SFC Announces Client Identity Rule Policy

09 Mar 1999




The Securities and Futures Commission announced today the publication of a policy for administering the new Client Identity Rule, under paragraph 5.4 of the Code of Conduct for persons registered with the SFC.

The policy sets out the general approach the SFC will take in enforcing the Rule and has been prepared in response to discussions with the exchanges and industry participants.

SFC Chairman, Mr Andrew Sheng, said: "The Client Identity Rule follows the international best practice that licensed intermediaries should know their clients. A primary rule for intermediaries is to know for whom they are trading. This will improve overall surveillance and give the regulators the necessary information to maintain a fair and stable market and a level playing field. We are sensitive to the need to encourage, and not stifle, the Hong Kong markets and the businesses transacted through our markets. Our policy is to ensure that the Rule is implemented in a way that will facilitate market growth without imposing any unnecessary burden on market participants and businesses."

The main highlights of the policy are:

  • Information will not be requested about subscriptions to, redemptions from or switches between collective investment schemes;
  • Except in unusual market conditions, client identity information need only be available within two business days of a request from the regulators; and
  • The SFC will not specify any particular way for a registered person to comply with the Rule, as long as the registrant is satisfied on reasonable grounds before a transaction that the client identity information will be available within two business days of a request. For example, if a broker's client, which is a financial intermediary, for commercial reasons does not want to disclose the required information to the broker, the broker may use an agreement whereby the intermediary would agree to provide the information directly to the regulator on request.

In addition, the policy also explains several terms used in the Rule, with examples where appropriate, for greater clarity and ease of understanding by industry practitioners.

The SFC will administer the Rule flexibly and will, in deciding whether or not to take action against a registered person for breaches, take into account genuine difficulties that a registered person may face in complying with the Rule. During inspections, the SFC will check that systems are in place to ensure that the required information will be made available and, if they are not, will normally require correction.

The SFC will not take enforcement action against a registered person who acts honestly and reasonably in complying with the Rule.

The SFC's Client Identity Rule requires a registered person, before executing a transaction, to obtain and record details of the ultimate beneficiary of the transaction and the person who originates instructions in relation to that transaction. The Client Identity Rule became effective on 13 November 1998. Together with corresponding rules of the Stock Exchange of Hong Kong and Hong Kong Futures Exchange, they are intended to enhance the market surveillance capabilities of the exchanges, as frontline regulators of trading in their markets, and the SFC.

Copies of the policy are available free of charge at the SFC's office and can also be found on the SFC Website at http://www.hksfc.org.hk.




Page last updated 09 Mar 1999