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Screenshot of a breaking news alert e-mail from Q2 2017
Hong Kong’s Securities and Futures Commission (SFC) is implementing changes to the Code of Conduct for companies it regulates, with the changes to affect Forex brokers too.
The new rules will oblige companies to insert an additional clause in client agreements. This clause will allow investors to claim damages if the intermediary is selling or recommending a financial product that is not reasonably suitable for the client. The appropriateness of the product is associated with the client’s investment experience and financial situation.
In particular, the new clause states:
“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.”
Regarding the concept of “financial product”, the regulator notes that this refers to any “securities, futures contracts or leveraged foreign exchange contracts as defined under the Securities and Futures Ordinance (SFO)”.
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. 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 on or before June 9, 2017, that is, 18 months from today.
To view the announcement from the SFC on the new rules, click here.