Hong Kong Regulators Remind Intermediaries of Selling Practice Requirements for Complex Bonds and High-Yield Bonds

Intermediaries need to review and enhance their policies and procedures to address any issues relevant to their institutions.

On 25 March 2014, the Securities and Futures Commission (SFC) issued a circular (Circular) to remind SFC-licensed corporations of their obligations when selling complex bonds and high-yield bonds. On 19 November 2012, the SFC issued a circular on fixed income products that highlighted the key risks associated with complex and high-yield bonds and the obligations of distributors. The more recent Circular serves as more detailed guidance to licensed corporations with respect to selling practice requirements for these products. The Hong Kong Monetary Authority (HKMA) issued a separate circular on the same day to all registered institutions drawing their attention to the issues and guidance in the SFC’s Circular.

Background -

The rising popularity of complex and high-yield bonds in recent years, driven by investors’ search for yield, has given rise to regulatory concerns about the additional risks these products carry. The SFC and the HKMA have issued various circulars to intermediaries emphasizing the product risks and the regulatory requirements for selling these bonds.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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