The new clause should be included as is and without changing its original wording. However, the SFC has no objection to the minor and inconsequential editorial changes to the New Clause that modify the references of “we” to “the Company”, “you” to the “Client” and “consent” to the “Terms”, etc., in order to bring them into line with the cross-references in the companies` underlying documents. When it comes to changing customers` contracts, it depends on the circumstances and can be done in different ways (e.g. B by opt-out consent or re-performance of the contract), and intermediaries should seek legal advice where in doubt. Factors that may change include: the risk of fluctuations in the prices of marketable securities, etc.; the credit risk of issuers, etc.; the risk of fluctuations in interest rates and financial markets; Liquidity risks, etc., such as.B. the impossibility of carrying out a transaction under conditions of sufficient liquidity (and with regard to investments denominated in foreign currencies, exchange rate risks, etc.). Therefore, the principal amount of the client`s investment is not guaranteed. A loss in the value of financial instruments, etc. could result in a loss of capital. With respect to fees and commissions other than management fees, variable additional costs may apply, including selling commissions, mutual fund operating fees and other applicable fees. For a client that is a foreign company, the management fees must be agreed individually as part of an investment advisory contract or a discretionary management contract after the contracts have been concluded.
Intermediaries are expected to provide revised client agreements in a timely manner so that existing clients can enter into revised client agreements as soon as possible (by amending or replacing their existing agreements). As set out in the consultation conclusions on customer contract requirements published on 8 December 2015 (`the consultation conclusions`), all intermediaries, including those authorised or registered for type 9 regulated activities, should include the new clause in their customer contracts. Financial products and financial derivatives invested under asset management contracts or products invested under investment advisory contracts may incur losses as a result of changes in the market indices for those products, interest rates, exchange rates or other indicators on the markets for financial instruments. In addition, paragraph 36 of the consultation conclusions explains that under the new rules for professional investors, all intermediaries serving as “institutional professional investors (“institutional financial institutions”) or “professional investors of enterprises (“corporate IPs”)” (as defined in new section 15.2 of the Code) are entitled to certain exceptions to the Code. This includes the discretion to waive the need to enter into a client contract by dealing with these classes of investors under new section 15.4 of the Code (for an intermediary serving a corporate IP to be exempt from tax, it must comply with the valuation requirements of new section 15.3A and comply with new section 15.3B of the Code). If an intermediary nevertheless decided to enter into a customer contract with such a customer for commercial or other valid reasons, he would not be obliged to include the new clause, as the requirement for an agreement under the Code can be lifted in the first place. Intermediaries should include the new clause in contracts with customers, unless they are entitled to exemptions, as explained in points 35 and 36 of the consultation conclusions. Therefore, all intermediaries that provide asset management services to their clients at their own discretion and enter into agreements with them, such as MAIs, should include the new clause in the agreements, unless they are entitled to the exemptions. Note: The above risks, fees, etc. vary depending on the details of the contract, investment conditions, etc.
Therefore, before entering into a contract, potential clients are advised to first confirm all relevant points in the “documents to be read before entering into a discretionary investment management contract”. Depending on the specifics of the contracts, additional costs may be incurred, including variable costs depending on the performance of the investments or the costs set by the trust banks. The purpose of this FAQ is to provide guidance on the application of paragraph 6.2(i) of the Code. The total cost cannot be determined in advance for the reasons mentioned above. In cases where margin transactions and/or forward and options transactions (hereinafter referred to as “derivative transactions”) are used, the amount of derivatives transactions may exceed the amount of customer margin and other guarantee funds (hereinafter “customer margin, etc.”) and losses exceeding customer margin, etc., may result from fluctuations in interest rates and currency levels and other indicators of the financial products market. The amount of the client margin, etc. and the method of calculation, etc. differ according to various transaction circumstances and transaction counterparties, therefore, it is not possible to represent the ratio between the amount of derivatives transactions and the amount of customer margin, etc. The term “institutional professional investors” is defined in section 15.2 of the Code as the persons referred to in paragraphs (a) to (i) of the definition of “professional investors” in Division 1 of Part 1 of Schedule 1 to the Securities and Futures Regulations (“FSO”).
Intermediaries shall take into account the definition in the FSO in determining whether their clients may be treated as institutional financial instruments for the purposes of compliance with point (i) of paragraph 6.2 of the Code. Code of Conduct for Persons Authorized or Registered with the Securities and Futures Commission (the “Code”) These cannot be determined in advance. Some contracts incur performance fees. As provided for in point 35 of the consultation conclusions, it is unlikely that the new clause will be applicable in a standard corporate finance mandate. Since a standard corporate finance mandate covers essentially all corporate finance activities covered by the definition of corporate finance advice in Part 2 of Annex 5 to the FSO, an intermediary engaged in corporate finance activities should generally be able to avail itself of paragraph 6.4 of the Code, given the limited nature of the services provided. .