As part of the city's financial reform after the Lehman Brothers minibond fiasco, the Securities and Futures Commission has mandated a five-day cooling-off period for investors. After they have bought complex one-year or longer-dated investment products from brokers or banks, they can change their mind during that period and get a refund, minus an administration fee and any differences in the market price. This measure is long overdue and will offer greater protection for retail investors from predatory sellers and agents.
And, though a tad ironic, it is appropriate that under the new rules, banks and brokerages will be barred from giving clients ice cream or supermarket coupons to promote the sale of complex products. That is, perhaps, to remind customers that they are not, after all, buying 'plain vanilla' products.
The new SFC rules come on the heels of a similar cooling-off period requirement to be introduced by the Hong Kong Monetary Authority. The HKMA rule is for banks only and applies to the pre-sale of complex products to people over 65 and first-time investors. This means bank staff need to wait two days to make sure clients have not changed their minds before executing an order. Given the differences in the two sets of new rules, there is unfortunately room for confusion.
The problem stems from the separate jurisdictions of the two regulators. The SFC regulates the stock market, brokers and fund managers while the HKMA oversees banks. To compound the confusion, the SFC can enforce the new rules with banks that sell those complex products. This means banks have two regulators watching over them, which is not necessarily a bad thing. However, brokers only have to worry about the SFC, and therefore the post-sale of financial products.
Lawmaker Chim Pui-chung - who represents the financial services industry - suggests that Hong Kong should follow the example of overseas regulators and allow a single watchdog to regulate the sale of such products. His suggestion would streamline enforcement and make it less confusing. It deserves serious consideration.
