SFC issues further guidance on suitability obligations

23 Dec 2016



The Securities and Futures Commission (SFC) today issued further guidance in the form of two circulars on the existing suitability obligations (Note 1) of licensed or registered persons when recommending or soliciting investments.  

One circular (Frequently Asked Questions (FAQs) on Triggering of Suitability Obligations) seeks to clarify what may trigger the suitability obligations. It explains that posting an advertisement for an investment product or disseminating a research report may not trigger the suitability obligations in the absence of a direct communication with a client.

The circular also provides examples of when the suitability obligations may be triggered and provides guidance on how they are discharged when providing discretionary account services.

Another circular (Frequently Asked Questions on Compliance with Suitability Obligations) updates guidance on complying with the suitability obligations (Note 2) and clarifies that the suitability obligations are relevant to all licensed or registered persons making a recommendation or solicitation.

It also provides, among others, guidance on product due diligence as well as the documentation of investment recommendations which are to be maintained in audio or written form (Note 3).

"Suitability obligations are the cornerstone of investor protection," said Ms Julia Leung, the SFC's Executive Director of the Intermediaries Division. "These circulars aim to provide clarity on what may trigger the suitability obligations, particularly when brokers or distributors deal with clients in person, by telephone or by other direct means of communication, and on what needs to be done when such obligations are triggered."

The SFC plans to launch a consultation in the first quarter of 2017 on proposed guidelines on online distribution and advisory platforms which aim to provide more tailored guidance to the industry in complying with the applicable conduct and other regulatory requirements, including the suitability obligations.

End

Notes:

  1. 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 a licensed or registered person, when making a recommendation or solicitation, ensures that 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. 
  2. These FAQs would replace the FAQs on Compliance with Suitability Obligations issued by the SFC on 8 May 2007.
  3. Investment recommendations for exchange traded products are to be retained for at least two years while those for non-exchange traded products are to be retained for at least seven years. 


Page last updated : 23 Dec 2016