THE HONG KONG MONETARY AUTHORITY AND THE SECURITIES AND FUTURES COMMISSION ISSUED A JOINT CIRCULAR ON STREAMLINED APPROACH RELATING TO SOPHISTICATED PROFESSIONAL INVESTORS

• Qualifying Criteria as SPIs

• a portfolio of at least HK$40 million or its equivalent in any other currency; or

• net assets, excluding primary residence, of at least HK$80 million or its equivalent in any other currency.

Note: A corporation with principal business of holding of investments and is wholly owned by one or more SPIs may be treated the same as the SPIs for the purpose of the guidance.

• holding a degree or post-graduate diploma in accounting, economics or finance, or a related discipline;

• having attained a professional qualification in finance (such as Chartered Financial Analyst, Certified International Investment Analyst, Certified Private Wealth Professional, Chartered Financial Planner or other comparable qualifications);

• having at least one-year relevant work experience in a professional position in the financial sector in Hong Kong or elsewhere (an example would be licensed for conducting relevant regulated activities); or

• having executed at least five transactions within the past three years in the same category of investment products as categorised based on their terms and features, characteristics, nature and extent of risks (“Product Category”). For the avoidance of doubt, an SPI may accumulate the requisite trading experiences by executing transactions through a power of attorney and/or through transactions executed in joint accounts.

• Conservative clients (e.g., whose investment objective is capital preservation and/or seeking regular income) should not be treated as SPIs

• Eligible Investment Transactions

Intermediaries should only execute investment transactions for an SPI under the Streamlined Approach where the transactions fall within the (1) Product Categories; and (2) Streamlining Threshold (as defined below) specified by the SPI (“Eligible Investment Transactions”).

• Intermediaries should devise (or adjust as appropriate) Product Categories to categorise investment products based on the terms and features, characteristics, nature and extent of risks of investment product

• Intermediaries should document the choice of the SPI and provide a Product Category Information Statement to the SPI to explain the terms and features, characteristics, nature and extent of risks of investment products within such Product Category (“Product Category Information Statement”)

• The Product Category Information Statement should include warning statements in relation to the distribution of complex products (if applicable)

• The SPI should specify a maximum threshold of investment, as an absolute amount or a percentage relative to the SPI’s assets under management with the intermediary, that is acceptable to be executed under a Streamlined Approach (“Streamlining Threshold”)

• Intermediaries are required to establish and maintain effective systems and controls to ensure compliance with the Streamlining Threshold. For instance, gross exposure arising from investment transactions executed shall be ensured to remain at or below the Streamlining Threshold upon execution, or designated accounts or sub-accounts could be devised to consolidate Eligible Investment Transactions of the SPI

• Intermediaries should implement measures to detect outsize or material transactions and issue warning statements to the SPI for these transactions

• As an illustrative example, a higher amount can be set considering the assets under management maintained with the intermediary represents an insignificant portion of the SPI’s portfolio and/or net assets

• Streamlined Approach

Procedures that could be streamlined by intermediaries for compliance with suitability obligations when dealing with SPIs in Eligible Investment Transactions.

• match SPI’s risk tolerance level, investment objectives and investment horizon with Eligible Investment Transactions;

• assess SPI’s knowledge and experience, and concentration risk in Eligible Investment Transactions;

• provide product explanation, except upon request and/or any material queries being raised by the SPI; and

• maintain records documenting the rationale underlying investment recommendations made to SPI.

• perform product due diligence for investment products falling within the Product Categories specified by the SPI;

• match SPI’s risk tolerance level, investment objectives and investment horizon with Eligible Investment Transactions;

• assess SPI’s knowledge and experience, and concentration risk in Eligible Investment Transactions; and

• provide product explanation, except upon request and/or any material queries being raised by the SPI.

Intermediaries could:

• provide warning statements in relation to the distribution of a complex product on an annual basis instead of a transaction-by-transaction basis

• Application of the Streamlined Approach

• An intermediary should apply the Streamlined Approach when dealing with an SPI only if the intermediary is reasonably satisfied that the SPI has the degree of sophistication to understand and take on the risks arising from a Streamlined Approach by meeting the above Qualifying Criteria

• The assessment should be put in writing

• Intermediaries should also maintain records of all correspondences with the SPI to support the choice of Product Categories and the setting of a Streamlining Threshold by the SPI

• enter into a written agreement with each SPI for acknowledging and giving consent to be treated as an SPI;

• specify in writing the assessment criteria under which the client qualified as an SPI;

• specify in writing the Product Categories and the Streamlining Threshold within which investment transactions could be executed under a Streamlined Approach; and

• fully explain to the SPI the consequences of being treated as an SPI and the SPI’s right to withdraw from being treated as such at any time.

• Intermediaries should carry out a review annually to ensure that the SPI continues to fulfil the Qualifying Criteria and continues to agree for the intermediary to execute investment transactions falling within the Product Categories and the Streamlining Threshold

In carrying out the annual review, intermediaries should remind the client in writing of:

• the consequences of being treated as an SPI;

• the Product Categories specified by the SPI and information about the Product Categories as contained in the Product Category Information Statements;

• the Streamlining Threshold specified by the SPI and an alert to the SPI where there was any instance of breach; and

• the right for the SPI to withdraw from being treated as an SPI, to add or remove a Product Category and/or to amend the Streamlining Threshold at any time.