New conduct requirements for offline sale of complex products

On 4 October 2018, the Securities and Futures Commission (SFC) published its Consultation Conclusions on Offline Requirements Applicable to Complex Products (Conclusions). The consultation, which was launched on 28 March 2018, focused on proposed amendments to the Code of Conduct for Persons Licensed by or Registered with the SFC (Code of Conduct) in relation to additional requirements for the sale of complex products. The revisions to the Code of Conduct are expected to come into effect on 6 April 2019, to coincide with the implementation of the SFC’s Guidelines on Online Distribution and Advisory Platforms (Guidelines).

Amendments to the Code of Conduct 

The new provisions aim to better protect investors by requiring intermediaries to:

• perform a suitability assessment on the investor for an offline transaction in a complex product;

• provide information to the investor on the key nature, features and risks of the complex product; and

• provide a warning statement to the investor.

These requirements align with those under the Guidelines, which are applicable to the online sale of complex products.

Classification of complex and non-complex products and disclosure obligations 

The SFC emphasized that the responsibility to classify products as non-complex or complex lies with intermediaries who should exercise due skill, care and diligence in making its determination, having regard to the Guidelines and the non-exhaustive list of examples provided by the SFC. The SFC clarified that complex products are not restricted to derivative products: non-derivative products with terms, features and risks which are not reasonably likely to be understood by retail investors would be treated as complex products and subject to the suitability requirement regardless of the risk. The Conclusions provide examples of features to be considered for investment products such as high yield bonds and bonds with multiple credit support providers.

Where determined as a complex product, disclosure of minimum product information and warning statements should be made on a transaction-by-transaction basis, at the time of sale, irrespective of whether a solicitation or recommendation has been made. Exemptions may however apply if the intermediary is serving an Institutional Professional Investor or Corporate Professional Investor provided that it complies with its obligations under the Code of Conduct.

Key Contacts

Fiona Fong

Partner | Financial Services

Email or call +852 2826 5316