About the regime

Professional investor
Regulation and complaints

 We need to firstly understand why it is necessary to classify professional investors.

Regulation concerning the sale of investment products

Even if it is not required by the law, banks and brokerages will still segment their customers out of business considerations. This will enable them to provide tailor-made wealth management services and investment opportunities with high minimum investment amounts to their customers. The “Professional Investors” regime regulates private placement activities by limiting the participation to professional investors as defined by law only. It will prevent general investors who are more vulnerable and less experienced in investing to access the privately placed investment products, which may otherwise give rise to regulatory and investor protection issues.

Under the current Ordinance, unless an exemption applies, all investment products offered to the public in Hong Kong are subject to the prior authorization of the Securities and Futures Commission (SFC). On the other hand, there is no SFC authorization requirements on privately placed investment products offered to professional investors, and so their offering and marketing documents are not subject to regulatory review. Professional investors may not expect to have the same level of information to help with the investment decisions.

In addition, the sale of products by intermediaries to professional investors can be exempt from certain other requirements, including the permission to make certain agreements in an unsolicited call, the so-called Cold-Calling and communicate an offer without accompanied by an offering document contained specified information.

Latest changes to the definition of professional investors

How are professional investors defined? Are intermediaries subjected to the same code of conduct when selling to professional investors? How can the interests of professional investors be protected? These are all key questions. In view of the market development needs, regulatory adjustments are made from time to time. The SFC has expanded the definition of professional investors in July 2018 and allow more assets to be counted towards an individual’s investment portfolio.

  • A corporation that meets the following criteria will be defined as a professional investor: a company whose principal business is holding investments and is wholly owned by one or more professional investors, and any holding company which wholly owns a corporate professional investor.
  • An individual professional investor is determined by the calculation of aggregate amount of investment portfolios. Apart from the individual’s own account and a joint account with the individual’s spouse and children, the share of a portfolio on a joint account with persons other than the individual’s spouse and children and a portfolio of a corporation whose principal business is holding investments and is wholly owned by the individual, will also be counted in the calculation. 

Please refer to the SFC’s press release for the details of the amendments.

Ordinary retail investors may think that the “Professional Investors” regime may not be applicable to them, but in fact, professional investors are not just limited to a designated institutions or companies. They may also cover individuals who meet the specified monetary threshold. Once defined as a professional investor, the investment offerings available to you will not be the same. You may find that an intermediary cares about your level of wealth when selling you investment products that are only for private placement.

31 October 2018