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SFC warns H.K. not ready for mainland investors

Regulator warns the city’s banks aren’t digitally prepared for Wealth Management Connect.

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Julia Leung, SFC

Julia Leung, deputy CEO of the Hong Kong Securities and Futures Commission, warned the asset- and wealth-management industry that it might not be able to succeed in handling mainland Chinese customers.

The problem won’t be regulation. It will be lack of tech savviness.

“Cross-border distribution to GBA residents will pose serious challenges for banks in Hong Kong,” she said, referring to the Greater Bay Area, meant to integrate Hong Kong and Macau with nine cities in Guangdong Province.

Leung made her remarks on June 7 while addressing the annual get-together of the Hong Kong Investment Funds Association, representing local and global asset managers, as well as wealth managers and service providers.

“Banks here rely heavily on face-to-face means to solicit sales,” she said, “but under this scheme, the mode would change to execution-only online platform and mobile apps. The mainland’s tech-savvy retail investors are used to a level of service that is very mobile, cost-effective and provides up-to-date fund information, and that would probably need to be matched in order to entice them to invest in authorized funds and products offered in Hong Kong.”



Leading banks in the city like to showcase their latest digital efforts. The fact that the securities regulator felt the need to make her point suggests those efforts need to speed up.

The next Connect

Wealth Management Connect was announced last year. It follows up the successful linkages of the Hong Kong and Shanghai stock markets with Stock Connect and Bond Connect, allowing investors on either side of the border to buy the other’s authorized securities.

The SFC has worked with the Hong Kong Monetary Authority and mainland authorities to launch Wealth Management Connect, or WMC, which aims to expand sales of investment products to residents of GBA cities.

For Hong Kong’s local funds industry, this represents a chance to broaden the range of funds domiciled locally, as only these will be eligible to sell to mainland investors (as opposed to the thousands of funds sold in Hong Kong but domiciled in offshore centers like the Cayman Islands or Luxembourg).

Leung said there has been a pickup in applications to register open-ended fund companies in Hong Kong to cater to this potential demand.

As the product side gets fleshed out, Leung urged the industry to be ready to meet the high standards of mainland investors, at least as far as digital experience goes. She noted that banks and asset managers sped up their digitization efforts in the wake of the COVID-19 pandemic ­– a trend she expects to continue under the pressure of Wealth Management Connect.

“Go green, go tech, and stay resilient,” she told the audience.

Building resilience in asset management

WMC was only one aspect of her remarks. She highlighted SFC’s focus on market resilience, noting the industry successfully managed the volatility and operational challenges of COVID-19, but warning of dangers beneath the surface. She referenced the Archegos family office’s highly risky, overleveraged bets in the U.S. which cost prime brokers over $10 billion in losses.

Leung said the SFC will enhance its surveillance of prime brokers and look out for overly large positions in the over-the-counter markets. She also told fund managers that the SFC will scrutinize their liquidity-management practices.

She also cited increasing abuses involving newly listed companies, many of which engage in reverse IPOs or other shell games that rely on pump-and-dump schemes using retail investor money. Fund managers needed to ensure their sell-side counterparties were engaging in appropriate behavior around book-building and other IPO-related activities.

“As buy-side participants, you have an obvious interest in a clean, transparent, and fair bookbuilding process,” Leung said.

Lastly she says the SFC is cooperating with its global counterparts to advance standards for measuring and categorizing factors in sustainable investing, and to provide clarity about how fund managers should count and integrate data regarding environment, social, and governance principles.


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SFC warns H.K. not ready for mainland investors