HKMA and SFC Introduce Streamlined Framework for Sophisticated Professional Investors
The Hong Kong Monetary Authority (HKMA) and the Securities and Futures Commission (SFC) have jointly launched a new framework targeting Sophisticated Professional Investors (SPIs).
A joint circular released today addresses the feedback received from intermediaries about complying with suitability obligations when dealing with SPIs, individuals possessing higher levels of net worth and financial acumen or experience.
In December last year, both the HKMA and SFC updated their Frequently Asked Questions to explicate the anticipated standards concerning the execution of suitability assessments and explaining product details to clients with varying degrees of financial sophistication.
The newly issued circular outlines a more streamlined approach to dealing with SPIs. Under this system, intermediaries can now customize their point-of-sale procedures according to the unique circumstances of SPIs.
Based on the information gathered during the onboarding process or client reviews, intermediaries can ascertain if a client qualifies as an SPI. If they are reasonably convinced, intermediaries can allow the SPI to earmark an appropriate amount for investments across a portfolio of investment products showcasing diverse risk-return profiles, which could also include high-risk products.
Instead of matching the SPI's risk tolerance level, investment objectives, or investment timeline, or assessing their knowledge and experience at the transaction level, intermediaries can provide advance information about product features and risks. However, intermediaries are still accountable for upholding proper conduct standards and managing related risks. They are obliged to have robust systems and controls in place to prevent misuse and identify any potential issues.
The Private Wealth Management Association (PWMA) has lauded this new framework. As the PWMA pointed out, SPIs with substantial net worth and knowledge or experience are an essential part of Hong Kong's private wealth management market.
"We earnestly hope that the measures introduced today will enhance the client experience for these individuals, uphold Hong Kong's strong reputation for investor protection, and further consolidate Hong Kong's position as a global private wealth management hub," stated PWMA in a release following the new framework's announcement.
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