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Hong Kong Consults On Investor Regime Enhancements

Monday, May 20, 2013

The Securities and Futures Commission (SFC) has begun a three-month consultation on proposals concerning the professional investor regime in Hong Kong and the client agreement requirements in its Code of Conduct.

The key proposals would require intermediaries to comply with all Code of Conduct requirements, including the Suitability Requirement that should ensure the suitability of a recommendation or solicitation for a client is reasonable in all circumstances, when dealing with all investors who are individuals, including their wholly owned investment vehicles and family trusts.

The proposals would also streamline the criteria under the Code of Conduct in assessing the knowledge and experience of corporate professional investors by removing specific tests (for example, the 40 transactions per annum requirement); and require that the Suitability Requirement be incorporated in all client agreements as a contractual term, that client agreements should not contain provisions which are inconsistent with the Code of Conduct, and that client agreements should accurately set out in clear terms the actual services to be provided to the client.

However, no changes are proposed to the laws concerning access to private placements of investments by those who fulfill existing wealth criteria.

"Our consultation aims to identify those investors who, we believe, require full protection under our Code of Conduct, and those who don't," said the SFC's Chief Executive Officer Ashley Alder. "The Suitability Requirement is a cornerstone of investor protection which is why we believe that no individuals, regardless of wealth, should be classified as Professional Investors under the Code, depriving them of this vital safeguard."

He added that "the proposals also seek to align the contents of client agreements used by intermediaries with the services actually agreed to be provided to customers. This is intended to keep intermediaries 'honest', as is our proposal to embed the Suitability Requirement in the client agreement."