SFC in Hong Kong set to regulate all structured products

The Hong Kong SFC is moving to regulate all structured products by moving the requirements to register a prospectus from the current Companies Ordinance to the Securities and Futures Ordinance.  There are also other changes in the works regarding the definition of professional investors.  The proposed changes can be found in an SFC consultation paper set of conclusions.

The SFC notice is below:

In a set of consultation conclusions released today, the Securities and Futures Commission (SFC) announced that it will proceed with the proposal to transfer the regulation of public offers of structured products from the Companies Ordinance (CO) prospectus regime to the offers of investments regime in Part IV of the Securities and Futures Ordinance (SFO) (Note 1).

The transfer will enable public offers of all unlisted structured products (regardless of their legal form) to be regulated under the SFO. The SFC will publish codes and guidelines for the industry, setting out its regulatory policy on such products (Note 2). Meanwhile, the existing practice for traditional banking products and listed structured products will remain unchanged. The SFC further recommended to include as “securities” retail structured products not in the form of securities, instead of classifying all structured products as “securities” as originally proposed.

“We believe the proposed transfer should be implemented with some adjustments to certain specific proposals," said Mr Martin Wheatley, the SFC's Chief Executive Officer. "By enhancing disclosure and improving product transparency of unlisted structured products under the new Code on Unlisted Structured Investment Products, the existing regulatory regime for retail structured products will be enhanced.”

The SFC received 13 written submissions, mainly from market participants and professional bodies, for its consultation (Note 3) launched on 30 October 2009. Respondents generally supported the proposed transfer with comments on some of the specific proposals.