SFC compliance and licensing hints – Feb 2018

Take immediate action to review the sales process and rectify deficiencies

The SFC issued a circular on compliance failures in the distribution of fixed-income and structured products on 25 January 2018 following a number of on-site inspections and investigations. It also published findings of deficiencies and their expected standards in product due diligence, triggering of suitability obligations, and the suitability assessment framework. None of the expected standards appear to be new. The SFC reminded boards and senior management (including the relevant MICs) of licensed companies that they “bear primary responsibility for ensuring appropriate standards of conduct and adherence to proper procedures. They should diligently supervise the distribution of investment products to their clients and enforce prudent policies and rigorous controls to safeguard their business operations and the interests of clients.”

This circular is the latest in a long line of themed inspection reports and circulars focusing on unsatisfactory sales processes. The SFC will continue to focus on selling practices and will take action against licensed companies that do not comply with the requirements. Senior management of licensed companies should consider carefully whether further enhancements of their existing selling practices, policies and procedures are needed.

More on misuse of client information

On 22 January 2018, the SFC banned an individual from re-entering the industry for six months. The individual transferred client data from his work email account to his personal email account. Before he was due to commence his new employment with another bank, he forwarded the client data from his personal email account to the personal email account of an ex-colleague who was to be his supervisor in his new job. The supervisor forwarded the client data to his own work email account. The email surveillance program of the new employer detected the receipt of the client data.

Misuse of client data breaches the Personal Data (Privacy) Ordinance and the SFC’s Code of Conduct. Please refer to our client alert of 29 January 2018 for further details.