21 June, 2018
On 23 May 2018, the Securities and Futures Commission (SFC) published consultation conclusions on proposed disclosure requirements for discretionary accounts. The SFC states that the objective is to enable investors to make better informed decisions – that increased transparency makes it easier to detect potential conflicts of interest.
Implementation
The SFC will proceed to implement the new disclosure requirements by way of amendments to the Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission (Code of Conduct). These were gazetted on 25 May 2018 and will come into effect on 25 November 2018.
Disclosure types
Specific disclosures
Where an intermediary receives a monetary benefits from a product issuer in providing discretionary account services, the maximum percentage of the monetary benefits by investment product type should be disclosed.
Where an intermediary makes a trading profit, having taken no market risk for effecting a purchase or sale of an investment product for a client (for example in a back to back transaction), then the maximum percentage of the trading profit by product type should be disclosed.
The SFC has provided some example disclosures in FAQs which were published on 25 May 2018.
Generic disclosures
If the intermediary effects a transaction on behalf of the client in an investment product which is issued by the intermediary or any of its associates, the intermediary must disclose that it or its associate will benefit from effecting the transaction.
The intermediary must disclosure the existence and nature of any non-monetary benefits received by it and any of its associates from a product issuer.
Timing of disclosures
The disclosure is designed to be one-off – made in writing at the account opening stage or prior to entering into a discretionary management agreement. Where there are changes, an update must be provided to the client as soon as reasonably practicable.
Exemptions
Intermediaries will not be required to disclose benefits receivable for effecting transactions for a client under a discretionary management account where the client is a Corporate Professional Investor, where the intermediary has complied with paragraphs 15.3A and 15.3B of the Code of Conduct, or an Institutional Professional Investor.
For further information, please contact:
Mary Nieto, Deacons
mary.nieto@deacons.com.hk
