SFC consults on new guidelines on online distribution and advisory platforms

5 May 2017



The Securities and Futures Commission (SFC) today launched a three-month consultation on proposed Guidelines on Online Distribution and Advisory Platforms (Note 1).

The proposed guidelines aim to provide tailored guidance to the industry on the design and operation of online platforms, as well as clarify how the suitability requirement (Note 2) would operate in the online environment.

“Investors are increasingly managing their finances and investments online, and we hope the clarification will enable more distribution channels to flourish and give investors greater choice and flexibility without compromising their protection,” said Mr Ashley Alder, the SFC’s Chief Executive Officer. 

The proposed guidelines clarify that the posting of factual, fair and balanced materials on online platforms should not in itself trigger the suitability requirement. The suitability requirement will apply where investors can be subject to greater influence and need more protection, such as where robo-advice is provided.

In the proposed guidelines, the suitability requirement will be extended to the sale of complex products on online platforms because retail investors may have difficulty in fully understanding the nature and risks associated with a complex product based only on the information posted on an online platform (Note 3).

“The proposed guidelines reflect a balanced regulatory approach, recognising investors should be in a position to take responsibility of their own investment decisions in relation to simple products where they can reasonably be expected to understand their features and risks,” Mr Alder added.

The proposed guidelines also contain specific guidance on the provision of automated or robo-advice on an online platform.

The public is invited to submit their comments to the SFC on or before 4 August 2017 via the SFC website (www.sfc.hk), by email to spaconsultation@sfc.hk, by post or by fax to 2877 0318.

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Notes:

  1. The proposed guidelines will apply to all SFC-licensed or registered persons when conducting their regulated activities in providing order execution, distribution and advisory services in respect of investment products via online platforms.
  2. This refers to the requirement (as set out in paragraph 5.2 of the Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission) that licensed or registered persons should, when making a recommendation or solicitation, ensure the suitability of the recommendation or solicitation for the client is reasonable in all the circumstances, having regard to information about the client of which the licensed or registered person is or should be aware through the exercise of due diligence.
  3. “Complex products” refer to products whose terms, features and risks are not reasonably likely to be understood by retail investors because of their structure and which are difficult to value. Under the proposed guidelines, online platforms are required to ensure that any transaction in a complex product (other than derivative products traded on an exchange) is suitable for the client in all circumstances, regardless of whether there has been any solicitation or recommendation.
  4. To provide more guidance to the industry on the suitability requirement in general as well as in the offline context, the SFC issued two separate circulars to intermediaries on 23 December 2016.


Page last updated : 5 May 2017