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REGULATION

SFC aims to shield Hong Kong's retail investors

Regulator plans to work with international bodies to find more ways to protect the public from miss-selling of financial products

PUBLISHED : Wednesday, 28 November, 2012, 12:00am
UPDATED : Wednesday, 28 November, 2012, 4:25am

The Securities and Futures Commission will issue more proposals next year to prevent the misrepresentation of financial products to retail investors as part of its work with international financial regulators, according to SFC chief executive Ashley Alder.

Alder said finding ways to avoid so-called miss-selling of financial products to retail investors would be one of the major challenges facing global financial regulators next year.

"Hong Kong has already done a lot to prevent miss-selling in the past few years but we have to do more in the following years to work with the international efforts," he said on the sidelines of a regulatory conference yesterday in Hong Kong.

Alder said the commission had been actively working within the International Organisation of Securities Commissions (IOSCO), which is in the process of working out proposals to prevent such sales.

The major focus would be twofold, he said. First, it would look into the creators of the financial products aimed at individual investors. Second, the regulators would look into the distribution channels to determine how to control the behaviour of sales people who might push unsuitable products.

The IOSCO should be able to issue some proposals next year, which Hong Kong would consider, Alder said. The SFC as well as the banking regulator, the Hong Kong Monetary Authority, has over the past two years already introduced a range of measures to prevent such activity, including implementing cooling-off periods and requiring more disclosure.

These came after the so-called Lehman minibond fiasco. More than 20,000 investors complained to either the SFC or the HKMA that they were misled by the banks or brokers' staff to buy risky minibond products issued or guaranteed by US lender Lehman Brothers. When the Wall Street bank collapsed in September 2008, the products became nearly worthless.

After the Lehman fiasco, some fund managers complained the SFC had lengthened the approval process for new funds, with some needing almost eight months to get a green light. That has put Hong Kong behind Singapore, where approval of similar products is much faster.

"The SFC does not care what other jurisdictions are doing," Alder said, adding the SFC focus is more on investor protection.

He also said that the SFC had not been too slow in making any approval. He said fund companies that had all the documentation ready could get swift approval.

But he said the SFC would need more time to review any fund or investment products that had complicated features.

Some fund managers say mainland firms can get quicker approvals than Western ones. But Alder rejected such claims, saying the SFC treats all fund companies equally "no matter whether they are from the mainland or not".

Alder also said a final proposal to tighten regulations on sponsors of stock market listings would be released next month. The SFC consulted the market in May about tighter rules on sponsors, such as adding criminal liability if they failed to check the accuracy of a listing prospectus.

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