HK SFC proposes more information sharing

Hong Kong's Securities and Futures Commission aims to align itself with international norms by sharing information about its licensed entities with its counterparts abroad for supervisory purposes.

It is currently only able to share such information for enforcement matters, but the regulator began a consultation on Friday seeking to change this.

This comes as financial watchdogs around the world seek more cooperation from their peers, one example being incoming rules under Europe's Alternative Investment Fund Managers Directive (AIFMD).   

The proposed amendments would mean the SFC could provide assistance on supervisory matters to European regulators making inquiries about SFC-licensed fund managers with AIFMD entities are made. This is in line with a memorandum of understanding (MoU) that the SFC signed with 28 European regulators in 2013. The MoU was a precondition for Hong Kong-licensed alternative fund managers being given access to the EU market.

SFC chief executive Ashley Alder said: "The proposals benefit the financial community by providing more opportunities for them to access overseas markets as well as enabling Hong Kong to meet international standards concerning the supervision of regulated entities operating globally."

The regulator said the amendments could also make it easier for it to enter into supervisory cooperation with its foreign counterparts.

This move was "particularly important", noted the SFC, given the supervisory environment it worked in. Key elements of this environment include Hong Kong's open market architecture and the fact that many firms there are part of international financial groups whose overseas activities may be significant for the city.   

Information sharing would be limited to requests for assistance to determine compliance with overseas legal or regulatory requirements or to ascertain risks to the stability of foreign financial systems, and requests related to a licensed firm regulated by both the SFC and an overseas watchdog.   

Comments should be submitted to the SFC by January 16, 2015.

Separately, a mystery shopping exercise conducted recently by the regulator indicates that financial firms continue to disappoint in their selling practices.   

Issues noted in 2010 have continued to crop up this year, such as the failure to consider clients' relevant circumstances in full when making a suitability assessment or to properly explain why certain products are recommended.   

The 2014 exercise also identified that there were inadequate or inaccurate explanations of high-yield bonds and derivative products; failure to assess clients' knowledge of derivatives; and failure to provide material information about recommended products, such as key fact statements.   

A total of 150 samples were conducted in relation to 10 licensed corporations, including fund management, investment advisory and brokerage firms. The mystery shopping exercise was conducted between April and September this year.