Changes to Hong Kong's professional investor rules - a practical insight
From 16 December 2011, the threshold tests for high net worth professional investors in Hong Kong are likely to become easier. However, for financial institutions grappling with other regulatory changes affecting those investors, this may provide little comfort.
This alert explains the changes gazetted on 9 September 2011, their practical benefit and how they fit within the broader professional investor framework.
Background - a quick rundown of how the rules work now
The Securities and Futures (Professional Investor) Rules (Cap 571D) (Professional Investor Rules) supplement the Securities and Futures Ordinance (Cap 571) (SFO), by providing special categories of 'professional investors' who are generally known in the market as "high net worth professional investors".
In summary, these investors include:
(a) trust corporations, with total assets of not less than HK$40 million or its equivalent in foreign currency;
(b) individuals, either alone or with any associates on a joint account, having a portfolio of not less than HK$8 million or its equivalent in foreign currency;
(c) corporations or partnerships having either a portfolio of not less than HK$8 million or total assets of not less than HK$40 million; or
(d) a corporate investment vehicle that is wholly owned by an individual, who alone or with associates, falls within the description set out at paragraph (b).
High net worth professional investors are able to participate in investment opportunities that are not required to be authorised by the Securities and Futures Commission (SFC) under Part IV of the SFO. For that purpose, they are treated very similarly to 'institutional' professional investors such as banks and regulated dealers.
However, high net worth professional investors are subject to more onerous accreditation standards (including demonstrating relevant knowledge and experience) than institutional professional investors under the SFC Code of Conduct. These apply if a financial institution wishes to avoid certain requirements in the SFC Code of Conduct, such as product suitability assessments and mandatory risk disclosures.
What is changing?
Amendments to the Professional Investor Rules were proposed by the SFC late last year, with the aim of achieving greater flexibility and aligning Hong Kong with other leading markets.
There are two key changes:
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Any evidence can be used (but there is a catch)
The amending rules allow financial institutions to use "any methods that are...
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