Hong Kong To Implement New Professional Investor Rules

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

28 February 2011

After the conclusion of a consultation which it launched in October last year, Hong Kong's Securities and Futures Commission (SFC) has announced that it will proceed with proposals to refine the requirements for evidencing whether a person qualifies as a high-net-worth professional investor.

The purpose of the proposals is to create more flexibility by adopting a principles-based approach whereby firms may use methods that are appropriate in the circumstances to satisfy themselves that an investor meets the relevant assets or portfolio threshold to qualify as a professional investor under the Securities and Futures (Professional Investor) Rules.

The SFC takes the view that it would not be desirable to seek to prescribe all the possible ways that an investor could demonstrate that they have the relevant assets so as to qualify as a professional investor under the Professional Investor Rules (PIR). The SFC will rely on the firms’ professional judgement to decide the methods by which they can satisfy themselves that their clients have the required assets or portfolio levels at the relevant date.

The SFC therefore expects firms to keep proper records of their assessment process so as to demonstrate that they have exercised professional judgement and have reached a reasonable conclusion that their clients meet the relevant thresholds, for example, keeping copies of the documents they have relied on to assess clients’ means.

In addition, however, to enable firms that so wish to continue with existing practices, the current methods for proving that investors qualify as professional investors will be preserved.

Under the previous PIR, there are four types of high-net-worth professional investors - a trust corporation with total assets of not less than HKD40m (USD5.1m), or its equivalent; an individual with a portfolio of not less than HKD8m; a corporation or partnership with either a portfolio of not less than HKD8m or total assets of not less than HKD40m; or a corporation the sole business of which is to hold investments and which is wholly owned by an individual who has a portfolio of not less than HKD8m.

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