SFC plans new look at protections for investors
The Securities and Futures Commission (SFC) plans to review the so-called professional investor regulatory regime to improve protection for more casual investors and to bring Hong Kong in line with international practice.
SFC chief executive Ashley Alder said the commission would issue a consultation paper this year to re-examine local regulations that ensure only professionals are allowed to partake in the riskiest investments. The current regulations are intended to safeguard retail investors who presumably lack the knowledge to trade some complex products.
'We, however, have to review whether the current regime has achieved the purpose we want,' Alder said, adding that other jurisdictions were conducting similar reviews and Hong Kong should, too.
'In Britain and Europe, the regulators are looking into the issue of whether they should continue to ban retail investors from buying some products which have risks that are hard to assess,' Alder said.
The professional investors' issue has been under the spotlight in recent years after hundreds of clients complained to lawmakers, saying banks or brokers had mistakenly treated them as professional investors and sold them products that were too risky.
Under existing Hong Kong law, some investment products can only be sold to professional investors who have portfolios of at least HK$8 million and possess a level of investment experience deemed necessary to handle such trades.
Banks and brokers must conduct annual reviews to determine if their clients' portfolios meet the criteria and require clients to sign documents acknowledging that they are willing to be treated as professional investors.
The SFC reviewed the professional investors regulation two years ago, but decided to keep the definition unchanged.
Alder noted that even if regulations were tightened, some investors who were wealthy and experienced could still be trapped by the most complex products.
Banks and brokers have complained that the requirements for checking customer's qualifications is burdensome. Alder said there was no one-size-fits-all solution, and would canvass the markets' views during the consultation this year.
Phillip Capital Management director Louis Wong Wai-kit supported the SFC's review, but said he hoped that it would not raise the threshold too high.
'It is a fact that someone having HK$8 million may not necessarily mean they have the experience and knowledge required to trade some products,' Wong said. 'However, if the SFC increases the threshold of professional investors too high, it would hit brokerages like us hard because some of our [experienced] clients may not be able to buy some products.'
Said Wong: 'We want the SFC to listen to the brokerages' views before making any rule change.'
