New requirement
Hong Kong’s Securities and Futures Commission (SFC) announced on Tuesday that all client agreements must include the following clause on or before 9 June 2017:
“If we [the intermediary] solicit the sale of or recommend any financial product to you [the client], the financial product must be reasonably suitable for you having regard to your financial situation, investment experience and investment objectives.
“No other provision of this agreement or any other document we may ask you to sign and no statement we may ask you to make derogates from this clause.”
Claim for damages
Ashley Alder, the SFC’s chief executive, said: “The new clause enables an investor to claim for damages under the client agreement where the regulated intermediary solicits the sale of or recommends a financial product which is not reasonably suitable.
“The changes will result in fairer terms of business for investors, and also prevent intermediaries from mis-describing the actual services provided to the client.
“We expect all intermediaries to commence reviewing and revising their client agreements immediately,” Alder added. “Intermediaries are expected to make revised client agreements available as soon as possible so that new clients can execute them and existing clients can amend or replace their existing agreements.”
18 months
The SFC emphasised that the 18-month transitional period is to cater for circumstances where intermediaries encounter practical difficulties meeting the new requirements. It is, however, expected that they should be compliant well before the end of the transitional period.
