Posted inRegulation

HK’s new guidelines for online platforms and robo-advisors

Hong Kong's Securities and Futures Commission proposed additional protective measures for selling ‘complex’ products via online distributing platforms and for providing robo-advisory services.


“New business models give rise to new risks including in the areas of cyber security and data protection. From an investor perspective, the lack of any interaction with a sales or advisory representative means that they may not be able to fully understand the nature and risks of an investment product prior to making an investment decision,” the SFC said in the consultation paper released on Friday, which proposed new guidelines for online distribution and advisory platforms.

“We are not proposing additional protective measures for the sale of simple investment products, whether or not they are high risk. In the case of investment products which are too complex for an average retail investor to understand we have proposed additional protective measures,” it noted.

Simple products refer to stocks, ETFs, mutual funds, REITs, etc., according to the SFC. Complex products include derivatives and derivatives-based investments such as futures, equity derivatives, synthetic ETFs, futures-based ETFs, leveraged and inverse ETFs, bonds with special features, hedge funds, or other unlisted structured products.

Selling complex products on the online distributing and advisory platforms will trigger a suitability requirement, the proposal said. The regulator also suggested the online platform operators should offer extra warning to investors about a complex product before the point of sale or advice.

“The SFC is mindful that it is proposing a new basis for triggering the suitability requirement which hinges on whether a product available on an online platform is in fact complex, rather than whether there has been any solicitation or recommendation of the product.

“Depending on consultation feedback, if this proposal is implemented, we will consider extending the same requirement to the offline environment by way of an amendment to the Code of Conduct, subject to further consultation if appropriate,” the regulator noted.

Other examples that would trigger the suitability requirement include: posting of advertisements with product-specific incentives, such as cash rebates, fee discounts, and posting of product-specific research reports on any investment product with words such as “Don’t Miss Out!” or “Act Now!”, SFC said.


SFC asked the providers of robo-advisory services product providers to give accurate and sufficient information, such as the description of their services, how their models work, and how portfolio rebalancing takes place.

“This would include information on the limitations, risks and how key components of its services are generated (such as a description of how underlying algorithms operate, any limitations of the algorithm, how a portfolio rebalancing mechanism works and associated risks).

“Robo-advisors should also inform and explain to investors the degree of human involvement (eg, advice via web-chat) provided,” it said.

“Robo-advisors are also expected to put in place policies and procedures which define how the algorithm would handle a major market event.”

SFC also proposed guidelines on other areas, including governance and controls, as well as suitability requirements.

The consultation is open for three months until 4 August 2017. The SFC added there will be a 12-month transition period after the guidelines are implemented.

Part of the Mark Allen Group.