In a Circular email sent to all licensed corporations by the SFC, the regulatory body identified numerous deficiencies and shortcomings relating to the recommendation and sale of risky products by sales representatives from investment advisory firms and brokerages. In total 150 samples were conducted on 10 licensed corporations.
The findings exposed insufficient understanding of recommended products, inadequate or inaccurate explanation of the features and/or disclosure of risks of the recommended products. Furthermore, the SFC said there were examples of inaccurate descriptions of the regulator’s own requirements or practices as well as failure to take into account all the relevant personal circumstances of the client when making a suitability assessment.
Among the failings were gaps in the quality of explanation of features and disclosure of risks concerning the products recommended. Unsatisfactory practices were found in around 16% of the cases where products were recommended to shoppers.
Staff were also found to provide inaccurate information to shoppers. In one instance, a sales consultant represented that investing in funds was a low-risk form of investment which was more secure than placing deposits with banks.
Sales staff generally did not sufficiently explain why the products were suitable for shoppers having regard to their individual circumstances and some sales staff did not demonstrate sufficient understanding of the recommended products themselves.
There were also criticisms about the way staff handled the know-your-client (KYC) process and failures in the way they obtained certain key client information.
In two instances, sales staff from a firm were found to guide or hint to the shoppers to change their answers in the risk profile questionnaires so that a wider range of products could be recommended to them. In certain samples, some of the shoppers’ attributes, such as investment timeframe and risk appetite were not collected beforehand.
In its Circular, the SFC encouraged firms to adhere to its rules but did not disclose whether the corporations found in the exercise to have weaknesses would be penalised.
"Regarding examples and areas of potential non-compliance that have been highlighted in this report, the SFC may wish to follow up with the licensed firms concerned and require the firms in question to take appropriate action to addres the issues noted."
