Hong Kong’s SFC gives firms more time to comply with new rules for complex products

Maria Nikolova

The SFC has considered industry feedback and agreed to extend the effective date for the new rules by three months to July 6, 2019.

Hong Kong’s Securities and Futures Commission (SFC) is granting more time to industry to comply with new requirements for the sale of complex products.

In a Circular published earlier today, the regulator reminds the licensees that in March 2018, theSFC) issued new Guidelines on Online Distribution and Advisory Platforms. Amongst other requirements, Chapter 6 of the Guidelines provides for additional protective measures for the sale of complex products in an online environment. Further, in October 2018, the SFC announced that under a new paragraph 5.5 of the Code of Conduct, the additional protective measures will also apply to the sale of complex products in an offline environment.

Both the Guidelines and paragraph 5.5 of the Code of Conduct were initially due to become effective on April 6, 2019. However, the SFC considered feedback from the industry and agreed to extend the effective date by three months to July 6, 2019.

From the effective date, additional protection will be provided to investors when they purchase a complex product without a solicitation or recommendation. If an intermediary solicits the sale of or recommends a financial product to a client, it should comply with paragraph 5.2 of the Code of Conduct and ensure that the product is suitable for the client regardless of whether it is complex or non-complex.

The additional protective measures will apply, for instance, when the sale of a complex product is concluded with a client face-to-face, over the telephone or via other forms of interactive communication. The suitability of complex products will need to be ensured and clients will need to be provided with product information and warning statements. These are the same protective measures which will be introduced for the distribution of complex products on online platforms.

“We have aligned the requirements for intermediaries to conduct suitability assessments of clients in the sale of complex products so that they are the same both online and offline,” said Ms Julia Leung, the SFC’s Deputy Chief Executive Officer and Executive Director of Intermediaries. “This levels the playing field, provides better protection for customers and prevents regulatory arbitrage.”

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