SFC licensing and compliance hints – Apr 2016

Distribution of products is always on the SFC’s radar

The SFC issued a circular on 31 March 2016 in connection with issues identified in their inspections which highlights certain compliance risks in selling bonds to investors. The SFC issued a similar circular back in 2014 also as a result of on-site inspections.

As mentioned in our last newsletter, this type of circular often signals an intensification of focus by the SFC on the areas covered by the circular.

The circular contains some key controls and procedures in distributing bonds which are also relevant for distributing other types of investment products. None of the points listed below are new:

1. conduct proper product due diligence to ensure that sales staff understand the important aspects including the complex features and risks of investment products;
2. identify the target investor group taking into account any selling restrictions and ensure that the risk return profile of recommended products matches with the financial situation, investment objectives, investment experience, risk tolerance and other relevant circumstances specific to the investor;
3. provide sufficient and accurate information about the products to clients and always present a balanced view of pros and cons when making a solicitation or recommendation to, and assessing suitability for, investors;
4. fully disclose the risks specific to the products and explain any key complex features to help investors make informed investment decisions; and
5. stop asking clients to sign declarations or acknowledgements which do not reflect reality.

The circular also reminds licensed companies of the new client agreement requirements.

Is it enough if an employee simply discloses information to the company?

Unfortunately the answer will usually be no. Someone should always analyse all information disclosed to the company and determine whether any follow-up action is required (and in an extreme situation this may even mean not proceeding with the employment of a new member of staff or putting controls / monitoring systems around their professional or even personal activities). Most clients require staff members to make declarations / disclosures to the company on an on-going basis but it will never be sufficient for HR / Admin / Compliance staff members to simply file the information and for the process to stop there. Someone in the company with appropriate experience and authority, sometimes someone senior in the compliance department, needs to go through each declaration / disclosure to ensure that any actual / or potential conflicts of interest or other potential issues are identified so that appropriate action can be taken. It may also be necessary to involve senior management.

Another break in SFC annual licensing fees

On 24 March 2016, the SFC issued a circular regarding a two-year wavier of annual licensing fees from 1 April 2016 for all licensed corporations, registered institutions and licensed individuals.

The waiver applies to annual licensing fees but not to fees for licence applications or transfers of accreditation.

First reminder about CPT

The first quarter of 2016 is already behind us so it is time to remind all licensed individuals to plan ahead for meeting their 2016 CPT requirements in order to avoid a year-end rush. Internal training can be counted for these purposes provided it meets the SFC’s requirements as set out in the Guidelines on Continuous Professional Training. Training on the new professional investor regime could be one of the topics.

Have you got a copy of the new Code of Conduct?

The SFC issued the new Code of Conduct on 25 March 2016 – make sure you have a copy of the latest version.