On 23 May 2018, the Securities and Futures Commission (SFC) published its consultation conclusions on disclosure requirements for discretionary accounts (Consultation Conclusions). They consist of amendments to the Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission (Code).

The Code amendments seek to address queries that were first raised in response to the SFC’s consultation paper on proposed enhancements to asset management regulation which was published on 23 November 2016. In particular, it was unclear how certain disclosure requirements in the Code would apply to discretionary accounts. In response, on 16 November 2017, the SFC published a further consultation to clarify the position for discretionary accounts, at the same time as publishing its conclusions to the initial consultation (further details are set out in our bulletin of 17 November 2017).

The Consultation Conclusions set out the SFC’s final position on the disclosure requirements for discretionary accounts. The final Code amendments were gazetted on 25 May 2018 (and a marked up version of the amendments, showing further revisions made as a result of feedback to the consultation, can be found in Appendix A of the Consultation Conclusions).

The Code amendments will come into effect on 25 November 2018. The SFC has provided further guidance by way of FAQs, which will be updated from time to time.


The amended disclosure requirements (in the form of a new paragraph 7.2 to the Code) will apply to intermediaries:

  • receiving benefits from product issuers in the course of providing discretionary management services; and
  • making trading profits from products purchased from or sold to third parties for the discretionary accounts.


Specific disclosures – monetary benefits under explicit remuneration arrangement and trading profit made from a transaction

Of the two options put forward for consultation, the SFC opted for Option 1 after considering views from the respondents:

  • The maximum percentage of monetary benefits by investment product type must be disclosed. “Monetary benefits” will include both quantifiable and non-quantifiable monetary benefits. Where monetary benefits are not quantifiable, the existence and nature of such benefits should be disclosed.
  • The maximum percentage of trading profits by investment product type must be disclosed in circumstances where no market risk is taken on and the trading profit is made for effecting (i) a purchase of an investment product from a third party for a client, or (ii) a sale of an investment product to a third party for a client.

The SFC has provided a number of example disclosures in its FAQ 1.

It was felt that Option 1 would be easier for investors to understand and for the industry to implement than Option 2 (disclosure of the aggregate amount of monetary benefits in percentage terms).

Generic disclosures – monetary benefits under non-explicit remuneration arrangement and non-monetary benefits

The following generic disclosures are also covered:

  • The fact that a benefit will be obtained must be disclosed where there is a non-explicit remuneration arrangement which gives rise to a monetary benefit.
  • The existence and nature of non-monetary benefits from a product issuer must be disclosed.


There will be an exemption from the new paragraph 7.2 of the Code in relation to institutional professional investors, as well as corporate professional investors where the relevant requirements under paragraphs 15.3A and 15.3B of the Code are complied with.


The disclosure(s) should be made in writing to clients at account opening or prior to agreeing the discretionary management services with the client.

Only a one-off disclosure is required, and an updated disclosure should be provided to the client as soon as reasonably practicable if there are any changes.

The SFC has also indicated (in FAQ 2) that where no benefit or trading profit is obtained by an intermediary, no disclosure is required although such information may be provided to investors as additional information.


The new disclosure requirements are the final piece of the puzzle of the SFC’s enhanced regime for asset managers.

In addition, on 25 May 2018, the Hong Kong Monetary Authority issued a circular alerting authorised institutions to the Consultation Conclusions. It states that it expects authorised institutions to disclose monetary and non-monetary benefits from effecting transactions in non-Securities and Futures Ordinance regulated structured investment products under discretionary accounts in accordance with the new paragraph 7.2 of the Code (subject to the exemption discussed above).

As part of their ongoing projects to implement changes under the Code (effective from 17 August 2018) and the Fund Manager Code of Conduct (effective from 17 November 2018), and the anticipated changes under the Code on Unit Trusts and Mutual Funds which are yet to be finalised, asset managers should consider whether further drafting and repapering is necessary in relation to their discretionary accounts.