Hong Kong regulator accused of delaying approval process for structured products

The Hong Kong Securities and Futures Commission (SFC) has postponed the approval of structured retail note documentation, but issuers who possess active equity-linked investment programmes (ELIs) can still issue products, say product providers. The move comes amid SFC investigations into the mis-selling of structured products following the bankruptcy of Lehman Brothers. The SFC will issue a report on the structured products sales process in Hong Kong at the end of December.

"The SFC is not approving any retail structured notes, which are generally approved on a one-off basis," says one issuer in Hong Kong. "They haven't issued a statement saying they are not approving products, but when banks submit documents for authorisation it is just not getting done. However, it is still possible to launch ELIs which are part of an ongoing programme."

If an issuer is looking to renew an ELI programme it will take longer than usual, says another issuer in Hong Kong.

The regulator maintains it has not stopped the process. "The SFC has, as usual, been processing applications for the authorisation of offer documents and marketing materials," says an SFC spokesman. "In order to have an adequate opportunity to review the documents for the protection of the investing public, the SFC does not commit to a definite deadline and we are asking issuers to furnish us with more information."

The SFC issued a circular to issuers in October requiring those issuing retail products to review whether risk disclosure and product descriptions are adequate given the market conditions, and warning that it may require issuers to revise or supplement their existing disclosure during the vetting process.

"It seems the SFC is trying to standardise risk disclosure, but they don't want to do anything drastic and halt the retail structured products market, they just want to tone it down," says another issuer.

The report being drafted by the SFC, requested by the Hong Kong financial secretary, is expected to look at issues including cooling-off periods for certain products and the adequacy of disclosure.

Investors in Hong Kong are cautiously beginning to enquire about buying structured products again after what has been a barren two months of issuance and demand following the Lehman bankruptcy.

"For the first time in weeks, investors responded to an idea and wanted to meet on the day we posited it," says one issuer. "Investors are showing encouraging signs and are thinking hard in preparation for next year."