Christina Choi, Securities and Futures Commission
“We all know that financial products, especially in this part of the region, are sold and not bought,” Choi said during a panel discussion at the Hong Kong Investment Funds Association’s conference on Monday.
However, with transparency of fees — which the SFC recently said it would require — investors will be asking more questions about the value they are getting from pay the commission.
“Investors will be more cost-conscious and performance-driven, and in a way this may help the proliferation of more alternative platforms, where people can compare more products more easily,” she said. “You all know the younger generation these days prefer online rather than face-to-face, so I think the trend is going there.”
Choi noted that the SFC is not promoting a particular distribution channel, but reminded that both asset managers and distributors should act in the best interest of investors.
“Regulators are looking more and more whether intermediaries are considering the cost and the overall performance of products and whether the investment products you are recommending are meeting the needs and goals of investors.”
ETFs clarity
Choi also gave clarifications about the proposed new guidelines for online platforms and robo-advisors the SFC issued in May.
The regulator has been getting inquiries about the restrictions on overseas-domiciled ETFs, which are not allowed in an online platform when distributing to local retail clients.
Choi said the regulation was out of the SFC’s area of responsibility.
“You should know that this is a legal requirement, it is in the law of the Securities and Futures Ordinance and it is not something that the SFC can change as it requires legislative amendments,” she said.
Choi added that robo-advisors in Hong Kong are still able to operate well without overseas-domiciled ETFs.
“It is possible to structure that and in Hong Kong, there are over 100 ETFs. You may say that the costs are higher than the overseas ones, but the liquidity of some of the ETFs are better here and when compared to traditional mutual funds, their fees are still much lower.”
Sandbox talk
Choi said that the SFC is keeping an open mind with the development of alternative distribution platforms.
“[Like the Hong Kong Monetary Authority,] we also launched a sandbox, but actually we don’t need a sandbox. You can always come to discuss, whether you do it through a sandbox or not, the business ideas or regulatory issues.”
Regulatory sandboxes allow firms to develop and test fintech solutions without full compliance. SFC’s sandbox was launched in early October, while HKMA’s sandbox was launched last year.
She said that the regulator has already met with “a number” of robo-advisors who are interested in understanding more about robo-adviser regulations.
Li Ting, CEO of Yunfeng Financial, which launched an a fund advice app in Hong Kong earlier this year, added that some industry players are not aware of the regulatory requirements when setting up a distribution platform. “Lots of times we’ve heard from people that they want to set up a robo-advisor, but a lot of them don’t even know that they actually need a licence to do it.”
