Securities & Futures Commission of Hong Kong

Code of Conduct

Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission (“Code of Conduct”)

Q1:

Can the SFC provide some guidance or examples on the format of disclosure of benefits applicable to discretionary accounts required under paragraph 7.2(a) of the Code of Conduct?

A:

The purpose of the disclosure requirements is to enable investors to make better informed decisions when selecting a discretionary account manager.  To help clients understand the disclosure, intermediaries should try to explain the nature of the benefits disclosed and ensure that the disclosure is made in a clear and concise manner that is easy for investors to read and understand.

Set out below is an example of disclosure to illustrate the application of specific disclosure under paragraph 7.2(a) of the Code of Conduct:

Type of investment product
(non-exhaustive)  

Monetary benefits receivable or trading profits made by the intermediary and/or its associate 

Bonds

Up to 3% of the investment amount of the transaction

 Funds

Initial commission rebate [Note 1]: Up to 2% of the subscription amount

Trailer fee [Note 2]: Up to 60% of a fund’s annual management fee

 

Note 1: This represents the amount of subscription fee paid by an investor to a product issuer that is rebated to an intermediary for distribution of the product.
Note 2: This represents commission fee paid by a product issuer to an intermediary for so long as an investor holds the product.

Q2:

If intermediaries will not receive any benefits from product issuers or make any trading profits in providing discretionary account services, are they required to make any disclosure under paragraph 7.2 of the Code of Conduct?

A:

The disclosure requirements apply when an intermediary and/or its associates receives monetary or non-monetary benefits from product issuers in the course of providing discretionary account services, or makes a trading profit from products purchased from or sold to third parties for the discretionary accounts.  We do not mandate an intermediary to make any disclosure if no benefits will be received or trading profits will be made.  However, such information may be provided to investors as additional information.

3.3435 s