Lessons learned from the SFC and HKMA's joint review on distribution practices of non-exchange traded investment products

A joint circular to intermediaries on findings from a review of the distribution of non-exchange investment products was issued by the Securities and Futures Commission ("SFC") and the Hong Kong Monetary Authority ("HKMA") on 18 April 2024 (the "Joint Circular"). The SFC and HKMA's observations set out in the Joint Circular are based on the review of the policies, systems, controls, and management supervision of licenced corporations and registered institutions for the distribution of non-exchange traded products like unlisted bonds and structured products. The regulators identified various issues on intermediaries' practices in performing product due diligence and suitability assessment, providing sufficient information to clients and ensuring the trading of investment products is in the best interests of the client.

This briefing note summarises the key observations of the SFC and HKMA, as well as the important takeaways that intermediaries should bear in mind.