SFC and HKMA’s joint circular on streamlined approach for dealing with sophisticated professional investors (SPIs)

Published Date
Aug 8, 2023
Wealth managers and advisers, and distributors in relation to non-retail investment products, for example interests in private equity funds or hedge funds, sustainability linked bonds and other private capital related securities products, will be pleased to see the SFC and HKMA’s latest joint guidance.

The guidance sets out a streamlined approach to suitability obligations when dealing with individual professional investors (and their wholly owned investment companies) who meet financial, knowledge and experience and investment objective tests (SPIs).

This is intended to overcome challenges faced by private wealth intermediaries in Hong Kong and satisfy SPIs who are looking to access a wider private capital product universe.

As the joint circular explains, where relevant criteria are met, and with supporting documentation, intermediaries are no longer required to match the SPI’s risk tolerance level, investment objectives and investment horizon, or to assess the SPI’s knowledge, experience and concentration risk at the transaction level in certain circumstances and as otherwise set out in Chapter 15 (Professional investors) of the Code of Conduct for Persons Licensed by or Registered with the SFC. Explanation of product characteristics, nature and extent of risks can also be provided to the SPI upfront.

In order to take advantage of this streamlined approach intermediaries will need to consider the implications of the guidance to their business and appropriately adapt their internal on-boarding and suitability processes to address the guidance expectations. Such internal processes should incorporate the various aspects in the PDF flowchart.

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