Mon, Apr 3, 2017

SFC Professional Investors Rules

The Hong Kong Securities and Futures Commission ("SFC") launched a consultation on proposed amendments to the Professional Investors (“PI”) Rules on 1 March 2017 (“Consultation”).

The Consultation does not capture institutional PIs and only concerns with individual and corporate PIs, which can be further categorized into:

  1. Trust corporation entrusted with total assets of not less than HK$40million; 

  2. Individuals who (either alone or with his/her spouse or children in a joint account) has a portfolio of not less than HK$8million;

  3. Corporation or partnership with either a portfolio of not less than HK$8million or total assets of not less than HK$40million; and 

  4. Corporation which its sole business is to hold investments and is wholly owned by any of the persons above mentioned. 

Current methods in assessing whether an investor meets the monetary threshold:

  1. Principles-based Approach – intermediaries may use methods that are appropriate to satisfy themselves that an investor meets the monetary threshold at the relevant date to qualify as PI. Proper records of the assessment process are expected to be kept, demonstrating that professional judgement has been exercised and reasonable conclusion has been reached. 

  2. Prescriptive Approach – intermediaries may obtain evidential documents within a prescribed time frame to prove an investor qualifies as PI. Evidential documents include recent audited financial statement, and recent custodian statement. 

The Consultation proposes three amendments:

  1. Allow the 

    • portfolio held in joint account(s) with siblings, parents, grandparents or business partners;

    • and investment vehicle(s) owned by individuals to be counted in ascertaining if the individuals meet the monetary threshold to qualify as PI;

  2. Expand the definition of corporations to allow any corporation to qualify as a PI if it wholly owns another corporation that qualifies as a PI; and 

  3. Allow alternative forms of evidence demonstrating qualification as a PI, including 

    • public filings made pursuant to legal and regulatory requirements in Hong Kong or other jurisdictions;

    • certificates issued by custodians; and

    • certificates issued by auditors or certified public accountants. 

The proposed amendments are aimed to increase flexibility on the application of the PI rules and catering for the business needs of intermediaries. Yet, the new amendment does not exempt intermediaries from the suitability requirement and requirements set out in other SFC rules and regulations, such as the Code of Conduct.

The SFC is now accepting comments for the new consultation until 3 April 2017. You can find the SFC announcement here and the consultation document here.