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HK tightens disclosure rules for intermediaries

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HK tightens disclosure rules for intermediaries

Distributors and financial advisers in Hong Kong are required to disclose non-quantifiable monetary benefits that they receive from product issuers for selling an investment product starting tomorrow.

More specifically, intermediaries are expected to disclose the maximum percentage of trailer fees receivable for a particular fund as per the distribution agreement with the product issuer.

They are also expected to make at least a one-off disclosure on whether or not they are independent before or at the point-of-sale.

The enhanced point-of-sale transparency requirements – which encompass enhanced disclosures and restrictions on use of the term ‘independent’ – aim to improve point-of-sale transparency and better address potential conflicts of interest in the sale of investment products.

Hong Kong’s Securities and Futures Commission (SFC) has already given the industry a nine-month transition period to enhance their systems and conduct training since the amendments were gazetted last November.

Karen Man, Hong Kong-based partner for financial services at Baker McKenzie, told Citywire Asia that it is reasonable to assume that most firms will now be in a position to comply with the new disclosure requirements.

She said a failure to implement the disclosure requirements may affect an intermediary’s fitness and properness to remain licensed or registered with the SFC.

Non-quantifiable benefits

The enhanced disclosure requirements are imposed on all intermediaries who receive non-quantifiable monetary benefits for distributing an investment product.

It, therefore, applies to all fund distributors, including the private banks, Baker & McKenzie’s Man said.

The enhanced disclosures cover fee arrangements for the distribution of all investment products, including funds, bonds and structured products.

The key objective is to ensure that the disclosure is sufficient to highlight conflicts of interest if there’s any and to facilitate easy comparison of fees for investors.


The disclosure of independence or non-independence also affects all intermediaries, including private banks that distribute investment products to clients.

An intermediary should not represent itself as being independent if it receives benefits ‘which are likely to impair its independence to favour a particular investment product, a class of investment products or a product issuer.’

Disclosure must be made regardless of whether an intermediary is independent or not, and must also include the bases for the determination.

The SFC expects intermediaries to make at least a one-off disclosure before or at the point of sale, as well as ongoing updates of any changes to the information.

The amended Code of Conduct contains a form of disclosure statement relating to the status of independence that an intermediary is expected to communicate to its clients.

This to ensure that any potential conflicts of interest in the sale of financial products by a distributor are disclosed to clients.

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