SFC publishes consultation conclusions on client agreement requirements

8 Dec 2015



The Securities and Futures Commission (SFC) today released consultation conclusions on the Further Consultation on the Client Agreement Requirements (Note 1).

Having carefully considered all the respondents’ comments (Note 2), the SFC has decided to proceed with the proposal to require the incorporation of a new clause (Note 3) into client agreements (Note 4).

In response to requests for clarification of the definition of "financial product" referred to in the new clause, a further note will be added to define the ambit of the term (Note 5). 

Mr Ashley Alder, the SFC’s Chief Executive Officer, commented: "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 misdescribing the actual services provided to the client."

"We expect all intermediaries to commence reviewing and revising their client agreements immediately," Mr 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."

All intermediaries’ client agreements must comply with the new Code of Conduct requirements, including incorporation of the new clause and observance of the new paragraph 6.5 of the Code of Conduct discussed in the Further Consultation (Note 6), on or before 9 June 2017 (ie, 18 months from today).

The SFC emphasises that the 18-month transitional period is mainly to cater for circumstances where intermediaries, despite their best efforts, encounter practical difficulties when re-executing agreements with existing clients. However, it is expected that intermediaries should be able to comply well before the end of the transitional period.

End

Notes:

  1. On 25 September 2014, the SFC issued the Consultation Conclusions on the Proposed Amendments to the Professional Investor Regime and Further Consultation on the Client Agreement Requirements (Further Consultation) for public consultation until 24 December 2014.
  2. The SFC received 12 written submissions mainly from industry associations, professional bodies, law firms and financial institutions. Further representations made to the SFC by interested parties after the end of the consultation period were also reviewed and considered.
  3. The new clause reads:
    "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."
  4. The new clause is to be incorporated into client agreements pursuant to the new paragraph 6.2(i) under the Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission.
  5. The note will explain that, in the context of the clause, "financial products" refers to any "securities, futures contracts or leveraged foreign exchange contracts as defined under the Securities and Futures Ordinance (SFO). Regarding ‘leveraged foreign exchange contracts’, it is only applicable to those traded by persons licensed for Type 3 regulated activity".
  6. The SFC concluded in the Further Consultation that a new paragraph 6.5 will be inserted into the Code of Conduct to disallow contractual terms in the client agreement which are inconsistent with the Code of Conduct obligations or which misdescribe the actual services to a client. 


Page last updated : 8 Dec 2015