Client onboarding, suitability and know-your-client
What this domain tests
This domain tests whether you can build a defensible client file and match a product to a client, including the professional investor regime and discretionary accounts.
Core rules
- Before dealing, obtain a signed client agreement and complete KYC: identity, financial situation, investment experience, investment objectives, risk tolerance and investment horizon. Verify, do not merely record, and refresh the profile periodically.
- Under the Code of Conduct, when making a recommendation or solicitation you must ensure it is reasonable in all circumstances, having regard to the client's profile. For complex products, suitability applies even where there was no solicitation.
- Professional investors: an individual with a portfolio of at least HK$8 million; a corporation or partnership with a portfolio or total assets of at least HK$40 million. Election requires a signed statement and, for individual PIs, additional warnings on reduced protections.
- Discretionary accounts need prior written authorisation and a documented investment mandate.
- Third-party payments into or out of client accounts are generally prohibited except in limited, documented circumstances; client assets must be segregated and reconciled.
Worked example
A 72-year-old retiree living on a pension wants to put her entire HK$1.2 million savings into a 3x leveraged ETF. Her objective is income and capital preservation, and she has no derivatives experience. The recommendation is unsuitable regardless of her signature on a risk disclosure: the file should show the assessment, the rationale for any alternative (for example a diversified income fund) and her documented decision.
Traps that cost marks
Relying on a client's self-declaration without probing; assuming a professional investor election removes all conduct duties; and failing to record why a product was considered suitable.