Chris Hamblin examines the rules that surround this peculiar class of client in the financial hubs of Dubai, Singapore and Hong Kong and concludes that, far from being an excuse for corner-cutting, the entire subject is a troublesome minefield.

ACCREDITATION AND ITS BENEFITS

A Singaporean expert investor is not to be confused with an accredited investor, which seems to be a type of ‘sophisticated investor’ as seen in the United States but not in the United Kingdom. Such a person enjoys many of the same immunities as the ‘expert’ but relies solely for his status on his net personal assets exceeding $2 million (or its equivalent in a foreign currency) in value or his income in the preceding 12 months not dropping below $300,000. Once again, the MAS has the power to bestow ‘accredited’ status on someone if it pleases (s4A(1)(a) SFA).

THE PROFESSIONAL INVESTORS OF HONG KONG

In Hong Kong these ‘experts’ are called ‘professional investors’.There are many requirements that the relationship manager (or the compliance department for which he collects information) can waive when he or she encounters one, according to the Code of Conduct for Persons Licensed or Registered with the Securities and Futures Commission. One of the broadest of these is the requirement (waived at paragraph 5.1A) to assess the customer’s knowledge of derivatives and ‘characterise’ him accordingly as part of standard know-yourclient or KYC procedures.

If the relationship manager has the task of distributing an investment product to a customer, he or she normally has to supply him with information before or at the point of sale about whether his or her firm is acting as principal or agent; what its affiliation is with the product provider (known in Hong Kong as a product issuer); all benefits, whether monetary or not; and the relevant terms and conditions (para 8.3A). None of this applies if the relationship is with a professional investor.

Other provisions that the professional investor’s relationship managers can waive are found in para 15.5. These are:

• the need to establish his financial situation, investment experience and investment objectives;
• the need to establish the suitability of a recommendation or solicitation;
• the need to send him risk disclosure statements;
• the need “to obtain from the client an authority in a written form prior to effecting transactions for the client without his specific authority” – a seemingly tautological phrase that seems (according to para 7.1(a)(ii)) to describe a ‘blanket’ authorisation to conduct business on the high-net-worth customer’s behalf without moment-to-moment consent;
• the need to confirm that authority every year;
• the need to inform him about the bank/asset management firm and the identities and status of its employees and others acting on its behalf;
• the need to confirm the essential qualities of a transaction with the client promptly after effecting it; and
• the need to provide the client with documents (in Chinese or English) regarding the Nasdaq-Amex Pilot Programme which, despite its temporary-sounding name, has been going strong on the Hong Kong stock market since 2000, allowing US-listed companies to be listed there also.

‘Professional investors’ can (as in other jurisdictions) be firms and insurance houses, that is to say corporations, but what does the SFC mean when it applies the term ‘professional investor’ to a human client? Schedule 1 of the Securities and Futures Ordinance, according to para 15.2 of the code, delineates two broad categories – A and B. A contains any intermediary or provider of investment services who is regulated anywhere abroad; any authorised insurer from anywhere in the world; any approved trustee or service provider as defined in section 2(1) of the Ordinance or anyone who acts as an investment manager for any such registered scheme or constituent fund. B is any person of a class which is prescribed by rules that the SFC has made according to the powers granted it by s397 of the Ordinance.