Generally, we expect intermediaries to establish written policies and procedures so that these may be clearly understood within the firm and may be improved upon and developed over time.
Code of Conduct
Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission (“the “Code”)
A. Internal control
Q1 :
Paragraph 4.3 of the Code requires a licensed or registered person to have internal control procedures and financial and operational capabilities which can be reasonably expected to protect its operations, its clients and other licensed or registered persons from financial loss arising from theft, fraud, and other dishonest acts, professional misconduct or omissions.
Is the absence of written policy and procedures a non-compliance with the Code?
B. Advertising
Q2 : Is there any restriction under the Code on the offering of promotional or reward schemes by a licensed or registered person?
In making any promotional offers, a licensed or registered person should comply with the requirements under paragraph 2.3 of the Code and ensure that those invitations and advertisements do not contain information that is false, misleading or deceptive.
C. Discretionary accounts
Q3 : Where a client provides an intermediary with a 3rd party authorisation to operate his account, is this a “standing authority” as referred to under the Client Money Rules and Client Securities Rules?
The standing authority as described in the Client Money Rules and Client Securities Rules refers to a written authority given by a client to the licensed corporation (or the intermediary, as the case may be) or its associated entity in handling with his money or securities. That is different from an authority given to a 3rd party in managing the client’s accounts, which includes but is not limited to trading transactions on behalf of the client.
D. Schedule 1 - Risk disclosure statement
Q4 :
After the implementation of the SFO, certain references to the old ordinances in the client agreement need to be changed. Does an intermediary need to revise its client agreement in this regard?
Moreover, is it necessary for all existing clients to re-execute their client agreement?
In view of the changes brought about by the SFO, it is advisable for an intermediary to amend its proforma client agreement so that new clients can sign the revised client agreement. However, whether an intermediary needs to amend its client agreements with its existing clients or ask its existing clients to sign new client agreements depends on the existing content of each signed client agreement and how it is affected by the SFO. Where the changes are purely technical in nature, such as the introduction of the new risk disclosure statement in relation to client assets received or held outside Hong Kong and the amendments made to the existing risk disclosure statement in relation to repledging of securities collateral, it is not mandatory for the intermediary’s existing clients to sign new client agreements although this may be desirable for it to do so in any event. It will be acceptable if a circular (together with a copy of the relevant new risk disclosure statement) is issued to existing clients to put them on notice. Clients should also be invited to contact the firm should they need further explanation.
Q5 : Under the revised Code, can a licensed or registered person continue to accept a client’s authority to hold mail or direct mail to third parties?
Yes, an intermediary may continue to accept a client's authority to hold mail or to direct mail to third parties so long as the applicable internal control and risk disclosure requirements are adhered to. However, as far as the client's contract note, statement of account or receipt is concerned, an intermediary may not direct such mail to a third party who is an officer or employee (e.g. an account executive) of the intermediary, whether or not the client so authorizes, pursuant to section 17 of the Securities and Futures (Contract Notes, Statements of Account and Receipts) Rules.
Q6 : Can a licensed or registered person confirm the renewal of an authority to hold mail with a client over the phone and maintain a written record of telephone conversations as evidence?
It is important that sufficient internal control and audit trail are maintained to protect both the firm and its clients. Therefore, we expect intermediaries to obtain written confirmations from clients.
E. Schedules 3 & 4
Q7 : Is a licensed or registered person who is licensed for Type 4 (advising on securities) and Type 9 (asset management) regulated activities required to observe the requirements under schedules 3 & 4 of the Code?
Schedules 3 & 4 of the Code only apply to licensed or registered persons in the course of their dealing in securities listed or traded on the Stock Exchange of Hong Kong Limited and dealing in Futures Contracts and/or Options Contracts traded on Hong Kong Futures Exchange Limited respectively. In the case of a corporation licensed for Type 4 and Type 9 regulated activities, it may not need to comply with these requirements if it is dealing in securities or Futures Contracts and/or Options Contracts solely for the purpose of its advisory or asset management business.
Last update: 28 Jul 2003