Thematic Examinations on Investment Advisory Activities

Circulars 01 Mar 2007 Thematic Examinations on Investment Advisory Activities Our Ref: B1/15C 1 March 2007 The Chief Executive All Registered Institutions Dear Sir/Madam, Thematic Examinations on Investment Advisory Activities The Hong Kong Monetary Authority (HKMA) has recently completed a round of on-site examinations on selected Registered Institutions (RIs)1 which are active in conducting investment advisory activities. The objective of these thematic examinations is to ascertain the RIs' level of compliance with the relevant regulatory standards required by the Securities and Futures Commission (SFC). We have reviewed their controls in respect of product due diligence, information about clients, selling practice and product suitability, complaint handling and monitoring of investment advisory activities. Our thematic examinations were performed concurrently with the SFC's inspections on their licensed investment advisers on the basis of common objectives and co-ordinated review programmes. In general, all of the RIs examined had implemented the baseline control requirements, with some exceeding the requirements to varying degrees, for complying with the SFC's relevant regulatory standards. In particular: - The retail banks examined have established policies and procedures on various key aspects in relation to their investment advisory activities. Most of them had adequate controls over high risk areas including the avoidance of mismatch of client risk tolerance level and product risk rating, and selling of investment products to vulnerable clients such as the elderly. All the retail banks examined have implemented reasonable controls over the selling of unauthorized investment products. The private banks examined relied largely on support from regional offices in product approval and researches, and normally provided investment advice to clients on the basis of internal "house views". Their clients were more sophisticated and the recommended investment products did not appear obscure or unusually complicated. The major issues and good practices adopted by certain RIs identified during our on-site examinations are set out in Annex 1 and Annex 2 respectively for your reference. I would like

Encl. to take this opportunity to remind RIs of the importance to ensure an effective monitoring of proper compliance with the relevant regulatory requirements in relation to their investment advisory activities, as well as other areas of regulated activities, on an on-going basis. Should you have any questions about the content of this circular, please contact Mr Shu-pui Li at 2878-1826 or Ms Alice Lee at 2878-1603. Yours faithfully, Arthur Yuen Executive Director (Banking Supervision) 1The selected RIs included both retail banks and private banks. Annex 1 (PDF file, 94KB) Annex 2 (PDF file, 69KB) Last revision date : 01 August 2011