one or more embedded derivatives, and HKFRS 9 permits the entire combined contract to be designated as at FVTPL.

For financial liabilities that are designated as at FVTPL, the amount of change in the fair value of the financial liability that is attributable to changes in the credit risk of that liability is recognised in other comprehensive income, unless the recognition of the effects of changes in the liability's credit risk in other comprehensive income would create or enlarge an accounting mismatch in profit or loss. For financial liabilities that contain embedded derivatives, the changes in fair value of the embedded derivatives are excluded in determining the amount to be presented in other comprehensive income. Changes in fair value attributable to a financial liability's credit risk that are recognised in other comprehensive income are not subsequently reclassified to profit or loss; instead, they are transferred to retained earnings upon derecognition of the financial liability.

(k) Financial instruments (Continued)

Financial liabilities and equity (Continued)

Net assets attributable to third-party unit holders/shareholders' interests in consolidated investment funds

A financial instrument that gives the holder the right to put it back to the issuer for cash or another financial asset (a 'puttable instrument') is a financial liability. The financial instrument is a financial liability even when the amount of cash or other financial assets is determined on the basis that has the potential to increase or decrease. The existence of an option for the holder to put the instrument back to the issuer for cash or another financial asset means that the puttable instrument meets the definition of a financial liability.

Net assets attributable to third-party unit holders/shareholders' interests in consolidated investment funds are determined based on the attributable shares or units of the residual assets of the consolidated investment fund after deducting the consolidated investment fund's other liabilities.

As at year end, such financial liability of net assets attributable to third-party unit holders/shareholders' interests in consolidated investment funds is presented as an "other liabilities" in the consolidated statement of financial position.

In the case of acquisition or disposals of such non-controlling interests in consolidated investment funds, any difference between the acquisition cost or sale price of these non-controlling interests and the carrying value of these non-controlling interests is recognised as an increase or decrease in a liability which would be reflected in the consolidated statement of profit or loss.

Derecognition/substantial modification of financial liabilities

The Group derecognises financial liabilities when, and only when, the Group's obligations are discharged, cancelled or have expired. The difference between the carrying amount of the financial liability derecognised and the consideration paid and payable is recognised in profit or loss.

The Group accounts for an exchange with a lender of a financial liability with substantially different terms as an extinguishment of the original financial liability and the recognition of a new financial liability. A substantial modification of the terms of an existing financial liability or a part of it (whether or not attributable to the financial difficulty of the Group) is accounted for as an extinguishment of the original financial liability and the recognition of a new financial liability.

The Group considers that the terms are substantially different if the discounted present value of the cash flows under the new terms, including any fees paid net of any fees received and discounted using the original effective interest rate, is at least 10 per cent different from the discounted present value of the remaining cash flows of the original financial liability. Accordingly, such exchange of debt instruments or modification of terms is accounted for as an extinguishment, any costs or fees incurred are recognised as part of the gain or loss on the extinguishment. The exchange or modification is considered as non-substantial modification when such difference is less than 10 per cent.

