HK SFC Client Asset Confirmation

On Jul. 8, HK SFC issued client assets measure, confirm letter.

  • Reminded intermediaries of their obligations to comply with requirements under
    the code of conduct when they are in possession, or control, of the client assets.
  • General principle 1 requires firms to act honestly, fairly and client best interest.
  • Requires the intermediaries to ensure client assets are adequately safeguarded.
  • Some standard terms and conditions on current, deposit or securities accounts
    that are client asset accounts grant banks a right to set-off against other debts.
  • Such clauses are incompatible with the requisite standards of client protection.
  • Client Asset Acknowledgement Letters
  • To strengthen client asset safeguards, standardized acknowledgement letter to
    be adopted and signed by both intermediaries and Authorized Institutions (AIs).
  • Key elements of the acknowledgement letter include the notification of purpose
    clauses, no-recourse clause and conflict clauses, align with protecting investors.
  • No-Recourse Clause
  • The no-recourse clause in letter template prohibits recourse against client assets.
  • However, for the avoidance of doubt, in the event of issuer default, clawback by
    banks of prepaid dividends or interest in respect of issuer’s securities is allowed.
  • Does not apply to recourse against assets required by legislation or court order.
  • If conflict between letter and other agreement, acknowledgment letter prevails.
  • Applicability
  • Acknowledgment letter is required for accounts used in holding of client money;
    client securities; and accounts holding non-repledged client securities collateral.
  • Firms should prepare and sign acknowledgement letters, as per appendix form.
  • Have letters in place before depositing client money or security in new account.
  • Effectiveness
  • Transition period for implementing this requirement ends on Jul. 31 2020, when
    SFC expects countersigned letters to be in place for covered client asset accounts.

Regulators HK SFC
Entity Types B/D; Bank; IA; IB
Reference Cir, Lt 7/8/2019
Functions Client Money; Compliance; Legal; Operations; Reporting; Treasury
Countries Hong Kong
Products Banking; Custody; Deposits; Securities
Regions AP
Rule Type Final
Rule Date 7/8/2019
Effective Date 7/31/2020
Rule Id 62451
Linked to N/A
Report Issue 7/15/2019
Report Section International

Last substantive update on 07/09/2019