Hong Kong SFC Licensing and Compliance Guidance – September 2022
What are the conduct and due diligence requirements with regard to the marketing of public CFOs?
Following the growing interest of fund managers in registering their funds as public public fund companies (OFC) under the Securities and Futures Ordinance, a number of these managers are also interested in marketing these OFCs to retail investors in Hong Kong.
If these managers have not marketed public funds directly to Hong Kong retail investors in the past, they will need to establish and maintain new investment acceptance procedures and forms (Procedures) to ensure that they comply with a wide range of investor protections and in particular the adequacy obligations under paragraph 5.2 of the Code of Conduct for Persons Approved or Registered with the Securities and Futures Commission (Code of conduct). Most of these investor protection requirements are mentioned in paragraphs 15.4 and 15.5 of the Code of Conduct.
Fund managers should also be familiar with the specific requirements set out in the dedicated SFC webpage titled “Suitability Requirement” (link).
Separately, the procedures must also cover onboarding customer due diligence requirements under the Anti-Money Laundering and Terrorist Financing Ordinance and Anti-Money Laundering Directive and terrorist financing (for approved companies).
As we approach the last quarter of 2022, recall that the SFC grant program funded by the Hong Kong government will continue to provide grants to cover up to 70% of eligible expenses (subject to a cap of 1 million HK dollars per OFC) as part of the constitution or redomiciliation of CFOs until May 2024.
SFC Review of Online Brokerage, Distribution and Advisory Services
Approved firms undertaking online brokerage, distribution and advisory services should pay particular attention to the SFC Circular to Approved Firms – Review of Online Brokerage, Distribution and Advisory Services published on 31 August 2022 (link). The circular highlights various shortcomings that have been brought to the attention of the SFC, of which the following are some examples:
- Non-face-to-face customer integration
- deficiencies in customer verification procedures
- Commerce, distribution and online marketing
- adequacy obligation disclaimers
- insufficient product due diligence
- inadequate customer risk profiling
- cyber security
- inability to implement adequate mechanisms to mitigate cybersecurity risks
- Resource planning and complaint handling
The circular includes a useful appendix which is a report of the review (link).
The report sets out the regulatory standards expected of the SFC. In light of this circular and the growing interest of retail investors in using online platforms to invest, this is a timely reminder to platform providers to review and assess the suitability of their systems. , controls and procedures to ensure they comply with all applicable regulations. rules and regulations.