Compliance

Defining Professional Investors: Focus On Dubai, Singapore And Hong Kong

Chris Hamblin, Compliance Matters, Editor, 6 November 2013

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ACCREDITATION AND ITS BENEFITS

A Singaporean expert investor is not to be confused with an accredited
investor, which seems to be a type of ‘sophisticated investor’ as
seen in the United States but not in the United Kingdom. Such a person
enjoys many of the same immunities as the ‘expert’ but relies
solely for his status on his net personal assets exceeding $2 million
(or its equivalent in a foreign currency) in value or his income in the
preceding 12 months not dropping below $300,000. Once again, the
MAS has the power to bestow ‘accredited’ status on someone if it
pleases (s4A(1)(a) SFA).


THE PROFESSIONAL INVESTORS OF HONG KONG

In Hong Kong these ‘experts’ are called ‘professional investors’.There
are many requirements that the relationship manager (or the compliance
department for which he collects information) can waive
when he or she encounters one, according to the Code of Conduct for
Persons Licensed or Registered with the Securities and Futures Commission.
One of the broadest of these is the requirement (waived at
paragraph 5.1A) to assess the customer’s knowledge of derivatives
and ‘characterise’ him accordingly as part of standard know-yourclient
or KYC procedures.

If the relationship manager has the task of distributing an investment
product to a customer, he or she normally has to supply him with
information before or at the point of sale about whether his or her firm
is acting as principal or agent; what its affiliation is with the product
provider (known in Hong Kong as a product issuer); all benefits, whether
monetary or not; and the relevant terms and conditions (para 8.3A).
None of this applies if the relationship is with a professional investor.

Other provisions that the professional investor’s relationship managers
can waive are found in para 15.5. These are:

  • the need to establish his financial situation, investment
    experience and investment objectives;
  • the need to establish the suitability of a recommendation or
    solicitation;
  • the need to send him risk disclosure statements;
  • the need “to obtain from the client an authority in a written form
    prior to effecting transactions for the client without his specific
    authority” – a seemingly tautological phrase that seems
    (according to para 7.1(a)(ii)) to describe a ‘blanket’ authorisation
    to conduct business on the high-net-worth customer’s behalf
    without moment-to-moment consent;
  • the need to confirm that authority every year;
  • the need to inform him about the bank/asset management firm
    and the identities and status of its employees and others acting
    on its behalf;
  • the need to confirm the essential qualities of a transaction with
    the client promptly after effecting it; and
  • the need to provide the client with documents (in Chinese or
    English) regarding the Nasdaq-Amex Pilot Programme which,
    despite its temporary-sounding name, has been going strong on
    the Hong Kong stock market since 2000, allowing US-listed
    companies to be listed there also.

‘Professional investors’ can (as in other jurisdictions) be firms and insurance
houses, that is to say corporations, but what does the SFC
mean when it applies the term ‘professional investor’ to a human
client? Schedule 1 of the Securities and Futures Ordinance, according
to para 15.2 of the code, delineates two broad categories – A and B. A
contains any intermediary or provider of investment services who is
regulated anywhere abroad; any authorised insurer from anywhere
in the world; any approved trustee or service provider as defined in
section 2(1) of the Ordinance or anyone who acts as an investment
manager for any such registered scheme or constituent fund. B is any
person of a class which is prescribed by rules that the SFC has made
according to the powers granted it by s397 of the Ordinance.

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