Structured Producsts Amendment effective from 13 May 2011.

On May 5 2011, the SFC announced that The Securities and Futures and Companies Legislation (Structured Products Amendment) Ordinance 2011 (the Amendment) will be gazetted with effect on 13 May 2011.

The Amendment transfers the regulation of public offers of structured products in (shares or debentures) from the prospectus regime of Companies Ordinance (CO) to the regime for public offers of investments under the Securities and Futures Ordinance (SFO).

Further details are available here.

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.

FSA Announces Tough Measures for Investors in Lehman-backed Structured Products

by Karl Hindle – London UK

On 27th October, the Financial Services Authority (FSA) announced a series of wide-ranging and very tough measures in favour of investors who bought or relied upon Lehman-backed investments.

Lehman Brothers collapse signified the definite arrival of a major global financial crisis. It was not simply that a bank had failed but the far-reaching impact on global financial markets and the realisation that this was not an isolated event but systemic.

The link to the FSA announcement is here

The FSA has performed a review of marketing and distribution of structured products and not just those of Lehman Brothers, though it has paid special attention to them. This review found “significant advice failings” amongst most advisory firms recommending structured products for investors and also, “serious deficiencies” in marketing collateral used by plan managers.

Consequentially, the FSA is imposing strong measures to treat investors fairly.

These include:

• investors advised by three firms now in insolvency administration will be compensated by the Financial Services Compensation Scheme (FSCS); 
• all firms which provided advice on Lehman-backed structured products must follow an FSA complaint template and handling process to ensure fair investor treatment; 
• three further advisory firms are being subjected to enforcement action by the FSA, for providing unsuitable advice and ordering other advisers involved in providing unsuitable advice to pay financial compensation to affected investors; 
• for all other firms involved in advising and using Lehman-backed structured products, strict guidance has been issued on standards of conduct expected when using any structured product or advising on them;  and
• retroactive assessment of structured product sales is to be made by larger sellers and to assess how their standards compare to the measures which are being introduced by the FSA now.

Redress is to be made where appropriate and the FSA has stated it will be conducting follow-up assessments in 2010 to ensure compliance.

It should come as no surprise that 2010 will herald a raft of fine announcements, above and beyond the enforcement action which has already been taken. While Lehman Brothers is dead, the mess left behind is still being cleaned up but, as with any politically charged issue, someone is going to have to be seen to be "doing something" and someone is going to have to shoulder the financial blame.

As Dan Waters, the FSA's Director of Conduct Risk stated, “...we will not hesitate in taking action if firms do not take sufficient steps to respond to our concerns.”

You can find several documents of note which were published along with the announcement at the following links:

For the FSA review document - Quality of advice on structured investment products

For the complaint template and associated guidance

For the Plan Manager Review of non-Lehman-backed products

For additional information visit the Wider Implications website