LegCo Meeting, 10/6/2015, Highlights
Sin Chung-kai’s “Letter to Hong Kong”, Broadcast on RTHK, 14/6/2015
Click HERE to listen to the radio program.
Background on the Scandal
Insurance intermediaries who sell investment-linked assurance schemes (ILAS) often refer to themselves as financial advisers or financial consultants. One of their main selling points is their alleged expertise in selecting investment funds which they believe will outperform the market.
Giving advice on investment funds is an SFC-regulated activity. ILAS intermediaries who have not obtained an SFC license are committing a criminal offense, contrary to Section 114 of the SFO, when they hold themselves out as carrying on a business in providing investment advice.
Since most ILAS intermediaries are not SFC-licensed, many, if not most, have been breaking the law.
Over the past month, the author of this blog has filed many complaints with the SFC against ILAS intermediaries who have been advertising themselves online as carrying on a business in Types 1, 4, and 9 SFC-regulated activities, despite the fact that these intermediaries and their companies do not possess any SFC licenses. Screenshots have been retained as evidence and may be published in the future, depending on SFC’s vigilance in enforcing the law.
The SFC had been regulating ILAS intermediates up until 13 August 2009, when the SFC suddenly changed its interpretation of the law and announced that it would no longer regulate the sale of ILAS products. As a consequence, ILAS intermediaries would thereafter be solely under the watch of self-serving self-regulatory organizations, whose conduct standards are much lower than SFC’s. ILAS intermediaries would thus be exempt from requirements to fully disclose the obscene sums of money they were deceptively extracting from their clients’ investment contributions via kickbacks from insurance companies.
Credible sources have said that the FSTB was responsible for pressuring SFC to stop regulating ILAS in 2009. SFC’s policy shift occurred not long after OCI and ICAC first expressed concerns that undisclosed ILAS commissions violated the Prevention of Bribery Ordinance.
The FSTB and SFC’s motives are unclear, but one thing is certain—their policy decision protected the interests of commission gougers at the expense of unsuspecting investors.
Over the past 5 to 6 years, hundreds of thousands of Hong Kong investors have been ripped off by self-regulated insurance intermediaries. The number of victims would have been greatly reduced if SFC hadn’t stopped regulating ILAS in 2009.
Last week, members of Hong Kong’s Legislative Council expressed outrage over the scandal and directly confronted KC Chan, head of the FSTB. Sin Chung-Kai accused the administration of “dereliction of duty”. Albert Ho likened the regulatory failure to the Lehman Minibond fiasco, and Leung Kwok-Hung suggested that authorities should be liable for compensating victims.
The full English version of the very heated discussion can be watched here:
The full Chinese version can be watched here:
All of the above video clips were excerpted from a much longer two-hour video uploaded to the HK Legislative Council’s YouTube Channel. The videos can also be found on the LegCo’s website, www.legco.gov.hk. LegCo is the copyright owner.
SFC ‘Listens’ to ILAS Victims but Refuses to Answer Questions (April 21, 2015)