In a further indication of the continuing focus of the Hong Kong Securities and Futures Commission (the “SFC”) on compliance by licensed corporations with applicable marketing requirements, the Intermediaries Supervision Department of the SFC issued a circular to licensed corporations on 28 January reminding them of their obligation to maintain effective policies, procedures and controls to ensure that they comply with applicable regulatory requirements when conducting business outside Hong Kong.
The SFC highlighted activities of Hong Kong licensed corporations that are likely to be governed by the laws and regulations of other jurisdictions as solicitation of investors and opening of client accounts, signing of account agreements or mandates, marketing or selling of investment products, entering into transactions of investment products, and giving investment advice.
The SFC generally regards a licensed corporation responsible for the conduct of its employees or agents conducting business activities on its behalf outside Hong Kong, irrespective of whether such persons are licensed under the Securities and Futures Ordinance (the “SFO”). If such employees or agents should be, but are not, licensed under the laws or regulations of other jurisdictions, or they otherwise conduct themselves in an improper manner in such jurisdictions, then the SFC may regard paragraph 12.1 of the Code of Conduct for Persons Licensed by or Registered With the SFC (the “Code of Conduct”) as having been breached by the licensed corporation and whether the licensed corporation and/or the employee or agent is fit and proper to remain licensed under the SFO may be called into question.
Paragraph 12.1 of the Code of Conduct provides that a licensed person should comply with, implement and maintain measures appropriate to ensuring compliance with the law and relevant regulatory requirements. The SFC urges licensed corporations to (i) make proper enquiry as to how the laws of other jurisdictions apply to a cross-border business activity before conducting such activity, (ii) comply with the “know your client” provisions of the Code of Conduct and the Guideline on Anti-Money Laundering and Counter-Terrorist Financing when opening a new account, regardless of the location of the client, and (iii) where customers located outside Hong Kong are involved, be mindful of the local laws and regulations of the jurisdictions that might apply to the solicitation of clients or the opening of client accounts in such locations and seek advice if in doubt.