The second half of 2008 saw revised advertising guidelines (Guidelines) and enhanced disclosure requirements (Enhanced Disclosure Requirements) being introduced by the Hong Kong Securities and Futures Commission (SFC).
Issuers (Issuers) of SFC-authorised collective investment schemes (CIS) and all of the advertising materials for their CIS were required to comply with these guidelines and requirements from 1 January 2009. However, having regard to industry concerns over difficulties with compliance, the SFC announced on 30 December 2008 that it would administratively adopt a phased approach in implementing these guidelines and requirements. This review provides a snapshot of this approach and an overview of the Guidelines and the Enhanced Disclosure Requirements.
New marketing materials
Under SFC's phased approach, Issuers must on and from 1 January 2009 comply with the Guidelines and the Enhanced Disclosure Requirements (together Marketing Materials Requirements) in respect of any new marketing materials for marketing their CIS to the public.
"New marketing materials" means marketing materials which have not previously been used for marketing a CIS to the public and includes any marketing materials used before 1 January 2009 which are materially amended on and after that date.
Existing marketing materials - stage 1 (until 31 March 2009)
Issuers may until 31 March 2009 use any existing marketing materials, which comply with the advertising guidelines set out in the Code on Unit Trusts and Mutual Funds, the Code on Investment-Linked Assurance Schemes, the Code on Pooled Retirement Funds, and the SFC Code on MPF Products (together Codes) that are in effect prior to 1 August 2008 (Code Guidelines).
"Existing marketing materials" means marketing materials which have been used before 1 January 2009 but excludes any marketing materials used before 1 January 2009 which are materially amended on and after that date.
Existing marketing materials - stage 2 (from 1 April 2009)
The Marketing Materials Requirements will apply to all existing marketing materials that Issuers continue to use after 31 March 2009.
If an Issuer, in the "most unlikely event", experiences "insurmountable difficulties" in complying with the Guidelines after 31 March 2009, the Issuer may apply for an extension. This application must be submitted to the SFC by no later than 6 February 2009 and must include at least the following information:
- the period of extension sought
- copies of the existing marketing materials which the Issuer intends to use after 31 March 2009
- reasoned submission on why the Issuer's circumstances are so exceptional to be worthy of an extension
- an explanation on how the Issuer intends to ensure full compliance at the end of the extension
- a list of priorities for authorising the marketing materials (if any requires the SFC's authorisation)
- interim measures that the Issuer will adopt to ensure that investors are fully informed to make investment decisions before the existing marketing materials are fully compliant, and
- such other documents as the Issuer considers appropriate.
The SFC has indicated that no extensions would be granted beyond 30 June 2009.
Possible action for failure to meet requirements
The SFC expressed a clear stance that it will maintain active and vigilant surveillance of marketing materials and will monitor compliance during the various phases referred to above. Issuers who fail to comply with the requirements may face enforcement action by the SFC.
Overview of Guidelines
The Guidelines set out the content requirements of all forms of marketing materials, which Issuers must comply, whether such materials are required to be authorised by the SFC under section 105 of the Securities and Futures Ordinance (Cap 571) (SFO) or they are exempted from authorisation under section 103 of the SFO.
The Guidelines were intended to streamline the pre-vetting of notices and advertisements for CIS which are authorised under any of the Codes. The SFC approved the Guidelines in June 2008 and gazetted them in July 2008.
The general principles set out in these Guidelines are that the marketing materials should:
- not be false, biased, misleading or deceptive
- be clear, fair and present a balanced picture with adequate risk disclosure
- contain information that is timely and consistent with its offering documents, and
- not refer to unauthorised schemes unless reference is made to past performance of unauthorised schemes to demonstrate the relevant management company's past track record in circumstances which are permitted under the Guidelines.
The more specific content requirements in the Guidelines cover the following key areas:
- the use of language and graphics so that among other things investors are not given the impression that they cannot lose money or profit without risks
- the manner in which performance and comparative information are presented
- the inclusion of warning statements to state that:
- if the relevant CIS has special features or involve higher risk investment, the marketing materials should also include:
- the disclosure of the full name of the relevant Issuer.
Overview of Enhanced Disclosure Requirements
The SFC introduced the Enhanced Disclosure Requirements in response to public concerns over the sale of retail investment products after the collapse of Lehman Brothers. The SFC has reminded Issuers of their duties to ensure that their offering documents continue to be up-to-date and to contain sufficient information necessary for investors to make an informed investment decision given the new circumstances arising from the global financial crisis. The SFC has also set out its expectations on how marketing materials can be "clear, fair and present a balanced picture with adequate and prominent risk disclosure in compliance with all applicable regulations". These expectations can be summarised as follows:
- all principal risks should be prominently disclosed and should be visually reader-friendly and written in plain language so that investors can understand them
- the following should be summarised upfront and presented prominently (for example, in a window on the front cover of an offering document or advertising material) in a few key bullets:
- benefits, returns and risks of the product should be presented in a fair, balanced and proportionate manner
- when using terms such as "guarantee", what is being guaranteed should be clearly explained to avoid being misleading, and
- financial or other incentives should not be used or presented in such a way that it is likely to divert or mislead investors' focus from their proper assessment of the product.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.