HK SFC Proposes To Enhance Investment Regulations

by Mary Swire, Tax-News.com, Hong Kong

29 September 2009

The Securities & Futures Commission is seeking views on proposals to enhance existing regulations governing the sale of unlisted securities and futures products, and thereby improve Hong Kong’s existing investor protection regime.

The Commission said the proposals cover each stage of the investment life-cycle and are designed to enhance the current regulatory regime for the sale of investments to the public.

Key suggestions include:

• criteria for authorising offer documents, including advertisements, should be consolidated into a single Securities & Futures Commission handbook;
• a key facts statement in the form of a concise and easily comprehensible summary should accompany each offer document for retail investment products;
• intermediaries should disclose their own commercial interest (for example, commissions, fees and other benefits) to prospective investors; on an ongoing basis, intermediaries would be required to disclose material information related to long-term investments until their maturity; and
• intermediaries would be required to specifically gauge their clients' knowledge of derivative products. This would be regarded as a prerequisite to selling unlisted structured products with such elements embedded.

For longer-term products with a limited secondary market, a cooling-off period should be given within which an investor can change their mind, the Commission suggested. This should allow a refund of capital and related commission, but be subject to a reasonable administrative charge and any legitimate market value adjustment.

The Commission also said the definition of professional investor is being reviewed not just in terms of the asset test but also in terms of product knowledge and investment experience.

In a separate move, the Deposit Protection Board has recommended raising the protection limit for bank deposits from HKD100,000 (USD13,000) to HKD500,000.

In its annual report, the board said it completed the second phase of the Deposit Protection Scheme review in July. Measures to further enhance its effectiveness were so identified, such as by raising the protection limit. The board said that it intends to introduce the enhancements by the end of 2010, so the public will benefit from an enhanced scheme when the blanket deposit guarantee introduced by the government expires.

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