Circular Issued by the Securities and Futures Commission Regarding Report on the Thematic Inspection of Selling Practices of Licensed Corporations

Our Ref: B1/15C
G16/1C
24 October 2012
The Chief Executive
All Authorized Institutions
Dear Sir/ Madam,
Circular Issued by the Securities and Futures Commission (SFC) Regarding Report on the Thematic Inspection of Selling Practices of Licensed Corporations I am writing to draw your attention to the attached circular issued by the SFC today on the SFC’s Report on Thematic Inspection of Selling Practices of Licensed Corporations (“the Report”). The Report summarizes the issues identified in the SFC’s inspection of the sale practices of certain licensed corporations and outlines some good practices and internal controls. The HKMA will continue to monitor authorized institutions’ compliance with regulatory requirements in its on-going supervisory process. Yours faithfully, Alice Lee Acting Executive Director (Banking Conduct) Encl. c.c. SFC (Attn: Mr Stephen Po, Senior Director of Intermediaries Supervision)

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RIS SION Circular

24 October 2012
Circular to All Licensed Corporations
SFC spots deficiencies in selling practices of licensed corporations The Securities and Futures Commission (SFC) releases today the findings of its latest round of thematic inspection of selling practices of licensed corporations’. A copy of the report is attached to this circular. The SFC has inspected firms covering a wide cross-section of those involved in selling investment products. These firms have established procedures to enhance selling practices. The SFC nevertheless identified deficiencies and shortcomings in the following areas:

• management oversight, training and compliance monitoring;
  = suitability assessment process;
• use of disclaimers and signing of declarations;
  = compliance with the new Code of Conduct requirements? and » eligibility verification of “professional investors.” These are detailed in the report, which also outlines practices and controls adopted by some firms. Intermediaries are encouraged to use this report to strengthen their management supervision and compliance programmes. Management should critically review their policies and procedures to address any issues that are relevant to their firms. Should you have any queries regarding the contents of this circular, please contact Kammy Kwok at 2840 9455. Intermediaries Supervision Department Securities and Futures Commission End ' The SFC has conducted routine and thematic inspections on selling practices, and from time to time, issued thematic inspection reports to provide guidance to intermediaries on how to comply with the selling practices requirements and to address emerging issues and market developments. 2 New requirements concerning the sale of investment products under the Code of Conduct for Persons Licensed by or Registered with the SFC were introduced in phases and were fully implemented by September 2011. These requirements include, among others, disclosure of sales related information and benefits received for distributing an investment product, investor characterization based on knowledge of derivatives, etc. 10f1 Tel: (852) 2840 9222 Fax: (852) 2523 4598 © Website: www.sfc.hk