1. The Consumer Council welcomes the initiatives taken by the Securities and Futures Commission (SFC) to prepare the draft Rules to enhance investor protection. The following are comments and suggestions the Council would like to put forward for consideration in regard to the draft Rules.
Disclosure of disciplinary record
2. The Council supports the policy initiative to require licensed persons and registered institutions disclose the history of enforcement/disciplinary actions in the public register. This can improve openness and transparency to market participants and investors and allow investors to make an informed choice on intermediaries.
Period of disclosure
3. The SFC invites comments on the period of disclosure, which is set at five years from the date when disciplinary action is effected. The Council notes that the US National Association of Securities Dealers apparently does not specify a period of disclosure regarding regulatory actions on dealers. The Council also sees no reason why such disclosure period should be set. Therefore, the Council suggests that the SFC should allow for the retention of information indefinitely, so as to allow for more information to be provided to investors in order for investors to more clearly decide with whom they wish to deal.
Complaints officer
4. The provision of name or title of a complaints officer can provide investors a ready accessible channel to lodge a complaint. The Council supports this proposal.
Setting up of internal complaint handling procedures
5. As a related matter, the Council suggests that the SFC should require licensed corporations to set up internal complaint handling procedures, including information on:
- details of the assigned complaints officer, e.g. name, title, and contacts;
- how the complaint will be handled;
- acknowledgement of complaint and response to complainant;
- what can the complainant do if he is still not satisfied; and
- how to access the SFC's public register.
6. The complaints handling procedures should be outlined in the form of pamphlets to be made available to clients and a notice making reference to the procedures should be displayed in the public area of each branch of the licensed person or institution. This is to ensure that in cases where pamphlets are not available, or are not directly visible, clients are made aware of the complaints handling procedures.
Return of licence or certificate of registration
7. The draft Rules require an intermediary to return its licence or certificate of registration after it has ceased to engage in regulated activity within seven days. This can reduce the chance of an invalid licence being used to mislead investors of a person's licensing status. The Council supports this proposal. Better still if it would be amended to say immediately and no longer than seven days.
Reporting of material changes
8. The draft Rules also contain provisions requiring intermediaries to report material changes to the SFC and also to the HKMA (for registered institutions) within seven days. The Council welcomes the SFC making this requirement, which will ensure public access to up-to-date and accurate information in the public register and SFC's records.
SFC's discretion in extending submission time
9. In the draft Rules, where the SFC is satisfied that an applicant has substantial practical difficulties in submitting, filing or lodging any document within the time provided, it may in its discretion by notice in writing extend the time of submission to such extent as it considers necessary. The Council appreciates that there may be good reasons behind this proposal to extend the time of submission, but suggests that the SFC should define more clearly the circumstances that would normally amount to "substantial practical difficulties". The Council considers prompt reporting from intermediaries to be important for the interest of investors.
Sanction for non-compliance
10. It appears from the draft Rules that there is no sanction for non-compliance of the Rules, although it is not clear whether sanctions are contained in other parts of the Securities and Futures Bill. Having said that, it is understood that any non-compliance of the Rules would in general impinge on the fitness and properness of brokers or representatives registered under the SFC. To make things clear, the Council suggests that the SFC should state clearly in the draft Rules the sanction for non-compliance, if any.
Link to the consultation document by Securities and Futures Commission