(k) Financial instruments (Continued)
Financial liabilities and equity (Continued)
Non-substantial modifications of financial liabilities
For non-substantial modifications of financial liabilities that do not result in derecognition, the carrying amount of the relevant financial liabilities will be calculated at the present value of the modified contractual cash flows discounted at the financial liabilities' original effective interest rate. Transaction costs or fees incurred are adjusted to the carrying amount of the modified financial liabilities and are amortised over the remaining term. Any adjustment to the carrying amount of the financial liability is recognised in profit or loss at the date of modification.
Derivative financial instruments
Derivatives are initially recognised at fair value at the date when derivative contracts are entered into and are subsequently remeasured to their fair value at the end of the reporting period. The resulting gain or loss is recognised in profit or loss.
Repurchase agreements
Financial assets sold subject to agreements with a commitment to repurchase at a specific future date are not derecognised in the consolidated statement of financial position and continue to be recognised as "financial assets at FVTPL". The proceeds from selling such assets are presented as "Repurchase agreements" in the consolidated statement of financial position. Repurchase agreements are initially measured at fair value and are subsequently measured at amortised cost using the effective interest method.
Reverse repurchase agreements
Financial assets that have been purchased under agreements with a commitment to resell at a specific future date are not recognised in the consolidated statement of financial position. The cost of purchasing such assets is presented under "Reverse repurchase agreements" in the consolidated statement of financial position. Reverse repurchase agreements are measured at amortised cost as they are held for the collection of contractual cash flows which represent solely payments of principal and interest. Reverse repurchase agreements are initially measured at fair value and are subsequently measured at amortised cost using the effective interest method.
Offsetting a financial asset and a financial liability
A financial asset and a financial liability is offset and the net amount presented in the consolidated statement of financial position when, and only when the Group currently has legally enforceable right to set off the recognised amounts and intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously.
(l) Trade and other receivables
A receivable is recognised when the group has an unconditional right to receive consideration. A right to receive consideration is unconditional if only the passage of time is required before payment of that consideration is due. If revenue has been recognised before the group has an unconditional right to receive consideration, the amount is presented as a contract asset (see note 2(f )).
Receivables are stated at amortised cost using the effective interest method less allowance for credit losses (see note 2(k)).

(m) Cash and cash equivalents

Cash and cash equivalents comprise cash at bank and on hand, demand deposits with banks and other financial institutions, and short-term, highly liquid investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value, having been within three months of maturity at acquisition. Bank overdrafts that are repayable on demand and form an integral part of the Group's cash management are also included as a component of cash and cash equivalents for the purpose of the consolidated cash flow statement. Cash and cash equivalents are assessed for expected credit losses (ECL) in accordance with the policy set out in note 2(k).

(n) Trade and other payables

Trade and other payables are initially recognised at fair value. Trade and other payables are subsequently stated at amortised cost unless the effect of discounting would be immaterial, in which case they are stated at cost.

(o) Taxation

Income tax expense represents the sum of the income tax currently payable and deferred tax.

The tax currently payable is based on taxable profit for the year. Taxable profit differs from "profit before taxation" as reported in the consolidated statement of profit or loss and other comprehensive income because of items of income or expenses that are taxable or deductible in other years and items that are never taxable or deductible. The Group's liability for current tax is calculated using tax rates that have been enacted or substantially enacted by the end of each reporting period.

Deferred tax is recognised on temporary differences between the carrying amounts of assets and liabilities in the consolidated financial statements and the corresponding tax base used in the computation of taxable profit. Deferred tax liabilities are generally recognised for all taxable temporary differences. Deferred tax assets are generally recognised for all deductible temporary difference to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised.

The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset is realised, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of each reporting period.

The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Group expects, at the end of each reporting period, to recover or settle the carrying amount of its assets and liabilities.

(o) Taxation (Continued)
Current and deferred tax are recognised in profit or loss, except when they relates to items that are recognised in other comprehensive income or directly in equity, in which case, the current and deferred tax are also recognised in other comprehensive income or directly in equity respectively.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis.
(p) Provisions
Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that the Group will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation.
The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the end of each reporting period, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows (when the effect of the time value of money is material).
(q) Leased asset
At inception of a contract, the Group assesses whether the contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Control is conveyed where the customer has both the right to direct the use of the identified asset and to obtain substantially all of the economic benefits from that use.
As a lessee
Where the contract contains lease component(s) and non-lease component(s), the Group has elected not to separate non-lease components and accounts for each lease component and any associated non-lease components as a single lease component for all leases.
At the lease commencement date, the Group recognises a right-of-use asset and a lease liability, except for short-term leases that have a lease term of 12 months or less and leases of low-value assets which, for the Group are primarily laptops and office furniture. When the Group enters into a lease in respect of a low-value asset, the Group decides whether to capitalise the lease on a lease-by-lease basis. The lease payments associated with those leases which are not capitalised are recognised as an expense on a systematic basis over the lease term.

