A Quick Guide to Hong Kong's Financial System and Services
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A Quick Guide to Hong Kong’s Financial System and Services The Investor Education Centre is supported by the financial regulators
1
Contents
Financial Regulatory System 2
Markets and Products 8
Investing and Trading 18
Safeguards 22
Getting Useful Information 28
About IEC
Established in November 2012 and supported by the
four financial regulators in Hong Kong, the Investor
Education Centre is a dedicated organisation with the
mission of improving financial literacy in Hong Kong.
It aims to better equip the general public with skills
and knowledge to make informed financial decisions
and manage their money wisely through the provision
of comprehensive, credible and impartial financial
information, tools and education resources.
3
Financial
Regulatory
System
As an international financial centre, Hong Kong offers a sound
regulatory framework and a raft of safeguards to financial
consumers. Understanding how our markets and market
players work is essential before you make decisions on how to
plan and manage your money here.
The Financial Services and the Treasury Bureau of
the Hong Kong Special Administrative Region Government
works closely with market regulators and participants to
strengthen Hong Kong’s role as an international financial
centre, asset management centre and offshore renminbi (RMB)
business centre.
The four financial regulators are the Hong Kong Monetary
Authority (HKMA), the Mandatory Provident Fund Schemes
Authority (MPFA), the Office of the Commissioner of Insurance
(OCI) and the Securities and Futures Commission (SFC).
They oversee the banking, the Mandatory Provident Fund
(MPF), insurance as well as securities and futures industries
respectively, and help maintain the financial stability of Hong
Kong.
As part of Hong Kong’s overall regulatory infrastructure for the
financial services industries, the Investor Education Centre’s
role in financial education is complementary to the work of the
regulators.
4 5
Financial Regulators
Hong Kong Monetary Authority Office of the Commissioner of Insurance
The HKMA was established on 1 April 1993 by merging Empowered by the Insurance Companies Ordinance, the
the Office of the Exchange Fund with the Office of OCI protects the interests of policyholders and promotes
the Commissioner of Banking. Its main functions and the general stability of the insurance industry. Its work is to
responsibilities are governed by the Exchange Fund authorise and supervise insurers, and regulate insurance
Ordinance and the Banking Ordinance. The HKMA reports intermediaries through a self-regulatory system.
to the Financial Secretary and is the government authority
responsible for maintaining monetary and banking stability.
Securities and Futures Commission
Mandatory Provident Fund Schemes Authority Established in 1989, the SFC is an independent statutory
body set up to regulate the securities and futures markets.
The MPFA is a statutory body set up in 1998 under the With its powers derived from the Securities and Futures
Mandatory Provident Fund Schemes Ordinance to assist Hong Ordinance and a subsidiary legislation, it maintains
Kong’s workforce to accumulate savings for their retirement, and promotes the fairness, efficiency, competitiveness,
through regulating and supervising privately managed MPF transparency and orderliness of the securities and futures
schemes and overseeing the operation of occupational industry, and offers protection and education to the public
retirement (ORSO) schemes. investing in financial products. Its investor education
mandate has been transferred to the Investor Education
Centre.
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6 7
Regulation of Financial Markets, Products and Intermedi aries in Hong Kong
Securities and Futures Hong Kong Monetary Mandatory Provident Fund Office of the Commissioner
Commission Authority Schemes Authority of Insurance
Regulates and authorises publicly Regulates and supervises banks and Regulates and supervises MPF Authorises and supervises insurance
offered investment products and deposit-taking companies schemes / trustees companies
their offering documents eg unlisted
Regulates intermediaries ie banks Acts as the registrar of the ORSO Regulates intermediaries ie
investment products and listed
and bank staff who are registered schemes insurance agents and brokers
exchange-traded funds (ETFs) and
with the SFC for carrying on through overseeing self-regulatory
real-estate investment trusts (REITs) Registers MPF intermediaries who
businesses in securities and futures organisations
offered to the public in Hong Kong are regulated by the HKMA, OCI
and SFC for carrying on business in
Licenses and supervises
banking, insurance and securities
intermediaries eg brokers,
respectively
investment advisers and fund houses
Directly regulates takeovers and
mergers of listed companies
Oversees market operator ie Hong
Kong Exchanges and Clearing
Limited which regulates listed
companies and listed structured
products9
Markets Hong Kong has an integrated network of institutions and
markets providing wide-ranging products and services
and to consumers and investors. Its financial markets are
characterised by
Products a high degree of liquidity with effective and transparent
regulations
minimum intervention by the government
a low and simple tax policy that allows room for business
initiatives
a strong emphasis on the rule of law and fair market
a stable currency regime with the exchange rate of the
Hong Kong dollar to the US dollar kept at about HKD7.8
against USD1
no exchange controls and restrictions on capital inflows
and outflows10 11
Markets Products and services Key points to note
Hong Kong Exchanges and Clearing Limited (HKEx) operates the securities
and derivatives markets in Hong Kong and is the frontline regulator of listed Banking
companies. Its stock exchange regulates listed issuers and administers
listing, trading and clearing rules. Consumers can apply for credit Avoid over-borrowing.
