Treatment of Professional Investors

SFC has recently resolved its compliance concerns with Julius Baer (Hong Kong) Ltd. Under the resolution, SFC reprimands and fines Julius Baer $3 million.

An SFC investigation revealed that Julius Baer, which is licensed to provide services only to professional investors, failed:

• to take adequate steps to identify clients as professional investors before treating them as such;
• to conduct an annual confirmation as to whether its clients continued to fulfil the professional investor requirements; and
• to maintain adequate written records of its investment advice given to clients.

In deciding the disciplinary sanction, the SFC took into account that:
the failures took place between October 2006 and July 2008 when they were detected;

• Julius Baer has a clean disciplinary record;
• Julius Baer co-operated in resolving these disciplinary proceedings;
• Julius Baer does not admit to the failures as identified by SFC; and
• Julius Baer will engage an independent reviewer to review its internal controls in relation to its compliance with the regulatory requirements for treating clients as professional investors and the provision of investment advice.

Jack's comment: The implication of this case seems alarming. It may indicate that certain non-eligible clients had been mis-classified as professional investors but recommended to purchase unauthorized investment products without reasonable care being taken by their relationship managers.