Circular to intermediaries Online client onboarding

12 Jul 2018



This circular was superseded by the circular dated 28 June 2019, please refer to here for acceptable account opening approaches.

The Securities and Futures Commission (SFC) received a number of enquiries from the industry about online client onboarding. This circular provides guidance to intermediaries which intend to onboard individual clients online.

Intermediaries are required to take all reasonable steps to establish the true and full identity of each of their clients and adopt an account opening approach which could satisfactorily ensure the identities of their clients1. Onboarding a client who is not physically present for identification purpose without sufficient safeguards poses a higher risk of impersonation.   

The Code of Conduct for Persons Licensed by or Registered with the SFC (Code of Conduct) currently allows the use of certification services that are recognised by the Electronic Transactions Ordinance (ETO) for client identity verification in an online environment. As electronic transactions are becoming increasingly common, the SFC understands that intermediaries need to onboard clients in a more efficient manner in order to better serve clients, without compromising their duty under paragraph 5.1 of the Code of Conduct. To provide more flexibility pending a review of paragraph 5.1 of the Code of Conduct, and consistent with the approach set out in paragraph 5.1(b), the SFC will also accept the following procedures to verify clients’ identities when onboarding individual clients online:

  1. Obtain a client agreement2 which is signed by a client by way of an electronic signature3 together with a copy of the client’s identity document (an identity card or relevant sections of the client’s passport);
  2. Successfully transfer4 an initial deposit of not less than HK$10,000 from a bank account in the client’s name maintained with a licensed bank in Hong Kong (Designated Bank Account5) to the intermediary’s bank account;
  3. Conduct all future deposits and withdrawals for the client’s trading account through the Designated Bank Account(s) only; and
  4. Maintain proper records of the account opening process for each client which are readily accessible for compliance checking and audit purposes.

The SFC believes that the above procedures will alleviate intermediaries’ burden in account opening whilst containing the risks involved in onboarding clients online.  

Intermediaries when onboarding overseas clients should be mindful of the requirements imposed by the domestic regulatory authorities6.

The SFC will keep in view technological developments and may provide further guidance where appropriate.

Should you have any questions regarding the contents of this circular, please contact Ms Denise Chan at 2231 1188 or the case officers in charge.

Intermediaries Supervision Department
Intermediaries Division
Securities and Futures Commission

End

SFO/IS/040/2018

 

1     Please refer to paragraph 5.1 of the Code of Conduct.
2     Section 17 of the ETO provides that in the context of the formation of contracts, an offer and the acceptance of an offer may be in whole or in part expressed by means of electronic records, unless otherwise agreed by the parties.
3     “Electronic signature” is defined in section 2(1) of the ETO to mean any letters, characters, numbers or other symbols in digital form attached to or logically associated with an electronic record, and executed or adopted for the purpose of authenticating or approving the electronic record.
4     If the intermediary does not receive sufficient information about the sender from its receiving bank, the intermediary should obtain satisfactory evidence from the client to confirm that the transfer was made from the client’s bank account.
5     The client may designate more than one bank account as Designated Bank Account provided that the same verification by way of a bank transfer is completed.
6     For example, some overseas jurisdictions may have restrictions on citizens’ investments in overseas markets or cross-border capital transfers.

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Page last updated: 12 Jul 2018