Following a question in the Legislative Council, the Secretary for Financial
Services and the Treasury, Professor K C Chan, has confirmed that Hong Kong
investors are being protected from the risks associated with the range of products
being offered by Mainland financial intermediaries.
His questioner pointed out the risks of financial products offered by Mainland
financial institutions are "uncertain due to inadequate regulation of such
products and related financial institutions," but that a number of Hong
Kong individuals and financial institutions have been attracted by their high
returns and have invested directly or indirectly in such products.
It was asked whether the Hong Kong Monetary Authority (HKMA) and/or the Securities
and Futures Commission (SFC) have plans to introduce measures to protect the
interests of Hong Kong investors in those products, and whether they have assessed
if they pose short-term and long-term risks to Hong Kong's financial system,
including whether Hong Kong's financial institutions are becoming over-exposed.
Chan pointed out that the offer of securities, collective investment schemes
and structured products to the public of Hong Kong is subject to authorization
requirements by the SFC. Specifically, it is a criminal offence for any person,
including any Mainland or overseas financial institution, to issue any offering
document or marketing material for such investment products to the Hong Kong
public, unless such issuance is authorized by the SFC.
Intermediaries carrying on regulated activities must also be licensed or registered.
If investment products are marketed to the public of Hong Kong, then the intermediaries
may be regarded as conducting a regulated activity and may be required to be
licensed by or registered with the SFC.
The conduct of those intermediaries is governed by a Code of Conduct, which
includes a suitability requirement that would apply whenever an intermediary
makes a recommendation or solicitation to a client in relation to an investment
product. The SFC and the HKMA supervise the intermediaries by conducting ongoing
off-site monitoring and on-site inspections regularly.
In addition, Chan added, under the existing bilateral arrangements, the SFC
can seek the assistance of the China Securities Regulatory Commission (CSRC)
in investigating Mainland entities and, in appropriate cases, refer cases involving
suspected improper conduct of Mainland financial institutions to CSRC for further
The regulators have also been making efforts to enhance investor education,
reinforcing the message that investors should understand the nature and risks
of an investment product, as well as their rights in case of default, before
making an investment decision.
With regard to financial institutions in Hong Kong investing with their own
funds in financial products offered by their counterparts from the Mainland,
Chan stressed that they are required to make full provision for the risks of
the investment against their regulatory capital upfront, since onshore renminbi
is subject to remittance control. All licensed corporations are also required
to prudently manage their financial risks by closely monitoring and managing
their concentration exposures.
He confirmed that the HKMA has collected information from Hong Kong banks and
communicated with the Mainland banking authorities to ascertain the situation
of the selling to them of Mainland financial products. It has assessed the associated
risks posed to Hong Kong banks, but, so far, the information available does
not give rise to supervisory concerns or indicate material risks to them. However,
the SFC and the HKMA will continue to maintain close dialogue with the regulatory
authorities in the Mainland and closely monitor the situation.
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and trusts, with an analysis of the US QI regime, is available in the Lowtax
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and a description of the report can be seen at