Hong Kong SFC Eases On-Line Account Opening Procedure

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

01 July 2002

Following complaints from brokers that the 'know your customer' requirement for a face-to-face meeting before opening an account was hindering the development of on-line trading, the Hong Kong Securities and Futures Commission (SFC) has amended its code of conduct with immediate effect to allow investors to open online trading accounts without a face-to-face meeting.

In a press release, the SFC said on Friday that it was introducing an additional alternative client identification procedure designed to help registered persons verify the identity of new clients who wish to open accounts in non-face-to-face situations.

The new procedure takes immediate effect and is provided for in an amendment to the Code of Conduct for Persons Registered with the Securities and Futures Commission. The Code already provides various options of client identification procedures for account opening in non-face-to-face situations. This new procedure does not replace the existing procedures, but provides a further alternative to these existing procedures.

Registered persons can now choose to use this new procedure to verify the identity of new clients by:

• obtaining from a new client a copy of his identity document, a copy of the signed client agreement, and a cheque (with an amount not less than $10,000 and bearing the client's name as shown in his identity document) issued by the client and drawn on the client's account with a licensed bank in Hong Kong; and
• ensuring that the signature on the cheque issued by the client and the signature on the client agreement are the same; and
• encashing the cheque.

The registered person is also required to inform the client that the account will not be activated until the cheque is cleared and to keep proper records to demonstrate that the client identification procedure above has been followed satisfactorily.

The new procedure can be applied to client accounts opened online or by post for dealing in securities, futures and options, or unit trusts and mutual funds.

Alexa Lam, the SFC's Executive Director of Intermediaries and Investment Products, said: "The amendment shows the SFC's continuous commitment towards facilitating market development and deregulation. The new procedure is designed to be practical while providing comprehensive verification steps that will greatly facilitate online trading business."

Copies of the amendment are available at the SFC office and on the Commission's website at www.hksfc.org.hk, under the section of "Bills, Legislation and Codes - Regulatory Handbook".

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