(q) Leased asset (Continued)

As a lessee (Continued)

Where the lease is capitalised, the lease liability is initially recognised at the present value of the lease payments payable over the lease term, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, using a relevant incremental borrowing rate. After initial recognition, the lease liability is measured at amortised cost and interest expense is calculated using the effective interest method. Variable lease payments that do not depend on an index or rate are not included in the measurement of the lease liability and hence are charged to profit or loss in the accounting period in which they are incurred.

The right-of-use asset recognised when a lease is capitalised is initially measured at cost, which comprises the initial amount of the lease liability plus any lease payments made at or before the commencement date, and any initial direct costs incurred. Where applicable, the cost of the right-of-use assets also includes an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located, discounted to their present value, less any lease incentives received. The right-of-use asset is subsequently stated at cost less accumulated depreciation and impairment losses (see 2(g) and 2(i)).

The lease liability is remeasured when there is a change in future lease payments arising from a change in an index or rate, or there is a change in the Group's estimate of the amount expected to be payable under a residual value guarantee, or there is a change arising from the reassessment of whether the Group will be reasonably certain to exercise a purchase, extension or termination option. When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the right-of-use asset, or is recorded in profit or loss if the carrying amount of the right-of-use asset has been reduced to zero.

The Group presents right-of-use assets that do not meet the definition of investment property in 'property and equipment' and presents lease liabilities separately in the consolidated statement of financial position.

(r) Borrowing costs
Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets until such time as the assets are substantially ready for their intended use or sale. Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalisation. All other borrowing costs are recognised in profit or loss in the period in which they are incurred.
(s) Employee benefits
Short-term employee benefits are recognised at the undiscounted amount of the benefits expected to be paid as and when employees rendered the services. All short-term employee benefits are recognised as an expense unless another HKFRS requires or permits the inclusion of the benefit in the cost of an asset.
A liability is recognised for benefits accruing to employees (such as wages and salaries) after deducting any amount already paid.
Retirement benefit costs
Payments to the Mandatory Provident Fund Scheme ("MPF Scheme") as defined contribution benefit plans are recognised as an expense when employees have rendered service entitling them to the contributions.
(t) Related parties
(a) A person, or a close member of that person's family, is related to the Group if that person:
- (i) has control or joint control over the Group;
- (ii) has significant influence over the Group; or
- (iii) is a member of the key management personnel of the Group or the Group's parent.

(t) Related parties (Continued)

(b) An entity is related to the Group if any of the following conditions applies:

(i) The entity and the Group are members of the same group (which means that each parent, subsidiary and fellow subsidiary is related to the others).
(ii) One entity is an associate or joint venture of the other entity (or an associate or joint venture of a member of a Group of which the other entity is a member).
(iii) Both entities are joint ventures of the same third party.
(iv) One entity is a joint venture of a third entity and the other entity is an associate of the third entity.
(v) The entity is a post-employment benefit plan for the benefit of employees of either the Group or an entity related to the Group.
(vi) The entity is controlled or jointly controlled by a person identified in (a).
(vii) A person identified in (a)(i) has significant influence over the entity or is a member of the key management personnel of the entity (or of a parent of the entity).
(viii) The entity, or any member of a group of which it is a part, provides key management personnel services to the Group or to the Group's parent.

Close members of the family of a person are those family members who may be expected to influence, or be influenced by, that person in their dealings with the entity.

(u) Segment reporting

Operating segments, and the amounts of each segment item reported in the financial statements, are identified from the financial information provided regularly to the Group's most senior executive management for the purposes of allocating resources to, and assessing the performance of, the Group's various lines of business and geographical locations.

Individually material operating segments are not aggregated for financial reporting purposes unless the segments have similar economic characteristics and are similar in respect of the nature of products and services, the nature of production processes, the type or class of customers, the methods used to distribute the products or provide the services, and the nature of the regulatory environment. Operating segments which are not individually material may be aggregated if they share a majority of these criteria.