cards and borrow loans from banks. Keep loan payments to a level
Financial institutions such as banks, fund managers, brokerages and Through opening savings, current, you can comfortably repay.
insurance companies offer a wide range of banking, investment and time deposits, non-HKD, integrated Stay on track with your credit
insurance products which include funds and investment-linked assurance and investment accounts, they can commitments.
schemes (ILAS). transfer money, receive interest and
Some institutions also provide trading and settlement services. conduct transactions of financial
products.
The staff of banks and brokerages, insurance agents, insurance brokers, and
investment advisers act as intermediaries to sell, distribute and advise on the Insurance
financial products.
A full product range comprises life Ensure that you understand
insurance policies (including ILAS), the risks of investing in ILAS.
and non-life insurance policies ILAS are generally designed
(including medical, critical illness, for consumers who have a
accident, home, travel and motor) to long-term investment horizon
cater for your needs. and a dual objective of
investment and estate
ILAS is a long-term investment-cum- planning; intend and are able
life insurance product, with its policy to pay the premiums for the
value determined by the insurer whole policy term; and accept
based on the performance of the that their death benefits under
“underlying or reference funds”. the ILAS are subject to
The insurer, not the policyholder, investment risks.
owns ILAS’s underlying assets.12 13
Products and services Key points to note Products and services Key points to note
Investment
Stocks Funds
When you invest in Hong Kong’s stock Watch out market risk, interest Funds must be authorised by the SFC SFC authorisation is not a
market, it is important to understand rate risk, global and before they can be offered to the recommendation or
the risks and know your limits. macroeconomic risk, Hong Kong public. endorsement of a product nor
While you might make gains, business risk, uncertainties does it guarantee the
you could also lose. about corporate earnings To be authorised, funds must meet commercial merits of a
and mis-governance, the requirements in the SFC product or its performance.
trading suspension and Handbook for Unit Trusts and Mutual An unauthorised fund is not
liquidity risk. Funds, Investment-Linked Assurance subject to the regulation of the
Schemes and Unlisted Structured SFC, its structures and
Investment Products, covering operations may not be
Bonds investment restrictions, fund manager / governed by any rules or
A bond is a public or private debt Bonds carry credit risk, custodian / trustee eligibility, regulations in Hong Kong
instrument issued for fund-raising interest rate risk, information disclosure and and the offering document
purpose. The range of product exchange rate risk, operational matters. may not have been vetted by
offerings, the open access for issuers liquidity risk, inflation risk Unauthorised funds can be distributed Hong Kong’s authorities.
and investors, and the increasing and event risk. privately to professional investors and
significance of offshore RMB bond High-yield bonds and bonds the onus is on the fund manager to
issuances are conducive to with special features bear ensure that laws are not contravened.
developing Hong Kong into an additional risks.
international bond market.14 15
Products and services Key points to note Products and services Key points to note
ETFs Structured products
An exchange traded fund (ETF) tracks, Tracking errors arising from A structured product is an investment
replicates or corresponds to the charges and index changes, product embedded with a derivative
performance of an underlying index or counterparty risk and under which the return is typically
benchmark which can be on a stock currency risk. linked to the performance of the
market, a specific segment of a stock reference underlying eg securities,
market, a group of stock markets index; they may be listed or unlisted.
or on bonds or commodities.
Listed structured products in Hong Risks related to listed
In some cases, an ETF tracks an index Kong include derivative warrants and structured products are
of a market where access is restricted callable bull/bear contracts (CBBC). explained on the HKEx
(such as the China A-share market website.
and the Indian market), thus giving
investors indirect access to that market. Unlisted structured products are Related risks include
traded over the counter at banks and the product may not
brokerages, and include be principal-protected.
