Asset management quarterly - Asia

Hong Kong SFC announces timetable for implementation of Code of Conduct changes

Authors James Parker and Nicolas Wilson

On March 21, 2016, the Securities and Futures Commission (SFC) announced that it would synchronise the implementation of certain changes to the SFC’s Code of Conduct for Persons Licensed by or Registered with the SFC (Code). These changes relate to:

• new paragraph 15 of the Code, which came into effect on March 25, 2016, and resulted in certain categories of non-institutional professional investors receiving additional protections under the Code (the Professional Investor Changes); and
• new paragraphs 6.2 and 6.5 of the Code, which all intermediaries will need to be in compliance with on or before June 9, 2017. These changes impose certain requirements on the contents of all client agreements (the Client Agreement Changes).

The Professional Investor Changes include a requirement for intermediaries to enter into written client agreements with corporate professional investors who do not meet relevant criteria under new paragraph 15 of the Code as well as all individual professional investors. The Client Agreement Changes include the requirement for intermediaries to incorporate a suitability clause in a prescribed form in all written client agreements.

As noted above, the Professional Investor Changes came into effect on March 25, 2016. However, to avoid the need for intermediaries to enter into revised client agreements on multiple occasions, given the additional changes required pursuant to the Client Agreement Changes, the SFC has announced that client agreements with applicable non-institutional professional investors will not need to be entered into until June 9, 2017, at the latest.

For the avoidance of doubt, all other changes implemented pursuant to new paragraph 15 of the Code came into effect on March 25, 2016. Accordingly, intermediaries should already be compliant with all other requirements that were introduced pursuant to new paragraph 15 of the Code.

The SFC also commented that, in respect of the client agreement requirements imposed under both the Professional Investor Changes and the Client Agreement Changes, the SFC expects intermediaries should be able to comply with the requirements well before June 9, 2017 and that in all cases intermediaries should send amended client agreements which comply with the Professional Investor Changes and the Client Agreement Changes as soon as possible, and that intermediaries should:

“follow up with an active programme to ensure that these documents are executed, acknowledged by and explained to clients shortly thereafter.”