2. SIGNIFICANT ACCOUNTING POLICIES (Continued)
(v) Fiduciary activities
The Group commonly acts as trustees and in other fiduciary capacities that result in the holding or placing of assets on behalf of its customers. These client securities arising thereon are excluded from the consolidated financial statements, as they are not assets of the Group.
The Group maintains segregated accounts with authorised institutions to hold clients' monies arising from its normal course of the regulated business activities. The Group has classified the "bank balances - trust and segregated accounts" within the current assets in the consolidated statement of financial position and recognised the corresponding account payables to respective clients and other institutions on the grounds that it is liable for any loss or misappropriation of clients' monies.
The Group is not allowed to use the clients' monies to settle its own obligations. The cash held on behalf of customers is restricted and governed by the Securities and Futures (Client Money) Rules under the Securities and Futures Ordinance.
3. APPLICATION OF NEW AND AMENDMENTS TO HKFRSs
The HKICPA has issued following amendments to HKFRSs that are first effective for the current accounting period of the Group:
- • Amendments to HKFRS 3, Definition of a Business
- • Amendment to HKFRS 16, Covid-19-Related Rent Concessions
Neither of these amendments to HKFRSs have had a material effect on how the Group's results and financial position for the current or prior periods have been prepared or presented. The Group has not applied any new standard or interpretation that is not yet effective for the current accounting period. Impacts of the adoption of the amended HKFRSs are discussed below:
Amendments to HKFRS 3, Definition of a Business
The amendments clarify the definition of a business and provide further guidance on how to determine whether a transaction represents a business combination. In addition, the amendments introduce an optional "concentration test" that permits a simplified assessment of whether an acquired set of activities and assets is an asset rather than business acquisition, when substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets.
Amendment to HKFRS 16, Covid-19-Related Rent Concessions
The amendment provides a practical expedient that allows a lessee to by-pass the need to evaluate whether certain qualifying rent concessions occurring as a direct consequence of the COVID-19 pandemic ("COVID-19-related rent concessions") are lease modifications and, instead, account for those rent concessions as if they were not lease modifications.

4. CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY

In the application of the Group's accounting policies, which are described in note 2, the directors of the Company are required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods.

Critical judgements in applying accounting policies

The following are the critical judgements, apart from those involving estimations (see below), that the directors of the Company have made in the process of applying the Group's accounting policies and that have the most significant effect on the amounts recognised in the consolidated financial statements.

Measurement of ECL

A number of significant judgements are required in applying the accounting requirements for measuring ECL, such as:

- Determining criteria for significant increase in credit risk;
- Selecting appropriate models and assumptions for the measurement of ECL;
- Establishing the relative probability weightings of forward-looking scenarios.

4. CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY (Continued)

Critical judgements in applying accounting policies (Continued)

Measurement of ECL (Continued)

Significant increase in credit risk

ECL of different financial assets is measured by the Group on either a 12-month or lifetime basis depending on whether they are in Stage 1, 2 or 3 as defined in note 39. A financial asset moves to Stage 2 when its credit risk has increased significantly since initial recognition, and it comes to Stage 3 when it is credit-impaired (but it is not purchased original credit impaired). In assessing whether the credit risk of a financial asset has significantly increased, the Group takes into account qualitative and quantitative reasonable and supportable forward looking information with significant judgements involved.

Models and assumptions used

The Group uses various models and assumptions in estimating ECL. Judgement is applied in identifying the appropriate model for each type of financial assets, as well as the assumptions used in these models. Please refer to note 39 for more details on ECL.

Key sources of estimation uncertainty

The following are key assumptions concerning the future, and other key sources of estimation uncertainty at the end of each reporting period, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial period.