Leveraged forex equity-linked investments (ELI), its maximum potential
Leveraged foreign exchange (forex) Leveraged forex may bring equity-linked deposits (ELD) and gain may be capped.
contract is a “geared” investment substantial profits, but also currency- linked investment products. issuer credit risk.
in which you invest in one currency equally, substantial losses, in
on margin in the expectation that its a short period of time.
exchange rate against another It is only suitable for the
currency will rise or fall. Whether you disciplined investor who can
make a profit or suffer a loss depends afford the loss when the
on the difference between the currency moves against the
exchange rates at which you open expectation.
and close your position.16 17
Products and services Key points to note
Derivatives
A derivative is a financial Issuer credit risk, absence of Buying property
contract whose value derives from collaterals, gearing risk, expiry
the performance of an underlying consideration, extraordinary People who consider migrating to Hong Kong through the Capital
asset. Hong Kong’s exchange traded price movements, liquidity risk Investment Entrant Scheme (CIES) administered by the Immigration
derivatives include options and futures and market risk. Department should note that property is no longer a permissible asset
contracts1. under the CIES although it is a highly popular investment avenue for
consumers.
RMB products Hong Kong has no foreign-ownership restrictions on the sale of
A renminbi (RMB) product is a generic RMB is a restricted currency residential, office, commercial or industrial property. Starting in late 2012,
term which may include a wide and subject to exchange non-permanent residents and companies must pay a 15% Buyer’s Stamp
range of investment products issued, controls. Duty when buying properties in Hong Kong.
denominated or traded in RMB, or RMB may not always
Qualified estate agents in Hong Kong are licensed by the Estate Agents
may have exposure to RMB-linked appreciate.
Authority (www.eaa.org.hk).
assets or investments. You may not always receive
RMB upon product
There are different types of RMB redemption/sale.
investment products which may have Secondary market may not be
limited or no RMB-related underlying liquid or there may not be an
investments and investors may be active secondary market for
exposed to the currency risks of RMB the product.
as well as other market risks. Onshore RMB (CNY) and
offshore RMB (CNH) represent
the same currency but are
traded in different and
separate markets which
operate independently. RMB
products traded in Hong
Kong are typically valued at
CNH, not CNY. CNH/CNY may
trade at different prices.
1. For detailed product information, please visit sections Frequently Asked Questions and
Understanding Risks of Structured Products of the HKEx website.19
Investing Get prepared
and Before you invest and trade, you should plan and do your homework.
First of all, you should assess your financial needs and financial situation,
Trading set the investment objectives and investment horizon, and find out your
risk tolerance level taking into account your investment experience and
knowledge and other personal circumstances.
Then, understand the nature and risks of the financial products, identify those
that suit your personal circumstances and determine the weights of different
asset classes in your investment portfolio.
Choose an intermediary
If you use an intermediary to buy investment products, procure insurance
policies, trade securities or get investment advice, remember to first shop
around to compare the services provided and the fees charged.
Besides, make sure the intermediary you use is properly licensed to conduct
the regulated activity, and help the intermediary fully understand your
circumstances and needs.
You should check the licensing status of an intermediary from the register of
his or her respective financial regulator (please refer to the table on pages 30
and 31 for details).20 21
Trading procedures
You should take the following important steps to trade or buy financial If you are from mainland China and are buying a life insurance policy, you
products. should physically visit Hong Kong to procure the policy. You should also
produce evidence of the date of entry.
Different insurers may have other different requirements for their clients.
Open an investment account and trade
You can open a securities account with a brokerage by providing a valid Always answer all of the insurer’s questions honestly and to the best of
identification document (eg passport), an address proof (eg water or your knowledge. If you do not disclose truthful and accurate details, your
electricity bill issued within the last three months), and other documents policy may be terminated, or any future claim could be rejected.
as required by the intermediary.
A bank account may also allow you to make investments eg trading
of stocks and funds. You should identify yourself to the bank with
documents eg passport, and proof of address in your home country.
Monitor continuously
With the account ready, you can trade on the exchange or over-the-
Keep track of your investments. Pay attention to contract notes, monthly
counter depending on the nature of your investment.
statements and any other reports provided by the intermediary or product
When signing a client agreement with the intermediary,
issuer.
read the details carefully including the services provided,
remuneration eg commission, brokerage fees and any other
charges, and the risk disclosure statements.
if you deal in margin trading, check the details of margin
requirements, interest charges, margin calls, and under what
Investing overseas through a Hong Kong
circumstances your positions may be closed without your prior intermediary
consent.
