The SFC’s account opening requirements

What did the SFC publish on 28 June?

The Securities and Futures Commission (SFC) issued the following items on 28 June 2019:

  1. Circular - Amendments to paragraph 5.1 of the Code of Conduct for Persons Licensed by or Registered with the SFC (Code of Conduct)
  2. Circular - Remote onboarding of overseas individual clients
  3. FAQs - Account Opening

Shortly thereafter on 5 July 2019 it consolidated all the account opening related regulatory guidance, including two-thirds of sub-paragraph (a) and all of sub-paragraph (b) from 5.1 of the Code of Conduct and all the circulars from 2015 to 2018 into a new “Account Opening” webpage containing the following sub-webpages on the SFC’s public website:

  • Regulatory requirements
  • Acceptable account opening approaches
  • List of the eligible jurisdictions for remote onboarding of overseas individual clients

This is now the second time the SFC has created a subject-specific webpage for Code of Conduct requirements. The first one was “The Suitability Requirement”. The industry has welcomed this approach generally because it makes it easier to find the relevant guidance.

Key takeaways

1. 

Online (i.e. remote / non face-to-face) account opening has been made easier in the sense that there is now clear guidance from the SFC as to what is acceptable, and this guidance refers specifically to types of technology. This is likely to be of particular relevance to online platform operators. The requirements are however more onerous than some market players were hoping for.

2. 

The requirements include the customer having to transfer an amount of at least HK$10,000 (or equivalent) to the HK intermediary from a bank regulated in one of 16 designated “eligible” jurisdictions including Singapore, Malaysia, Australia, Canada, Switzerland, the UK and the US but not including the PRC, Macau, Japan or Korea. (Interestingly, more countries are permitted in this regard under the HK AML requirements.) The investor does not need to reside in that country but future transactions can only be conducted through an account which has been through these steps. Six other stringent control measures have also been imposed. Some require sophisticated technology while others necessitate onerous operational controls.

3. 

Licensees wishing to open client accounts remotely will also need to have adequate control measures in place to be able to take all the following steps:

a.

identity document authentication 

b. 

identity verification

c. 

execution of client agreement

d. 

record keeping

e. 

training

f. 

assessments/reviews/reports/evaluations:
i. pre-implementation assessments by independent qualified assessors

ii. annual reviews by qualified assessors

iii. each assessment and review should involve the preparation of a comprehensive report (which the SFC can request) which includes an explanation of potential limitations and recommendations for improvements (and management’s responses thereto)

iv. regular evaluations by senior management of the performance of the adopted technologies

4. 

All currently acceptable account opening approaches remain applicable.

 

5. 

The following SFC guidance on account opening has been superseded:

a. Circular concerning online client onboarding dated 12 July 2018

b. Circular concerning client identity verification in account opening process dated 24 October 2016

c. Circular concerning know your client and account opening procedures dated 12 May 2015

d. Code of Conduct know your client FAQs #22 to #26 of 16 July 2001

 

6.

Asset managers which cannot check investors’ ID documents and certify copies themselves will need to rely on other certifiers. The SFC has now added chartered secretaries as qualified persons competent to certify identity documents and witness the signing of client agreements. This will ensure consistency with the list of certifiers permitted under the SFC Guideline on Anti-Money Laundering and Counter-Financing of Terrorism.

 

7.

The SFC has also emphasised in this regard that licensees must ensure full compliance with all relevant offshore legal requirements, e.g. a jurisdiction may restrict citizens from investing in overseas markets or cross border capital transfers.

Action items

Licensees will need to update their compliance manuals and client onboarding procedures and visit the dedicated webpage regularly for updates.