Fair value measurement of financial instruments

Financial assets at FVTPL and financial liabilities at FVTPL amounting to HK$89,289,683 and HK$2,608,596 respectively as at 31

December 2020 (2019: HK$310,414,419 and HK$8,460,016 respectively) are measured at fair values with fair values being determined based on significant unobservable inputs using valuation techniques. Judgement and estimation are required in establishing the relevant valuation techniques and the relevant inputs thereof. Changes in assumptions relating to these factors could affect the reported fair values of these instruments. See note 39 for further disclosures.

Measurement of ECL

Impairment assessment under ECL for accounts receivable (except for secured margin loans)

The Group uses a provision matrix to calculate ECL for the accounts receivable (except for secured margin loans) that result from transactions within the scope of HKFRS 15. The provision rates are based on debtor's aging as groupings of various debtors that have similar loss patterns. The provision matrix is based on the Group's historical default rates taking into consideration forward-looking information that is reasonable and supportable and available without undue costs and effort. At every reporting date, the historical observed default rates are reassessed and changes in the forward-looking information is considered. In addition, accounts receivable with significant balances and credit impaired are assessed for ECL individually.

The provision of ECL is sensitive to changes in estimates. The information about the ECL is disclosed in note 39.

4. CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY (Continued)

Key sources of estimation uncertainty (Continued)

Measurement of ECL (Continued)

Impairment assessment under ECL for financial assets at amortised cost other than accounts receivable (including secured margin loans, loans receivable, reverse repurchase agreements, deposits, other receivables and bank balances)

The impairment assessment under ECL for financial assets at amortised cost (including secured margin loans, loans receivable, reverse repurchase agreements, deposits, other receivables and bank balances) is an area that requires the use of models and assumptions about future economic conditions and the credit risk of the respective financial instrument.

(i) Inputs, assumptions and estimation techniques
ECL is the discounted product of expected future cash flows by using the Probability of Default ("PD"), Loss Given Default ("LGD") and Exposure at Default ("EAD"), of which PD and LGD are estimates based on significant management judgement.
For credit-impaired financial assets, the management perform individual assessment for each client by considering various factors, including the realisable value of securities or collaterals from clients and their guarantors which are held by the Group and likelihood of subsequent settlement and additional collaterals received.
(ii) Forward-looking information
In measuring ECL in accordance with HKFRS 9, it should consider forward-looking information. The calculation of ECL incorporates forward-looking information through the use of publicly available economic data and forecasts based on assumptions and management judgement to reflect the qualitative factors and through the use of multiple probability weighted scenarios.

Details of the impairment assessment of financial assets at amortised cost is disclosed in note 39.

Income taxes

Deferred tax asset of HK$124,000,338 (2019: HK$82,410,899) has been recognised in the consolidated statement of financial position in relation to the estimated tax losses of approximately HK$747 million as at 31 December 2020 (2019: HK$575 million) for subsidiaries that are expected to have taxable profits in the future. No deferred tax asset was recognised for the deductible temporary differences of approximately HK$213 million arising from the unrealised loss of financial assets at FVTPL and estimated unused tax losses of approximately HK$411 million (2019: HK$288 million) in respect of subsidiaries where it is not probable that sufficient profits will be generated. Details of the tax losses and the deferred tax are disclosed in note 27.

REVENUE AND OTHER INCOME

An analysis of revenue and other income is as follows:

Revenue

2020	2019
HK$	HK$
Commission and fee income from customers
Brokerage:
Commission and fee income from securities brokerage	163,516,796	137,547,325
Commission and fee income from futures and options brokerage	19,713,674	24,283,654
Commission income from insurance brokerage	1,738,678	5,966,448
184,969,148	167,797,427
Corporate finance:
Commission on placing, underwriting and sub-underwriting
- Debt securities	50,184,052	62,580,777
- Equity securities	9,315,890	53,820,935
Corporate advisory fee income	3,245,430	830,464
Sponsor fee income	8,750,000	7,800,000
Arrangement fee	57,783,463	29,743,094
129,278,835	154,775,270
Asset management:
Asset management fee income	25,527,301	31,834,962
Investment advisory fee income	3,890,735	4,241,131
29,418,036	36,076,093
343,666,019	358,648,790
Interest revenue
Loans and financing:
Interest income from margin financing	150,832,693	477,843,577
Interest income from money lending activities	-	1,354,094
150,832,693	479,197,671
Financial products and investments:
Interest income from reverse repurchase agreements	58,756,322	55,898,841
209,589,015	535,096,512

