They will also no longer be able to call themselves ‘independent’ under the proposals, if they receive commission for distributing funds.
Other areas targeted by the SFC include the enhancements of securities lending and repurchase agreements, custody of fund assets, liquidity risk management, and disclosure of leverage by fund managers, according to the 27-page consultation paper.
Singapore synchronicity
The paper came one day after the Association of Banks in Singapore laid down rules for private banks, requiring them to “provide clients with a fee schedule at account opening, which sets out fees, charges and other quantifiable benefits (including commissions, rebates and retrocessions) for all investment products and services,” according to the association statement.
Emphasis on disclosure
The SFC proposed that an intermediary who claims to be independent “cannot receive fees, commissions, or any monetary or nonmonetary benefits paid or provided (whether directly or indirectly) by any party in the distribution of an investment product to clients”.
It is a practice that Singapore currently has in place for financial advisers.
Also, it suggests an intermediary must “disclose the range and maximum dollar amount of any monetary benefits received or receivable that are not quantifiable prior to or at the point of sale”, and also annually.
The SFC said it has taken reference of the models in the UK and Australia, where the commission model is entirely scrapped, and in Canada, which is considering doing the same.
No commission ban
However, “in deliberating on the approach to be taken in Hong Kong, the SFC is mindful of the characteristics of the Hong Kong investment market and investor behaviour”, it said.
“[U]p to only 3% of the retail fund distribution in Hong Kong was done through the independent financial advisers channel,” the regulator said, citing market research data.
Meanwhile, according to a 2015 survey result cited in the consultation paper, the majority (55%) of Hong Kong respondents are willing to pay HK$5,000 ($645) or less for financial planning services.
“Based on these survey results, the adoption of a pay-for-advice model with a complete ban on receipt of commissions by intermediaries may not seem appropriate for Hong Kong,” it said.
The regulator stated it is “mindful of the need to strike a proper balance between facilitating market development and competitiveness on the one hand, and ensuring protection of investors’ interests and market integrity on the other hand”.
The consultation is open for three months until 22 February 2017.
