[31 July 2017] Open with your browser  
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New Consultation on Online Distribution and
Advisory Platforms by SFC (2)

Written by: Mr. Daniel Chan - Senior Risk Consultant

With the widespread of online investment platforms, the Securities and Futures Commission (“SFC”) launched a 3-month consultation on its “Proposed Guidelines on Online Distribution and Advisory Platforms” (the “guidelines”) in May 2017. We have discussed two of the key areas in the previous newsletter (June), and will discuss the remaining two as follows.

Application and discharge of the Suitability Requirement in online context
According to the paragraph 5.2 of Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission (“Code of Conduct”), licensed or registered persons should ensure that the suitability of their recommendation or solicitation made for the client is reasonable in all the circumstances having regard to information about the client of which the licensed or registered person is or should be aware through the exercise of due diligence.

The critical issue lies on whether the intermediaries have made any “recommendation” or “solicitation” which should be assessed by the facts of all circumstances at the point of sale or advice. The SFC pointed out that both manner of presentation and content of product-specific materials as well as design and overall impression of the online platforms will determine whether the Suitability Requirement is triggered.

Platform Operators should fulfill the existing requirements under the Code of Conduct if the Suitability Requirement is triggered. Some of the existing obligations are highlighted as follows:

  • Match the risk and return profile of each investment product in accordance with the risk tolerance level and personal circumstances of the clients.
  • Properly design and conduct periodic review on the risk profiling methodology.
  • Explain to the clients how the risk profiles and ratings are determined.


Sale of complex products on online platforms on an unsolicited basis
According to the International Organization of Securities Commissions (IOSCO), complex products refer to those whose terms, features and risks are not reasonably likely to be understood by a retail investor because of their complex structure, and which are difficult to value. The SFC further proposed a set of guidelines for investors to determine whether or not the investment product is complex:

  • whether it is a derivative product;
  • availability of a second market for the product at publicly available prices;
  • availability of adequate and transparent information for retail investors;
  • the risk of losing more than the invested money;
  • possession of any features or terms that can change the nature or risk of investment / pay-out profile, or that include complicated formula or variables in calculating the return; and
  • possession of any features that may result illiquid investment.


As investors are expected to encounter difficulties in understanding the associated risks of complex products, the SFC proposes the following additional protective measures:

  • The platform operators are required to ensure all complex products are suitable for the clients as if they are fulfilling the obligations of Suitability Requirement. This requirement applies even if the Suitability Requirement is not triggered by the materials posted on online platform.
  • The platform operators are required to provide minimum basic and key information of complex products, such as product nature, key risks and any penalty for early exit, etc.
  • The platform operators are required to include clear warning statements on the online platform to warn the investors before the point of sale or advice.


Facing the potential regulation, companies which may be affected are suggested to express their concerns in the consultation. In addition, they should also consider the internal control and risk management implications the company may have.

Consultation Paper on the Proposed Guidelines on Online Distribution and Advisory Platforms, The Securities and Futures Commission, May 2017.

If there are any aspects which we may assist, please do not hesitate to contact:

Managing Partner - Mr. Roy Lo
roy.lo@shinewing.hk (Tel. 3583 8048) or

Senior Risk Manager - Ms. Gloria So
gloria.so@shinewing.hk (Tel. 3583 8517)


SHINEWING Risk Services Limited

Contact Us

SHINEWING Risk Services Limited
43/F., Lee Garden One, 33 Hysan Avenue Causeway Bay, Hong Kong,

T. (852) 3583 8000

F. (852) 3583 8532

W. www.shinewing.hk

E. risk@shinewing.hk


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