Revenue (Continued)

2019 HK$

Net investment income and gains or losses Financial products and investments:

Interest income from financial assets at fair value through profit or loss Dividend income from financial assets at fair value through profit or loss Net realised gain on financial assets at fair value through profit or loss Net unrealised loss on financial assets at fair value through profit or loss Interest income from derivatives

Net realised loss on derivatives Net unrealised gain on derivatives

Net realised gain/(loss) on financial liabilities at fair value through profit or loss Net unrealised (loss)/gain on financial liabilities at fair value through profit or loss

Total revenue

468,847,379 372,191,758

15,038,786 8,210,326

75,017,160 56,272,961

(59,186,141)

10,406,981

(66,079,277)

26,259,591

(6,365,184)

26,106,950

367,817,965

1,261,563,267

Timing of revenue recognition for commission and fee income from customers

2020 HK$

298,633,368 45,032,651

343,666,019

Performance obligations for commission and fee income from customers

(1) Brokerage

The Group provides broking and dealing services for securities, futures and options contracts. Commission income is recognised at a point in time on the execution date of the trades at a certain percentage of the transaction value of the trades executed. The Group also provide handling service for securities, futures and options customer accounts. Fee income is recognised when the transaction is executed.

The Group provides custodian services for securities, futures and options customer accounts. The customers simultaneously receives and consumes the benefit provided by the Group, hence the revenue is recognised as a performance obligation satisfied over time.

Performance obligations for commission and fee income from customers (Continued)

(1) Brokerage (Continued)
The Group also provides placement services for insurance and wealth products to customers. Commission income is recognised at a point in time when the placement is completed and is calculated at a certain percentage of the premium paid for certain period of the insurance and wealth products.
(2) Corporate finance
The Group provides placing, underwriting or sub-underwriting services to customers for their fund raising activities in equity and debt capital markets, and also structured products arrangement services. Revenue is recognised when the relevant placing, underwriting, sub-underwriting or structured products arrangement activities are completed. Accordingly, the revenue is recognised at a point in time.
The Group also provides sponsoring services to clients for their fund raising activities and corporate advisory services to corporate clients for their corporate actions. The Group considers that all the services promised in a particular contract of being a sponsor or corporate advisor are interdependent and interrelated and should be therefore accounted for as a single performance obligation. As there is enforceable right to payment for the Group for the performance of services completed up to date based on the contracts with customers regarding sponsor or corporate advisory services, the revenue is recognised over time.
(3) Asset management
The Group provides asset management and investment advisory services on diversified and comprehensive investment products to customers. The customers simultaneously receive and consume the benefit provided by the Group, hence the revenue is recognised as a performance obligation satisfied over time. Asset management fee income is charged at a fixed percentage per month of the net asset value of the managed accounts under management of the Group. Investment advisory fee income is charged at a fixed amount per month for managing the investment portfolio of each client.
The Group is also entitled to a performance fee when there is a positive performance for the relevant performance period and it is recognised at the end of the relevant performance period, when it is highly probable that a significant reversal in the amount of cumulative revenue recognised will not occur when the uncertainty associated with the variable consideration is resolved.

