The Securities and Futures Commission (SFC) has today begun a three-month consultation on proposals concerning the professional investor regime and the client agreement requirements in the Code of Conduct (Note 1).
The key proposals are as follows:
- requiring intermediaries to comply with allCode of Conduct requirements (including the Suitability Requirement (Note 2)) when dealing with all investors who are individuals, including their wholly owned investment vehicles and family trusts;
- streamlining the criteria under the Code of Conduct in assessing the knowledge and experience of corporate professional investors by removing specific tests (eg, the 40 transactions per annum requirement); and
- requiring (i) that the Suitability Requirement be incorporated in all client agreements as a contractual term, (ii) that client agreements should not contain provisions which are inconsistent with the Code of Conduct, and (iii) that client agreements should accurately set out in clear terms the actual services to be provided to the client.
We are not proposing any change to the laws concerning access to private placements of investments by those who fulfil 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. 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," said the SFC's Chief Executive Officer, Mr Ashley Alder.
"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," he added.
The public is invited to submit their comments to the SFC on or before 14 August 2013. Written comments may be sent on line via the SFC website (www.sfc.hk), by email topi_client_agreement@sfc.hk, by post or by fax to 2284 4660.
Notes:
- The Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission
- The Suitability Requirement refers to the requirement to ensure the suitability of a recommendation or solicitation for a client is reasonable in all circumstances.
