Photograph of Charlotte Robins, Norton RoseHong Kong is one of
the world’s fastest growing private wealth management (PWM)

Reforms such as the liberalisation
of renminbi regulations and greater access to the mainland Chinese
market present new opportunities for the industry.

Yet recent developments to enhance
investor protection in the wake of the Lehman mini-bond crisis, and
future regulatory and legal developments, such as the Anti-Money
Laundering Counter-Terrorist Financing (Financial Institutions)
Ordinance (AMLO), presents the wealth industry with notable
operational and regulatory challenges.


HK sales suitability

Most relevant to intermediaries
providing private wealth services are the changes to the Code of
Conduct for Persons Licensed by or Registered with the Securities
and Futures Commission (Code).

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There is now a clear requirement to
assess whether an investor has sufficient knowledge and expertise
as well as investment experience.

This includes awareness of risks,
in the context of the relevant products and markets before a
professional investor (PI) under the Securities and Futures
(Professional Investor) Rules (PI Rules).

The SFC has noted that a holistic
approach may be adopted, however all relevant and reasonable
considerations should be taken into account, including whether a
client is, or has worked in, the financial sector for at least one
year, or has had training or attended courses relevant to the

Additionally, where an existing PI
invests in a different product type or market, or where a PI has
ceased to trade in the relevant product or market for more than two
years, further assessment is called for.


Professional investor rules

Proposed revisions to the PI Rules
will allow intermediaries to choose how they demonstrate that a
person meets the requisite PI asset threshold tests.

This may include continuing to
adhere to existing waivers from the PI Rules, using other robust
methods of assessment and considering to what extent
self-certification is sufficient.

Until the proposals become law, the
current PI Rules should be adhered to, for example the requirement
to obtain auditor or custodian statements in support of the asset

From April 2012 failure to conduct
appropriate customer due diligence will become a criminal offence
under the AMLO.

Regulators are working on
guidelines to assist those they regulate in creating and adhering
to suitable systems and controls.

The SFC’s approach to regulation is
principle-based, and guidance such as the Code applies to
intermediaries conducting various regulated activities.


KYC testing procedures face

It is incumbent on the PWM
intermediaries to consider carefully how best to reflect the
relevant guidance, in practical terms, into their KYC policies and
procedures, taking the nature of their industry into account. The
rationale behind policy content may need to be documented.

It will not be enough to ask
clients to represent that they have the requisite knowledge and
experience and that they meet the PI asset test.

Internal policies, client due
diligence and documentation should be reviewed to ensure
compliance, including appropriate disclosure so that a PI
understands the consequences of being treated as such.

Assessment of PIs will be carefully
viewed by regulators, including where the “examples” are not
referred to (eg, because they are inappropriate).


Adequare reporting

It is paramount that assessments
satisfy the Code, and that the basis of these – and their results –
are recorded in writing, including in due course why
self-certification alone is sufficient.

PWM personnel must know their
regulatory duties, not least under the Code and internal policies.
This may require a regular review of training and ongoing
compliance monitoring.

This is reinforced by the Hong Kong
Securities Institute’s recent launch of a competency guidelines
programme and certification (the Certified International Wealth

As the PWM market continues to
develop, PWM intermediaries will need to review regularly, and
critically, their internal procedures and compliance, ensure
ongoing training of staff and to monitor activities and the keeping
of records.

Charlotte Robins is a partner
in Norton Rose’s financial services and regulatory practice in Hong