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Print articleHong Kong: SFC Focuses on Mis-selling
January, 2007 -
In a speech on 20 November 2006, Mrs Alexa Lam, the SFC's Executive Director of Intermediaries and Investment Products, announced that the SFC will continue its focus on ensuring that financial products are not mis-sold in Hong Kong and that investors are provided with appropriate advice from their investment advisers (IAs). The speech notes that the SFC is conducting a second round of inspection on IA activities and that the SFC will provide more detailed guidance on existing regulatory requirements concerning the duties and obligations of IAs to their clients. IAs are reminded that they have a duty to act in the clients' best interests by knowing their clients, ensuring adequate due diligence, making reasonable recommendations, helping clients make informed decisions, and employing competent staff with appropriate training. The SFC expects senior management to take responsibility for ensuring that proper standards of conduct and compliance are adhered to.
Mrs Lam's speech comes in the aftermath of a leading HK negligence case regarding the duty of care owed by IAs to their clients. The SFC commenced disciplinary proceedings against Mr Andrew Nicholas Barber after a court of first instance held that he was liable for giving unsuitable advice to his client. The Securities and Futures Appeals Tribunal (SFAT) affirmed the SFC's decision to suspend Barber, and, in September 2006, the Court of Appeal unanimously upheld SFAT's decision. The Court held that it was not sufficient for Barber to merely talk a client through all the relevant documentation, and that Barber had to make clear to his client the full picture of the investment including whether the client could afford the risks involved and whether the client was, in the light of investment objectives, prepared to take those risks. The Court ruled that, in doing this, Barber had to show his client an individualised example of possible loss scenarios. The SFC commented, "Advisors must ensure clients are properly informed of the risks of products to enable them to make informed decisions. They cannot just explain documents and must independently ensure that their clients understand the product and that it is reasonably suitable for them, considering their circumstances."
Mrs Lam's speech comes in the aftermath of a leading HK negligence case regarding the duty of care owed by IAs to their clients. The SFC commenced disciplinary proceedings against Mr Andrew Nicholas Barber after a court of first instance held that he was liable for giving unsuitable advice to his client. The Securities and Futures Appeals Tribunal (SFAT) affirmed the SFC's decision to suspend Barber, and, in September 2006, the Court of Appeal unanimously upheld SFAT's decision. The Court held that it was not sufficient for Barber to merely talk a client through all the relevant documentation, and that Barber had to make clear to his client the full picture of the investment including whether the client could afford the risks involved and whether the client was, in the light of investment objectives, prepared to take those risks. The Court ruled that, in doing this, Barber had to show his client an individualised example of possible loss scenarios. The SFC commented, "Advisors must ensure clients are properly informed of the risks of products to enable them to make informed decisions. They cannot just explain documents and must independently ensure that their clients understand the product and that it is reasonably suitable for them, considering their circumstances."
