problems with the current system. First, customer perception; if the same member of staff is dealing with fixed deposits as well as investment products, it could imply, by circumstances alone, that investments are a safe, risk-free alternative to fixed-term deposits. Second, convenience; complex, risky products, may be too readily available to the general public.
The HKMA has, therefore, recommended that banks should take steps to ensure that there is a clear differentiation between traditional deposit-taking activities and retail securities, by taking measures such as physical segregation, using different staff to sell investment products, and to make clear through "physical signs and warnings" the distinction between deposits and investments. The HKMA has also recommended that risk assessment of investment products be carried out independently from the sales function. This measure is designed to ensure that a risk review is conducted independently from sales pressures. The current system of risk assessment is carried out by way of "profiling", which the staff that are attached to the sales function of the bank conduct. There is obvious potential for conflict of interest. By segregating the risk and sales function, the HKMA hopes to introduce a greater degree of impartiality into both processes.
These measures suggest that banks have failed to ensure that recommendations have been based on thorough analysis of investors' circumstances. The SFC and HKMA can point towards weaknesses in the regulatory system, however, market participants are still under an obligation to act honestly and fairly, and to exercise due diligence. The reports are, therefore, a cause for concern. Certain aspects of the reports appear quite critical of certain sales tactics; for example, the use of marketing gifts. Gifts, such as shopping vouchers, were offered to minibonds investors in return for their subscription. Regulators have recommended a review of these practices, which suggests that they might already fall foul of principles outlined in the code.
Other measures in the reports also suggest that banks did not exercise the necessary care when recommending minibonds to retail customers. Regulators have recommended introducing a "cooling-off" period in which an investor must take some time out before finalising a purchase. Regulators have also recommended introducing audio recording in risk assessment and sales processes to create more accountability. More regulation, however, is not necessarily better regulation. Ultimately, bank staff are www.51lunwen.org responsible for ensuring proper suitability and disclosure requirements are carried out. Regulators can put in place the checks and balances, such as cooling-off periods, but at the point of sale, it is bank staff who must deliver services in accordance with the code. The HKMA and SFC recommendations, which increase the level of regulation, strongly suggest that banks have, on their own, failed to carry out care and diligence when dealing with customers.
Dispute resolution
The minibonds crisis has placed a considerable strain on the current regulatory system. Disgruntled investors have lodged thousands of complaints. The HKMA and SFC can look into these complaints as part of their investigative powers. They cannot compel any financial institution to pay compensation. Investors in Hong Kong are, therefore, forced to seek reparation via the courts. Trial is a costly and time-consuming p
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