BANKS must be sure they know their customers well before offering certain foreign exchange products, or risk contravening new legislation on leveraged foreign exchange trading. The Securities and Futures Commission (SFC) and the Hong Kong Monetary Authority (HKMA) recently agreed that banks cannot indiscriminately sell foreign exchange margin trading products to their bank customers. SFC newly-appointed deputy chairman Michael Wu said: 'We are trying to devise a framework under which authorised institutions may market these products.' This framework actually means imposing limitations on banks in marketing foreign exchange products to their clients. Under the agreement, a bank can only sell these products to customers who have previously dealt with leveraged foreign exchange products provided by the bank. Exception to this rule occurs when the customers have deposits or assets in excess of $500,000 under the bank's management. Then the bank can sell margin foreign exchange products to them over the telephone. Marketing by mail will require a smaller amount of deposits by customers, down to $200,000. It was believed that the HKMA would soon issue guidelines to all banks regarding the agreement after consultation with the Hong Kong Association of Banks. Under the legislation, making unsolicited calls offering such products to customers who have not used them before is an offence. As such, banks selling the products without being asked will be breaking the law. The part on unsolicited calls is intended to create a level playing field for banks and licensed traders. 'Almost everyone has a bank account, so the whole population can be considered as bank clients,' Mr Wu said, explaining the rationale for categorising bank customers. Without specifying the definition of clients, banks can then sell these products to almost everyone in the territory. He said the law's coverage was wide enough to cover traditional banking services including currency swaps for corporate customers. Banks already providing leveraged foreign exchange business have been told to confirm in writing to the HKMA that they would abide by the new rules. Although the new legislation, implemented since September last year, applies solely to licensed foreign exchange traders, it contains two sections which cover all institutions - sections 39 and 40 on unsolicited calls and employment of fraudulent or deceptive devices. The SFC has granted licence to 18 traders, with 32 other applications being vetted. Responding to criticism that the licensing process was slow, Mr Wu said the SFC did not command a pool of corporate knowledge about the applicants. He said the SFC often had to start from scratch. 'It is an industry filled with complaints in the past and there was no regulation at all,' he said.