The SFC and HKMA say firms may adopt a risk-based approach to streamline the provision of product disclosures for sophisticated or experienced investors.
Hong Kong’s SFC (Securities and Futures Commission) and HKMA (Hong Kong Monetary Authority) have issued guidance on compliance with suitability and investor protection obligations when providing services to sophisticated customers.
In its guidance, the SFC says suitability assessments, concentration risk assessments, product due diligence, and product explanations can be “varied” for high net worth clients who exhibit financial expertise in relevant products (e.g. high levels of knowledge or experience) and higher levels of risk tolerance – so long as this is done in a “proportionate and risk-based manner”.
“A suitability assessment is not a mechanical risk matching process. Rather, it is a dynamic process which may vary depending on the client’s circumstances, the type of investment product (including its complexity and risks) and the services provided by the licensed or registered person,” the SFC says.
“Products explanations may be less intensive for clients who are financially sophisticated with demonstrable and relevant expertise in investing in the same products or products of the same category,” it adds.
The guidance also applies to complex investment products, where licensed or registered persons can reduce the provision of detailed product explanations or disclosures (including warning statements) for clients with the requisite level of knowledge or experience. However, licensed or registered persons should maintain proper records of their assessment of sophistication in these circumstances, the SFC says.
The HKMA’s guidance addresses frequently asked questions arising a September 2019 circular in which it refined the investor protection measures governing the sale of investment, insurance and MPF products by authorised institutions.
Source: https://www.regulationasia.com/sfc-hkma-offer-clarity-on-product-disclosure-suitability-obligations/