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.
- 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.
- 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.
||B/D; Bank; IA; IB
||Cir, Lt 7/8/2019
||Client Money; Compliance; Legal; Operations; Reporting; Treasury
||Banking; Custody; Deposits; Securities
Last substantive update on 07/09/2019