Transcript Document
Balancing Act: changing financial regulations and implications for business operations Alan Ewins / Michael Wong APAC Regulatory Group [email protected] / [email protected] 23 October 2013 © Allen & Overy 2013 1 Sources of regulation - global – International – extra-territorality and good citizenship – Regional – looking over your shoulder – Domestic – CASE STUDY THREAD – professional investors regime © Allen & Overy 201 2013 Sources of regulation - HK – Politics – Ordinances – SFO, etc. – Subsidiary legislation – Multiple regulators - MOU – Case law – Codes – Guidance / Circulars – FAQs – Press releases – Speeches – Herd (flock?) mentality © Allen & Overy 201 2013 Other sources of regulation - HK – Regulation by consultation – Regulation by supervision, e.g. mystery shopping and “visits” – Regulation by enforcement – Regulation by case officer – Regulation by lawyer or Compliance Officer © Allen & Overy 201 2013 Implications for business operations – Uncertainty/decision making – Knee-jerk reactions – Lead times – Senior management involvement – Global integration? © Allen & Overy 201 2013 Why the concept of PIs is core Under the SFC consultation: – SFC Questions – For what purposes was the PI regime originally designed? – Private placements – Conduct requirements – Are these purposes still valid now? – How to differentiate those investors who may not require full protection under our regulatory regime? – Under what circumstances and to what extent should the requirements still be relaxed when dealing with certain types of investors? – This goes to the heart of the operational treatment of classes of investors – Findings of SFC thematic inspection report on misselling practices © Allen & Overy 2013 6 Key issues – Leave private placements alone – Suitability – Client agreements © Allen & Overy 2013 7 The Suitability Requirement – Proposed Changes (1) – Classification and Assessment – Institutional PIs – No changes – Corporate PIs – Applicable to trust corporates, corporations or partnerships falling under sections 3(a), (c) and (d) of the PI Rules, excluding vehicles for Individual PIs – Assessment – Intermediary satisfies itself that the client has sufficient knowledge and investment experience – Additional considerations – corporate structure, investment process, controls, background of decision makers, awareness of risks of decision maker – Formalities – written and signed declaration from client – explanation to client of the consequences of being treated as a Corporate PI © Allen & Overy 2013 8 The Suitability Requirement – Proposed Changes (2) – Formalities (cont’d) – specify that client is treated as a corporate PI in a particular product – inform client of its right to withdraw consent to being treated as a Corporate PI – Individual PIs – individuals falling under section 3(b) of the PI Rules and their investment vehicles – Effects – Institutional PIs and Corporate PIs – – – – – exemption from suitability exemption from obtaining certain information about the client exemption from client agreement exemption from written authority requirements for DMA exemption from providing certain information to clients – Individual PIs – No exemptions from the Code requirements © Allen & Overy 2013 9 The Suitability Requirement How does this fit in with the HKMA regime? © Allen & Overy 2013 10 Client Agreements – proposed changes – New content requirements – Description setting out in clear terms the services provided to the client – Suitability Requirement to be incorporated into all client agreements without qualification – Implications – Misdescription of services in the client agreement is a breach of the Code (but not a breach of contract) – Breach of Suitability Requirement would be breach of contract (applies when a “recommendation” or “solicitation” is made) – This places pressure on what amounts to “execution only” © Allen & Overy 2013 11 Potential options for Intermediaries For “advisory” clients, intermediaries may consider: – seeking express representations and warranties from clients as to the facts and matters the intermediary has relied upon to assess the client’s suitability – training client representatives and sales team not to make “recommendations” or “solicitations” in their relations with clients – what is the “line in the sand”? © Allen & Overy 2013 12 Presenters Alan Ewins Partner Hong Kong Tel +852 2974 7151 [email protected] © Allen & Overy 2013 Michael Wong Consultant Hong Kong Tel +852 2974 7357 [email protected] 13 Questions? These are presentation slides only. The information within these slides does not constitute definitive advice and should not be used as the basis for giving definitive advice without checking the primary sources. Allen & Overy means Allen & Overy LLP and/or its affiliated undertakings. The term partner is used to refer to a member of Allen & Overy LLP or an employee or consultant with equivalent standing and qualifications or an individual with equivalent status in one of Allen & Overy LLP’s affiliated undertakings. © Allen & Overy 201 2013 HK:15315771.2 14