The Securities and Futures Commission’s Consultation Conclusion

The Securities and Futures Commission (the “SFC”) in Hong Kong issued on 21 May 2012, the Consultation Conclusion (the “Conclusion”) on proposals to amend the Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission (the “Code”) in relation to the establishment of the Financial Dispute Resolution Centre Ltd (the “FDRC”) and the enhancement of the regulatory framework. The amendments to the Code will impact licensed and registered persons in Hong Kong in several areas, especially with respect to complaint handlings and notifications to the SFC for market misconduct.

Amendments to the Code

Upon the effective date of the amendments to the Code (19 June 2012), licensed corporations regulated by the SFC (“Licensed Corporations”) and authorized institutions (“Authorized Institutions”) regulated by the Hong Kong Monetary Authority (the “HKMA”) will need to comply with the Financial Dispute Resolution Scheme (the “FDRS”) by making honest and diligent disclosure to mediators and arbitrators and provide assistance to the FDRS. Licensed Corporations and Authorized Institutions need to advise their clients of their right to refer the disputes to the FDRC when complaints are not resolved promptly. In addition, upon the SFC’s request, Licensed Corporations and Authorized Institutions will need to provide the SFC with the details of the settlement or decisions of FDRS-related complaints.

The remainder of the amendments to the Code will come into effect on 1 December 2012: These include:

  • Licensed Corporations and Authorized Institutions will need to report and provide all relevant information and documents to the SFC when they reasonably suspect their clients have committed any material breach, infringement or non-compliance of market misconduct provisions set out in the Securities and Futures Ordinance
  • the use of mobile phones to receive client order instructions are prohibited when the employees of Licensed Corporations and Authorized Institutions are on the trading floor, in the trading room or the usual place of business where orders are received or business is conduct. This prohibition should be explained and enforced with a written policy
  • the retention period of telephone recordings of client order instructions has been changed from three months to six months
  • the authorization for third parties to place orders for clients has to be in writing
  • Licensed Corporations and Authorized Institutions should not, without reasonable excuse, prohibit their employees from performing expert witness services for the SFC and the HKMA

The impact on Licensed Corporations and Authorized Institutions

For the FDRS-related amendments, Licensed Corporations and Authorized Institutions may need to update their complaint handling procedures, the dispute-related clauses in their compliance manuals and client agreements accordingly.

For other amendments to the Code, the internal control procedures regarding record keeping and client orders as well as the relevant sections in the compliance manuals will need to be amended to comply with the new requirements as set out in the Code.

Licensed Corporations and Authorized Institutions should provide training to their employees on the amendment of the Code to ensure the employees are aware of the new regulations.

The Securities and Futures Commission’s Consultation Conclusion 2012-05-25T00:00:00.0000000 /insights/publications/compliance-and-regulatory-consulting/the-securities-and-futures-commission-consultation-conclusion publication {DE05ECA4-1852-4BEF-A4E1-491CB497F9CB} {E8669D15-7AE5-41D4-BE77-6C5E07C03F38} {65648E61-ED08-40DF-AEE6-DB90ABD49289} {95D7F66C-11BB-4E7D-B07C-48874A321F98}

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