As a follow-up measure after the Hong Kong H-index equity-linked securities (ELS) incident, financial authorities have established regulations for high-risk and complex business practices. Now, financial companies must include past loss cases at the top of the complex product documentation to inform consumers about the risk of asset loss.
The Financial Services Commission announced on the 14th that it will hold a legislative notice for amendments to the enforcement decree and supervisory regulations of the Financial Consumer Protection Act starting from the 15th. Accordingly, financial companies are required to confirm six pieces of information from consumers (transaction purpose, assets, investment experience, product understanding, risk attitude, age) when selling investment products. During the previous Hong Kong H-index ELS incident, it was found that some of these six pieces of information were omitted, indicating that financial companies inadequately conducted assessments of consumer suitability and appropriateness.
The complex investment product documentation will be modified so that risk-related information is easily noticeable to consumers. The top of the documentation must include the types of consumers unsuitable for complex investments and cases of losses. Additionally, actions by financial company employees that lead consumers to provide specific answers to elevate their suitability and appropriateness scores are prohibited. If consumers receive a judgment of unsuitability or inappropriateness regarding an investment product, they will be provided with detailed reasons to clearly understand the rationale.
Financial authorities have implemented control measures to root out incomplete selling practices. They have established a regulatory framework that allows the consumer protection oversight body within financial companies to audit compliance with consumer protection standards. When financial companies design or change their performance compensation systems (KPI), they must obtain prior agreement with the consumer protection oversight body.
Financial authorities will collect opinions on the amendments during the legislative notice period until August 25. Subsequently, they plan to propose amendments to the Financial Consumer Protection Act in September to establish grounds for appointing consumer protection responsible persons. Furthermore, improvements to banks' ELS selling practices and best practices for internal controls on non-deposit products will also proceed without setbacks.