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The era of placing orders by phone has passed?! Hong Kong Securities Regulatory Commission issued five guidelines on WeChat/WhatsApp

2018-05-21

With the popularization of smart phones, it is a general trend for Hong Kong securities companies to provide services such as WhatsApp, WeChat and other instant messaging applications to place orders. In order to keep pace with the times, the Hong Kong Securities Regulatory Commission issued a circular on May 15, 2018. While welcoming brokers to place orders for customers with instant messaging applications, it also issued five major regulatory guidelines, including the need to keep records of trading messages for at least two years, the need to obtain the consent of customers in advance, and the inability to delete or recall the sent trading instruction messages.


In order to catch up with the trend or take into account the common contact mode between them, many Hong Kong securities companies and customers may use the instant messaging application method to place orders. This method is also particularly popular with overseas customers, especially mainland customers, because it is difficult to place orders by phone or trading APP provided by securities companies in other regions. However, while bringing convenience, we should not ignore some practical problems and risks derived from it.


There are many instant messaging applications on the market, some of which even provide the function of "burning after reading", that is, after Party A sends the information to Party B, the information will be automatically deleted immediately after Party B reads it or after a period of time. In addition, many of the messaging applications allow users to delete messages, or affect securities firms and regulatory agencies to verify, monitor and keep trading records. In addition, if the broker receives orders from customers through instant messaging applications instead of company calls, how should he ensure that the transaction records are properly kept?


In order to protect your rights and interests, whether you are a securities firm or a customer using the services of a securities firm, you should also carefully consider whether the relevant arrangements are safe and compliant before using instant messaging applications to send and receive trading instructions, and clearly determine the criteria for placing orders and placing orders with the other party. Unless the securities firm can ensure that all relevant regulations are met, the securities firm shall prohibit the broker from receiving the trading instructions from customers through instant messaging applications.


From the perspective of securities firms, they should also establish adequate monitoring measures and systems on the premise of properly understanding the functions and limitations of specific applications and prudently assessing the risks involved. The securities firm shall also clearly list with the customer which programs are accepted to place orders, and regularly follow up whether there will be any impact on its operation due to the need to launch new versions or functions of the programs.


The following are the five key points of the guidance issued by the SFC on securities companies placing orders for customers using instant messaging applications:


1. Centralized record keeping

The Guidelines require securities firms to record all trading instructions in an integrated and centralized manner, and properly keep them for at least two years. In addition, securities firms should also properly keep instant messaging accounts and devices used to store and process trading instructions, so as to reduce the chance of errors and minimize the risk of record tampering. In addition, the Guidelines also mentioned that securities firms should make appropriate arrangements and prepare sufficient capacity to store and back up trading instruction messages in a form that can prevent inappropriate modification or deletion.


2. Safety and reliability

The Guidelines remind securities firms to authenticate and verify the identity of customers who send trading instruction messages. In case of any doubt, they should directly call or write. In addition, the Guidelines also remind securities companies to pay close attention to the trend of fraud cases related to instant messaging applications, and implement adequate and appropriate security measures and contingency plans to reduce the risk of intrusion or service interruption.


3. Compliance supervision

The Guidelines require securities firms to ensure convenient access to all trading instructions, and arrange appropriate equipment and facilities for regular compliance monitoring and auditing, and compare trading instructions with the account activities of relevant customers to detect irregularities and potential misconduct. Securities companies should also pay attention to whether there are unusual transactions, such as changes in trading patterns or heavy trading of low volume stocks, and check with customers when appropriate.


4. Internal policies and procedures

The Guidelines require securities companies to formulate written policies and procedures, clearly communicate them to staff and provide adequate training, and ensure that customer trading instructions can be implemented as soon as possible. Unless a securities firm can fully control the recording and keeping of trading instruction messages, its staff shall be prohibited from making, sending or receiving electronic communications related to customer trading instructions.


5. Customer perception

The Guidelines remind securities companies to enhance customers' awareness of system security, and ensure that customers have fully understood all potential security risks, such as phishing fraud, malicious programs, account theft, impersonation and system operation risks, before allowing customers to use instant messaging applications to issue trading instructions. Securities companies should also fully communicate and agree on the terms of using instant messaging applications to send trading instructions to customers.


Welcome to convey the above information to your circle of friends. We hope that mainland industry friends can have more information about Hong Kong's financial regulations and protect their legitimate rights and interests.

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