In Hong Kong, certain taxes such as withholding tax, capital gains tax You should check with the intermediary
and dividend tax do not apply.
whether it has appointed any counterpart in that jurisdiction to execute
Purchase insurance policies the trades, and ask the intermediary for the details of the counterpart
beforehand such as the regulation, if any, it is subject to;
You can buy insurance protection from an insurance agent or broker in the relevant execution and settlement arrangements, as well as
person in Hong Kong. the obligations and responsibilities of each party involved in your
Produce a valid travel document and provide a postal address for transactions; and
future correspondence. any additional risks of conducting transactions and safekeeping your
If you buy a life insurance policy, you may need to conduct a body assets overseas, among other things.
check in Hong Kong. If your policy involves periodic premium
payment, you need to be aware of the available payment channels. Always read carefully the client agreement, risk disclosure statement and/or
offering documents, etc before making investment decisions.23
Safeguards
Protection
Misconduct may give rise to losses of consumers and disrupt the markets.
Financial regulators strive to promote market fairness, protect investors and
minimise crime through combating offences such as insider dealing, market
manipulation, unlicensed activities and money laundering.
The Hong Kong Police Force and the Independent Commission Against
Corruption fight commercial fraud and corruption respectively.
Issuers of authorised investment products should disclose adequate and
accurate information in the offering documents including the Product Key
Facts Statement, to help you make informed decisions.
Intermediaries eg staff of banks, brokerages, insurance agents and brokers,
and investment advisers should explain to you clearly a product’s features
and risks.
Having regarded to the information collected through the “know your client”
or “financial needs and risk profile assessment” process, an intermediary is
required, when making a recommendation, to ensure that the suitability of the
recommendation for that client is reasonable in all circumstances.
The intermediary must tell you any benefits he or she would receive from
a product issuer and his or her trading profit made from a back-to-back
transaction, his or her capacity in the transaction and affiliation, if any, with
the issuer, and generic terms and conditions under which you may receive a
discount of fees and charges.
If you have no knowledge of derivatives but intend to invest in a derivative
product even without any solicitation or recommendation from the
intermediary, the intermediary must still explain to you the relevant risks or
advise you if the investment is suitable for you, depending on whether the
derivative product is listed.24 25
Enquiries and complaints
If you have query about a product or service purchased, you should What Where How
first of all contact the financial institution eg its complaints officer (if
you want to file a complaint). If you are not satisfied with its response,
approach the related regulator or self-regulatory body. Insurance companies, Office of the (852) 2867 2565
agents or brokers Commissioner of iamail@oci.gov.hk
Insurance www.oci.gov.hk
What Where How Conduct of insurance Insurance Agents (852) 2520 1868
agents Registration Board set hkfi@hkfi.org.hk
Publicly offered Securities and Futures (852) 2231 1222 up under The www.hkfi.org.hk
investment products, Commission complaint@sfc.hk Hong Kong Federation
SFC licensees, and www.sfc.hk of Insurers
suspected market
misconduct and Conduct of insurance The Hong Kong (852) 2882 9943
breaches of brokers Confederation of info@hkcib.org
Takeovers Code Insurance Brokers www.hkcib.org
Banks and their staff Hong Kong Monetary (852) 2878 1378 Professional Insurance (852) 2869 8515
Authority bankcomplaints@hkma. Brokers Association info@piba.org.hk
gov.hk www.piba.org.hk
www.hkma.gov.hk
MPF/ORSO schemes, Mandatory Provident (852) 2918 0102
MPF trustees, MPF Fund Schemes mpfa@mpfa.org.hk
intermediaries Authority www.mpfa.org.hk
Listed companies Hong Kong (852) 2840 3895
(listing-related matters Exchanges and info@hkex.com.hk
except for takeovers Clearing Limited www.hkex.com.hk
and mergers)26 27
Compensation Legal redress
The Deposit Protection Scheme protects depositors in Hong Kong, be it If you are unsatisfied with the outcome of your complaint, you may seek
personal or corporate should a bank fail. Up to HKD500,000 protection legal advice and decide to take the matter to court.
per depositor is offered for deposits, including principal and interest and The Small Claims Tribunal for claims of up to HKD50,000
denominated in HKD, RMB or any other currency, held with a bank member. The District Court for claims above HKD50,000 and up to
HKD1,000,000
The Investor Compensation Fund compensates retail investors’ losses
The Court of First Instance of the High Court of Hong Kong that has
due to default of a Hong Kong licensed or registered intermediary or an
unlimited jurisdiction
authorised financial institution in relation to products traded on the Stock
Exchange of Hong Kong and Hong Kong Futures Exchange. The maximum
compensation per investor as a result of a single default is HKD150,000 for What Where How
trading securities or futures contracts.