Transaction price allocated to the remaining performance obligation for contracts with customers

The following table shows the aggregate amount of transaction price allocated to performance obligations that are unsatisfied (or partly unsatisfied) as at 31 December 2020 and 2019 and the expected timing of recognising revenue are as follows:

2020

HK$

10,000,000

5. REVENUE AND OTHER INCOME (Continued)
Performance obligations for commission and fee income from customers (Continued)
Transaction price allocated to the remaining performance obligation for contracts with customers (Continued)
This amount represents revenue expected to be recognised in the future from the contracts for sponsoring services. The Group will recognise the expected revenue in future when or as the work is completed, which is expected to occur over the next 12 months.
Other Income
2020 HK$
99,784,500 10,880,467
110,664,967
6. SEGMENT REPORTING
Information reported to the Board of Directors of the Company, being the chief operating decision maker ("CODM"), for the purposes of resource allocation and assessment of segment performance focuses on types of services provided. The CODM considers the Group's operations are located in Hong Kong.
The Group's reportable and operating segments under HKFRS 8 are as follows:
Brokerage - provision of securities, futures and options and insurance brokerage services;
Loans and financing - provision of margin financing and secured or unsecured loans to customers;
Corporate finance - provision of corporate advisory, sponsor, placing and underwriting services of debt and equity securities and structured products arrangement services;
Asset management - provision of fund management, discretionary account management and investment advisory services;
Financial products and investments - proprietary trading and investment of funds, debt and equity securities, fixed income, derivatives and other financial products.
The accounting policies of the operating segments are the same as the Group's accounting policies. Inter-segment revenues are charged among segments at an agreed rate with reference to the rate normally charged to third party customers, the nature of services or the costs incurred.

SEGMENT REPORTING (Continued)

For the year ended 31 December 2020

Unallocated expenses (26,421,814)

Segment revenue and result Revenue from external customers

Net gains on financial products and investments Inter-segment revenue

Segment revenue and net gains on financial products and investments

Revenue presented in the consolidated statement of profit or loss and other comprehensive incomeSegment resultsLoss before taxation presented in the consolidated statement of profit or loss

and other comprehensive income

Other segmental information included in the measure of segment results

(Reversal)/changes of impairment losses on financial assets

Depreciation

Unallocated:

Amortisation

Unallocated:Interest incomeUnallocated:Interest expensesUnallocated:Dividend income

167,797,427 - 2,322,166

Segment revenue and result Revenue from external customers

Net gains on financial products and investments Inter-segment revenue

Segment revenue and net gains on financial products and investments

Revenue presented in the consolidated statement of profit or loss and other comprehensive income

479,197,671 - -

154,775,270 - -

36,076,093 - 33,468,628

55,898,841 367,817,965 -

- 893,745,302
- 367,817,965

(35,790,794)

170,119,593

479,197,671

154,775,270

69,544,721

423,716,806

(35,790,794)

1,261,563,267

Segment results

83,443,930

(776,274,497)

60,512,183

34,530,612

64,203,622

- (533,584,150)Unallocated expenses (4,039,347)Loss before taxation presented in the consolidated statement of profit or loss
and other comprehensive income
Other segmental information included in the measure of segment results
Impairment losses on financial assets
Depreciation
(537,623,497)
-
874,301,268
- -
- -
- -
- 874,301,268

Unallocated:

30,723

30,723 44,327,469 44,358,192

Amortisation

1,493,474

Unallocated:Interest income

356,848

1,850,322

67,813,584

479,203,008

601,484

9,428

460,776,508

1,008,404,012

Unallocated:Interest expenses

25,948,158

1,034,352,170

3,005,764

277,915,931

298,148,766

579,070,461

Unallocated:Dividend income

(9,118,270)

569,952,191

8,210,326

6. SEGMENT REPORTING (Continued)
Geographical information
For the years ended 31 December 2020 and 2019, the Group's revenue from external customers are all derived from activities in Hong Kong based on the location of services delivered and the Group's non-current assets excluding financial instruments are all located in Hong Kong by physical location of assets. As a result, no geographical segment information is presented for both years.
Information about major customers
The largest customer and largest 5 customers contribute approximately 3.5% and 11.1% respectively (2019: 2.1% and 7.3%
respectively) to the Group's revenue from external customers during the year ended 31 December 2020.
7. FINANCE COSTS
2020 HK$
254,872,121
73,996,070
17,241,648
71,171,455
454,318
311,372
380,107
188,688
2,534,633
66,382,380
487,532,792
8. COMMISSION AND FEE EXPENSES

2020

HK$

24,625,378

17,190,806

49,105,276

90,921,460

Note: Amount includes the sub-management fees, custodian fees, scrip fee, clearing fee and other handling fee.

