1. How are unlisted structured products offered to the public regulated?
Broadly speaking, Hong Kong's regulatory framework for unlisted structured products (e.g. equity-linked investments and equity-linked deposits) offered to the public rests on product disclosure, and the regulation of intermediaries' conduct.
Public offers of unlisted structured products and the issue of offering documents and advertisements in relation to such products must generally be authorized by the SFC under the Securities and Futures Ordinance, unless an exemption applies. In considering whether to grant an authorization, the SFC would normally review whether the application meets the disclosure and structural requirements in the SFC Handbook for Unit Trusts and Mutual Funds, Investment-Linked Assurance Schemes and Unlisted Structured Investment Products, including the Code on Unlisted Structured Investment Products (SIP Code).
Amongst other things, the SIP Code requires that the issuer prepares a product key facts statement (KFS), the issuer and the guarantor (where applicable) meet certain eligibility requirements, and post-sale cooling-off arrangements be provided for products exceeding a certain scheduled term. For details, please refer to the SIP Code.
An authorization by the SFC does not imply any product recommendation by the SFC or that the product is suitable for any investor. The intermediary is required to know its client and ensure that an investment product is suitable for the investor. You may refer to the Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission for details.
Before making any investment decision, investors should read all the offering documents, understand the features and risks of a product, and consult the intermediary as appropriate. The offering documents of unlisted structured products which have been authorized by the SFC are set out in the Investment Product List.
2. Who can issue unlisted structured products to the public?
An issuer of an unlisted structured product should be duly incorporated in Hong Kong or established under the laws of a jurisdiction acceptable to the SFC. In addition to other requirements, it should also:
(a)have a net asset value of at least HK$2 billion; and
(b)(i) be a bank regulated by the Hong Kong Monetary Authority, a corporation licensed by the SFC, or an overseas banking entity subject to a standard of regulatory oversight in an overseas jurisdiction acceptable to the SFC; or
(ii) have a top three investment grade credit rating awarded by at least one rating agency of international standing and reputation which is acceptable to the SFC.
Where the issuer does not meet the above requirements (a) and (b), the product must be guaranteed by a guarantor who meets the above requirements, or be collateralized in accordance with the SIP Code requirements.