Legal update: SFC Consultation on clarification to offering document exemptions


In this snapshot legal update, we report that on 10 June 2022, the SFC launched a public consultation exercise that includes a proposed clarification to an exemption from SFC authorisation for offering documents for securities.

The Securities and Futures Ordinance prohibits the issue of advertisements and other documents containing prescribed content unless the issue has been authorised by the SFC. This prohibition currently does not apply to advertisements and other documents made in respect of investment products which are or are intended to be sold only to professional investors.

In Pacific Sun Advisors Limited & Anor v Securities and Futures Commission (FACC 11/2014), the Court of Final Appeal examined the scope of the exemption, and held that the exemption applied if it could be demonstrated that the relevant investment product is intended solely for professional investors. This accomplished the core statutory purpose of retail investor protection. This issue required an assessment of the substance of the investment, and need not be determined by the express wording of the advertisement used for the investment product.

The SFC has taken the view that the outcome of this judgement results in retail investors being exposed to unauthorised offers or solicitations to invest in risky or complex products which are unsuitable for them. The proposed amendment would make it clear that the sole basis for this exemption will be advertisements that are issued only to professional investors.

If the consultation proposal proceeds to legislation, the effect of this proposal would be that unauthorised advertisements of investment products which are intended to be sold to professional investors, could only be issued to persons who have been identified in advance as professional investors through know your client procedures. This would curtail the practice of unauthorised advertisements of investment products intended to be sold only to professional investors being issued to the general public. The SFC perceives that this will enhance retail investor protection in Hong Kong.

The consultation paper also seeks comments on amendments to the powers of the SFC to apply for remedial orders against regulated persons, and to the insider dealing provisions of the Securities and Futures Ordinance.

The consultation period concludes on 12 August 2022, following which the SFC will publish its consultation conclusions and move forward with draft legislation.

The full consultation paper is available here.

Pádraig Walsh

If you would like to discuss any of the matters raised in this article, please contact:

Pádraig Walsh
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Disclaimer: This publication is general in nature and is not intended to constitute legal advice. You should seek professional advice before taking any action in relation to the matters dealt with in this publication.