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Key Message:

  • Pay special attention when your investment adviser recommends an unauthorized investment product to you.

Why Authorization?

Collective investment schemes (such as unit trusts and mutual funds) and structured products must be authorized by the SFC before they can be marketed to the public in Hong Kong unless a statutory exemption applies to their offering documents. By authorization, the SFC seeks to ensure that adequate information is provided in the offering document of the product for investors to make informed investment decisions. Authorized products must also meet certain basic structural requirements (e.g. appointment of a qualified fund manager and an independent trustee/custodian in the case of an authorized fund).

However, SFC authorization is not an official recommendation of a product nor does it guarantee a good return.

Risks of Unauthorized Products

Generally speaking, offering unauthorized products to the public is an offence. However, unauthorized products can be offered to professional investors or in circumstances where an exemption applies, but it is the adviser's duty to ensure that the law is not contravened. You, as an investor, do not break the law by purchasing an unauthorized product. Nevertheless, an unauthorized product is not subject to the regulation of the SFC, thus, its structure and operations and its offering document may not be governed by any rules or regulations in Hong Kong.

As unauthorized products have not been vetted by the SFC, investment advisers should pay particular attention to their duty to act in the best interests of their clients. They must conduct proper due diligence before recommending such products to their clients, even if the client is a professional investor.

If you are asked to buy a product that is not authorized by the SFC, check if the product is authorized or regulated in other places. Ask your adviser why he recommends an unauthorized product to you and how your interests are protected. Be careful if you are asked to sign a written confirmation stating that you have requested to invest in the unauthorised product and that you fully understand the offering document, don't sign it if that is not the case.

Make sure you understand the features and risks of the recommended product, as itis unwise to put your hard-earned money into something you don't understand.