The Compensation Fund compensates members of MPF schemes for Protection for deposits Deposit Protection (852) 1831 831
losses of accrued benefits that are attributable to misfeasance or illegal Scheme dps_enquiry@dps.org.hk
conduct committed by MPF trustees and other persons concerned with the www.dps.org.hk
administration of the schemes.
Losses due to default Investor Compensation (852) 2523 7382
Resolution of intermediaries for Fund icc@hkicc.org.hk
exchange-traded www.hkicc.org.hk
The Financial Dispute Resolution Centre provides financial consumers with an products in Hong Kong
independent, affordable and transparent avenue for mediation and arbitration
to resolve monetary disputes at or below HKD500,000 with financial Losses due to conduct Compensation Fund (852) 2918 0102
institutions which are authorised by the HKMA or licensed by/registered with of MPF trustees and mpfa@mpfa.org.hk
the SFC. people concerned with www.mpfa.org.hk
scheme administration
The Insurance Claims Complaints Bureau offers the insuring public free
service for insurance claims complaints arising from all types of personal Mediation and Financial Dispute (852) 3199 5100
insurance policies of which the total claim amount does not exceed
arbitration of monetary Resolution Centre fdrc@fdrc.org.hk
HKD800,000.
disputes www.fdrc.org.hk
Claims complaints The Insurance Claims (852) 2520 1868
about personal Complaints Bureau iccb@iccb.org.hk
insurance policies www.iccb.org.hk29
Product information
To find out more about a product, you should always
read all the product offering documents or principal brochures which can
be obtained from the issuer and/or intermediary;
check with the issuer and/or intermediary to see whether the product is
authorised by the SFC;
seek professional advice from the intermediary about the product
(including the details on its fees and charges and risks); and
where necessary, request the issuer to provide additional information,
which you may do via your intermediary.
Getting
Useful
Information30 31
Trading information
Having bought a financial product, it is critical for you to keep track of its
trading information.
Regulated
What Where Key information Source
activities
Listed securities and derivatives HKEx - HKExnews Banks’ securities Registration details and “Register of Securities
prices, disclosure of interest and business and/or other any records of public Staff of Authorized
market statistics regulated activities as disciplinary actions Institutions” and
defined under the SFO taken by the SFC and/or “Register of Authorized
Bond prices and related information HKMA - Central Moneymarkets Unit HKMA Institutions and Local
Bond Price Bulletin Representative Offices”
on HKMA website
Retail fund prices, sales and Hong Kong Investment Funds
redemptions, and related Association and individual fund Sales, marketing and Registration status, “Register of MPF
information houses giving advice on MPF contact details of Intermediaries” on MPFA
schemes intermediary and any website
Underlying fund prices of ILAS Insurance companies public disciplinary
actions taken by MPFA
Interest and currency exchange Banks
rates Business of selling/ Registration number, “Register of Insurance
advising on insurance appointing insurer(s) Agents” of the Insurance
policies and expiry date of Agents Registration
Intermediaries information registration fee Board on The Hong
Kong Federation of
Look up public registers maintained by regulators or self-regulatory bodies to Insurers website
check if an intermediary is properly licensed, authorised or registered.
Member status, Register on The Hong
Regulated membership number, Kong Confederation
Key information Source contact details and line of Insurance Brokers
activities
of business website
For example, Licence details, “Public Register of Member number and Register on Professional
securities and futures contact details of Licensed Persons & registration number, Insurance Brokers
dealing and advising complaints officer Registered Institutions” on contact details and line Association website
and leveraged forex and any records of SFC website of business
as defined under public disciplinary
the Securities actions taken by
and Futures the SFC
Ordinance (SFO)32
What to check from home
If you are a national of a country or region outside
Hong Kong, you should check with relevant
authorities in your home country or region whether
any requirements are imposed on you for investing
overseas such as capital gain tax, currency
conversion restrictions or foreign exchange controls
or any other legal restrictions.
This publication is intended to provide a general overview for information and educational purposes only
and is not a comprehensive treatment of the subject matter. The information is provided generally without
considering specific circumstances and should not be regarded as a substitute for professional advice. The
Investor Education Centre (“IEC”) has not advised on, passed on the merit of, endorsed or recommended
any of the products/services or types of products/services referred to in this publication. Readers should
seek professional advice if they consider necessary.
Examples and case studies provided in this publication are for educational purposes only.Email: info@hkiec.hk Website: www.hkiec.hk The Investor Education Centre (“IEC”) is the owner of the copyright and other intellectual property rights in this publication. This publication (in whole or in part) may not be reproduced or distributed, or used for commercial purposes, without the prior written permission of the IEC. Copyright © 2014 Investor Education Centre. All rights reserved.
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