Circular to Intermediaries - Reminder of important obligations to ensure suitability and timely dissemination of information to clients

27 Mar 2020



This circular reminds licensed and registered persons of their obligations under the Code of Conduct1 when distributing investment products, such as funds and bonds, to their clients. In particular, these include (i) the suitability obligations when they make a solicitation or recommendation and (ii) the obligation to disseminate information in a timely manner where they hold an investment product directly or indirectly on behalf of their clients.

Given the potential impact of the COVID-19 outbreak on market volatility and liquidity as well as credit quality, licensed and registered persons are reminded to act in the best interests of their clients2 and exercise extra care when making a solicitation or recommendation or managing investment portfolios for their clients. 

To fulfil their suitability obligations under the Code of Conduct3, licensed and registered persons are reminded to, amongst other things:

Further, where licensed or registered persons hold investment products directly or indirectly on behalf of their clients, they are also reminded to disseminate to their clients notices and other communications prepared or issued by the investment products’ issuers, product arrangers or management companies on a timely basis upon receipt4. These notices or communications may include material information or updates crucial for investment decisions, eg, untoward circumstances relating to a fund which may include use of liquidity risk management tools by a fund manager5

The SFC will continue to assess compliance with the regulatory requirements during its on-going monitoring of licensed corporations. 

Should you have any queries regarding the contents of this circular, please contact your case officer.

 

Intermediaries Supervision Department
Intermediaries Division
Securities and Futures Commission

End

SFO/IS/011/2020


1 Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission (SFC).
2
General Principle 2 of the Code of Conduct.
3
The suitability obligations are set out in paragraph 5.2 of the Code of Conduct and supplemented by FAQs on Triggering of Suitability Obligations and FAQs on Compliance with Suitability Obligations issued in December 2016.
4
Please refer to the Circular on Obligations Relating to Selling / Distribution of Investment Products dated 28 May 2010.
5
For example, a fund manager’s intention to increase or apply any swing factor (or anti-dilution levy) exceeding the one that is disclosed in the fund’s offering documents, decision to defer redemption, suspend creation and redemption in the primary market or secondary market trading, and the potential impact on the fund. Please refer to the Circular to management companies and trustees and custodians of SFC-authorized funds dated 27 March 2020.


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Page last updated : 27 Mar 2020