Observations from Review of Selling Processes of Investment Products (PDF File, 145.6 KB)

The Hong Kong Monetary Authority, HKMA, has issued a circular to share the findings from a recent review of the investment product selling processes of supervised institutions. The Authority thereby encourages firms to review the findings and reflect on own processes and procedures „in light of these observations, and design proper and reasonable measures and controls so that the selling processes can be streamlined as appropriate and that customer experience can be enhanced while according protection to customers“. Besides the findings, the HKMA also notes the corresponding regulatory requirements as to each practice.
#### Key findings
– Some financial institutions did not or only minimally adjust their risk disclosure processes to clients for subsequent transactions of the same or a comparable product regardless of an investor’s level of sophistication which unnecessarily lengthens the sales process.
– One bank only considered investments in money market funds, liquidity funds, or closed-ended funds to be suitable for investment horizons of less than five years. All other investments were classified as suitable for a holding period of five years or longer only, thereby entirely disregarding a fund’s liquidity situation or lock-in period.
– Some banks did assess a customer’s concentration risk for a single product irrespective the risk appetite of the client or the risk inherent in the product which may cause concentration limits to trigger without necessity.
– Some banks conducted and applied suitability assessments despite the fact that the transaction involved execution-only transactions only which is NOT required by Hong Kong legislation and hinders the order execution process.