The Securities and Futures Commission (SFC) today released the observations and findings from its review of licensed firms providing online brokerage, distribution and advisory services. It also reminded firms of the regulatory standards applicable to them when providing these services.
The review revealed that licensed firms provided the following online services to clients (Note 1):
- New accounts were predominantly opened online using non-face-to-face approaches.
- The most commonly offered products were exchange-traded products such as equities, exchange-traded funds, and futures and options contracts. Increasingly, online brokers also offered collective investment schemes (including money market funds for cash management purposes) as well as robo-advisory services.
- Apart from Hong Kong, the US and the Mainland were the major equities markets which clients of the surveyed firms accessed through online platforms. The major futures and options markets were those in the US and Hong Kong. (Notes 2 and 3)
- Some firms invested heavily in their online platforms to enable technical analysis of stocks and to facilitate investors’ market research in a self-directed environment. This was coupled with the use of popular social media platforms for marketing and communication purposes. Platforms which achieved economies of scale charged lower commission fees.
“Advances in technology and the popularity of online platforms have transformed the way investors behave,” said Ms Julia Leung, the SFC’s Deputy Chief Executive Officer and Executive Director of Intermediaries. “It is vital for licensed firms to allocate sufficient resources to ensure compliance with the SFC’s requirements when carrying out their business activities in a digital environment.”
To facilitate the industry’s efforts to adopt more innovative technology in serving investors in a secure and compliant manner, the SFC has issued various circulars and guidelines to provide guidance on how its principles-based, technology-neutral rules could be applied in a digital environment. These cover non-face-to-face account opening, online distribution and advisory platforms and cybersecurity (Note 4).
Notes:
- The review was conducted in various ways including via a fact-finding survey, desktop analysis and inspections.
- Of the licensed firms surveyed, 49 (or 98%) supported the online trading of equities or exchange-traded funds, of which 13 also provided services for online trading of futures and options contracts.
- The major equities markets in which the surveyed licensed firms participated included Hong Kong, the US and the Mainland, which respectively represented about 53%, 39% and 7% of total turnover. The major futures and options markets were the US and Hong Kong, accounting for 74% and 24% of the total number of contracts executed, respectively.
- Refer to:
(a) the relevant requirements stated in the acceptable account opening approaches published on the SFC website and the Circular to intermediaries regarding remote onboarding of overseas individual clients issued on 28 June 2019;
(b) the Guidelines on Online Distribution and Advisory Platforms issued on 28 March 2018 and related Frequently Asked Questions; and
(c) the relevant requirements regarding cybersecurity, in particular the Guidelines for Reducing and Mitigating Hacking Risks Associated with Internet Trading issued on 27 October 2017.