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China Industrial Securities International Financial Group Ltd. published this content on 26 March 2021 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 26 March 2021 08:34:06 UTC.

Market Closed - Hong Kong S.E. Other stock markets 04:08:22 2024-05-10 EDT			5-day change	1st Jan Change
0.208 ^HKD	0.00%		-0.95%	+2.46%

05-10	CISI Financial Unit Invests $6 Million in Ping An Bonds	MT
04-17	China Industrial Securities Sells Bonds Issued by Eversource, Electricite De France	MT

CISI Financial Unit Invests $6 Million in Ping An Bonds	05-10	MT
China Industrial Securities Sells Bonds Issued by Eversource, Electricite De France	04-17	MT
CISI Financial Group Unit Buys $8 Billion in 2054 Debts from Nippon Life Insurance	04-11	MT
China Industrial Securities Returns to Profit in 2023 as Revenue Surges 111%	03-25	MT
China Industrial Securities International Financial Group Limited Reports Earnings Results for the Full Year Ended December 31, 2023	03-25	CI
CISI Financial Unit Invests $5 Million in Floating-Rate Bonds	03-22	MT
China Industrial Securities International Financial's Unit Acquires $7 Million Bonds	03-15	MT
CISI Financial Group Unit Invests $5 Million in Goldman Sachs Bonds	03-14	MT
CISI Financial Group Disposes $7 Million Bank of China Preference Shares	03-13	MT
CISI Financial Unit Buys $7.5 Million Perpetual Bonds; Shares Fall 5%	03-07	MT
China Industrial Securities International Financial Group Chairman Resigns, Successor Named	03-04	MT
China Industrial Securities International Financial Group Limited Announces Executive Changes	03-04	CI
CISI Financial Unit Buys $7 Million Bonds	03-04	MT
CISI Financial Forecasts Return to 2023 Profit	02-26	MT
CISI Finance Unit Buys $6.6 Million of Perpetual Securities	02-21	MT
China Industrial Securities Arm Buys Bonds Worth $7 Million	02-08	MT
China Industrial Securities Publishes Circular for $300 Million Bond Sale	02-05	MT
CISI Financial Unit Buys $5.6 Million of Debts	01-30	MT
CISI Financial Group Plans $300 Million Bond Issuance	01-28	MT
China Industrial Securities International to Issue Dollar Bonds	01-25	MT
CISI Financial Divests $10 Million of Bond Holdings	01-25	MT
CISI Financial Unit Buys $10 Million of Five-Year Debts	01-24	MT
China Industrial Securities International Buys CNOOC Bonds	01-19	MT
China Industrial Securities International Financial Appoints CEO; Merges Chief Compliance, Chief Risk Posts	01-18	MT
China Industrial Securities International Financial Group Limited Announces CEO Changes	01-18	CI

	1st Jan change	Capi.
CHINA INDUSTRIAL SECURITIES INTERNATIONAL FINANCIAL GROUP LIMITED	+2.46%	106M
MORGAN STANLEY	+5.39%	160B
THE GOLDMAN SACHS GROUP, INC.	+17.88%	155B
CHARLES SCHWAB	+10.62%	139B
CITIGROUP INC.	+23.50%	121B
CITIC SECURITIES COMPANY LIMITED	-6.43%	36.56B
RAYMOND JAMES FINANCIAL, INC.	+12.74%	26.05B
CSC FINANCIAL CO., LTD.	-5.07%	21.51B
LPL FINANCIAL HOLDINGS INC.	+18.02%	20.07B
NOMURA HOLDINGS, INC.	+39.14%	16.96B

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