SFC reforms aim to boost safeguards for investors
Responding to concerns over the marketing of complex products, SFC proposes tests to check that professional traders understand risks
The Securities and Futures Commission has released a long-awaited reform plan to tighten regulations on how financial firms sell complex risky investment products to so-called professional investors.
Under the proposals released yesterday for a three-month consultation, banks and brokers would be required to carry out suitability tests to assess if certain complex products are too risky for these clients.
At present, such tests, which include a range of questions, apply only to ordinary retail investors. Excluded are professional investors deemed to be experienced traders with portfolios of more than HK$8 million.
Some complex products such as some high-yield bonds or equity-linked notes can be sold only to professional investors.
SFC chief executive Ashley Alder said the proposed regulation was intended to keep intermediaries "honest", as the commission would require banks and brokers to add a clause in client agreements declaring that the offered complex investment products are suitable for professional investors.
"This would make it easier for investors to sue financial firms for compensation if the clients considered the financial firms had sold the wrong products to them," said Stephen Po Wai-kwong, senior director of the SFC.