Hong Kong banks’ sales process needs improvement

Monetary Authority and SFC regularly supervise banks to ensure that their duties of disclosing accurate and adequate information and presenting balanced views about investment products are practised.

The Monetary Authority says its mystery shopping exercise finds selected banks generally have complied with so-called "know-your-client" requirements but also revealed deficiencies and areas requiring improvements in some banks' sales process.

The authority and Securities & Futures Commission jointly carry out the exercise, which covered 350 samples from a mix of 20 small, medium and large banks which engaged in selling investment products to Hong Kong investors.

It covered four major areas, including know-your-client process, product features explanation and risks disclosure, suitability assessment, and selling practices in respect of vulnerable customers.

Monetary Authority Deputy Chief Executive Arthur Yuen said banks have a duty to ensure their staff disclose accurate and adequate information and present balanced views about investment products to help customers make informed investment decisions.

“Banks should also take reasonable steps to ensure the recommended product is suitable for a customer having regard to all relevant personal circumstances of the customer,” he said.

Mr Yuen said the authority has already required the individual banks concerned to take corrective actions. Areas where shortcomings were identified in the exercise will be subject to greater scrutiny in its supervisory process for all banks.

It will continue to deploy mystery shopping from time to time to assess the industry’s compliance with regulatory requirements, he said in an HKMA report.

The exercise shows some banks need to improve in disclosing recommended products' features and risks, for instance the insurance nature as well as fees and charges of investment-linked assurance scheme products.

Some also have failed to take into account all customer's relevant personal circumstances in ensuring suitability of investment recommendations. Procedures to identify vulnerable customers with low education were inadequate.

The exercise also revealed some good sales practices. For example, some bank staff proactively reminded shoppers to avoid being too aggressive and to watch for high investment risks of products the shoppers were interested in. Some bank staff advised the shoppers not to make hasty investment decisions.