Securities & Futures Commission of Hong Kong

Code of Conduct

Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission (“Code of Conduct”)

This FAQ aims to provide guidance on application of paragraphs 8.3(b)(ii), 8.3A(a)(iii) and 8.3A(b) of the Code.  For further guidance relating to these paragraphs, please also refer to the FAQ issued on 16 November 2017.

A. Commissions

Q1:

In the case of funds, what is the SFC’s expectation on the disclosure of trailer fees under paragraph 8.3(b)(ii) of the Code of Conduct?

A:

Under paragraph 8.3(b)(ii) of the Code of Conduct, licensed and registered persons are expected to disclose the maximum percentage of trailer fees receivable for a particular fund as per the distribution agreement with the product issuer.  Where trailer fees receivable are calculated pursuant to the distribution agreement as a specified percentage of management fees, licensed or registered persons are generally expected to disclose the maximum percentage of trailer fees receivable in the following manner:

Name of fund

Trailer fees receivable from product issuer

Fund A

We will receive from [the product issuer’s name] up to 60% of Fund A’s annual management fees as ongoing commission every year throughout the term of your investment.

 

Where the trailer fees receivable are calculated based on formulations other than a specified percentage of management fees (eg, x% of assets under management (“AUM”) / net asset value (“NAV”)) pursuant to the distribution agreement, licensed and registered persons may disclose the maximum percentage based on the formulation as specified in the distribution agreement.  However, licensed and registered persons should also make additional disclosure to make it clear to investors that such trailer fees receivable are being paid by the fund manager out of the management fees of the fund (if it is the case). For example, if the trailer fees receivable are calculated based on x% of AUM / NAV pursuant to the distribution agreement, licensed or registered persons are generally expected to disclose the maximum percentage of trailer fees receivable in the following manner:

Name of fund

Trailer fees receivable from product issuer

Fund A

We will receive from [the product issuer’s name] up to 0.6% of your investment in Fund A as ongoing commission every year throughout the term of your investment. This is paid out of [the product issuer’s name]’s management fees receivable from Fund A.

B. Independence

Q2:

Can a licensed or registered person represent itself as “independent” on a one-off basis but subsequently disclose that it is not independent on a specific transaction basis?

A:

One of the objectives of the disclosure requirement is to ensure that only truly independent intermediaries could represent themselves as being independent. A licensed or registered person should give due consideration of its general dealings with clients in its assessment of independence (for example, it should consider how often it would need to make specific disclosure of non-independence). While paragraph 8.3A(b) of the Code of Conduct allows for a one-off disclosure on independence to be made, licensed or registered persons should ensure that the one-off disclosure of being independent is generally applicable in their dealings with clients and specific disclosure of non-independence is only required on very limited occasions.

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