Circular to Intermediaries - Frequently Asked Questions on Compliance with Suitability Obligations and Requirements for Complex Products

The industry has recently raised a number of questions about compliance with suitability obligations when providing services to high net worth investors who also exhibit financial expertise (ie high levels of knowledge or experience). 

Suitability assessment is a dynamic process, the nature of which may vary depending on the client’s circumstances, as well as the type, complexity and risks of the investment products and the services provided by the intermediary. When performing product due diligence, explaining products to clients and conducting suitability assessments, licensed and registered persons could vary the process in a proportionate, risk-based manner.

The Securities and Futures Commission (SFC) has updated its frequently asked questions (FAQs) in order to:

• clarify how to conduct suitability assessments by adding a new Question 5B to the FAQs on Compliance with Suitability Obligations¹;
• clarify the obligations of licensed or registered persons to explain product risks to clients with different degrees of financial sophistication by adding a new Question 6B to the FAQs on Compliance with Suitability Obligations²; and
• provide guidance in complying with paragraph 5.5 of the Code of Conduct, particularly on how to perform product due diligence, disclose product information and provide warning statements for the sale of complex products on an unsolicited basis, by adding a new Question 39 to the Complex Products FAQs³.

Intermediaries should note that the SFC will take into account compliance with the guidance in the FAQs when considering whether a licenced or registered person is fit and proper to carry out the relevant regulated activities. 

A copy of the newly added FAQs is attached to this circular. The full set of the FAQs is available on the SFC website at www.sfc.hk under the sections “FAQs – Intermediaries – Supervision – Compliance with Suitability Obligations” and “FAQs – Intermediaries – Supervision – Guidelines on Online Distribution and Advisory Platforms and Paragraph 5.5 of the Code of Conduct”. 

Should you have any queries regarding the contents of this circular, please contact Ms Kammy Kwok at 2231 1455 or your case officer.

Intermediaries Supervision Department
Intermediaries Division
Securities and Futures Commission

Enclosure

End

SFO/IS/047/2020