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SFC’s Circular to Licensed Corporations on Handling of Client Complaints
In the past few years, the Securities and Futures Commission (the “SFC”) received around four to six thousand client complaints each year against various licensed corporations (“LCs”).
On 31 March 2022, the SFC published a new circular to LCs in respect of client complaints handling policies and procedures to help LCs improve internal control, resolve upfront issues and enhance standards of service. Expected regulatory standards and suggested techniques and procedures are set out in the appendix to the circular (collectively, the “Circular”).
This article provides a brief overview of the regulatory standards applicable to handling client complaints as set out in the Circular:
- Management oversight and complaint handling policies and procedures
- Disclosure of complaint handling procedures
- Identification and escalation of complaints
- Investigating complaints
- Communicating outcomes to clients
- Record keeping
In addition to standards and best practices under the Circular, LCs are reminded to strictly comply with the Code of Conduct and the Management, Supervision and Internal Control Guidelines for Persons Licensed by or Registered with the Securities and Futures Commission at all times when handling complaints to avoid jeopardising clients’ interest.
1. Management oversight and complaint handling policies and procedures
Effective complaint handling procedures shall have regard to and include the following:
- Sufficient oversight – a manager-in-charge (“MIC”) should be designated by LCs to monitor the complaint handling process and review afterwards. Regular reports on the status of complaint handling shall be provided to ensure proper governance.
- Qualified staff – LCs should assign staff with related expertise to handle the complaints and avoid any conflicts of interest.
- Remedial actions – should be taken promptly, if appropriate.
- Timely manner – LCs should issue an acknowledgement of complaints received within 7 days upon receipt, and set out the expected timeframe for investigation, and conclude a final response within 2 months since then.
- Enforcement of policies and procedures – LCs shall communicate the policies and procedures to relevant staff in writing and ensure ongoing compliance.
- Adequate and regular training – shall be provided to relevant staff to improve performance on complaint handling.
2. Disclosure of complaint handling procedures
- LCs shall disclose the expected timeframe for the issuance of both (a) acknowledgement of receipt; and (b) final response; and
- LCs shall state clearly the channels for lodging a formal complaint to clients (e.g. (a) specifying the same at a prominent place on the official website and mobile application (if applicable); (b) distributing leaflets (physical); and (c) mentioning the process when opening a client account).
3. Identification and escalation of complaints
- Differentiate clients’ complaints from general enquiries – LCs’ staff should be capable of identifying clients’ complaints of seriousness and handle them in a timely manner.
- Key factors – LCs are responsible for providing relevant staff with guidelines as to key factors, i.e. the parameters for deciding whether feedback from clients are to be treated as a complaint.
- Potential impact on LCs – in case of any ambiguity, relevant staff shall consult senior management and/or confirm directly with clients to avoid jeopardising the interests of its clients.
- Suspected breach or non-compliance – these shall be reported to senior management timely and brought to the attention of the SFC in accordance with internal policies and procedures, as applicable.
4. Investigating complaints
When investigating clients’ complaints, LCs shall have regard to the following:
- Nature of complaints – the case on hand may not be an individual case, LCs should assess thoroughly, fairly and objectively all available information to consider whether systematic issues are involved, and if so a class investigation shall then be raised.
- Resolution and remedial actions – LCs shall provide the methods for resolving complaints timely under each specific circumstance and the approval procedures required in each case. Timeframe for ending investigations shall be communicated to clients.
- Proof of actions taken – all relevant documents and records shall be preserved as evidence to prove the timeliness and appropriateness of complaint handling by LCs.
5. Communicating outcomes to clients
- Communication – outcomes of an investigation shall be communicated to clients clearly in a timely manner, with explanations as to the final decision.
- Clients’ rights – LCs are required to inform clients of their right to refer the dispute to the Financial Dispute Resolution Centre, if necessary.
It should be noted that, subsequent to the communication of outcomes, LCs may provide clients further opportunity to be heard, and thus consider and investigate any additional information received to ensure the completeness and accuracy of the final decision reached.
6. Record keeping
The Circular suggested that effective record retention policies shall be in place, including maintaining proper records of all complaints received for internal review on a regular basis. Such register of documents and records shall be made available to the SFC upon request.
The register shall act as a (a) supervisory tool for balancing the cost and benefits of future investigation; and (b) demonstration of completeness in handling the relevant compliant for the purposes of regulatory compliance.
Conclusion
Investors and clients of LCs should be generally aware of the potential for LCs and their staff to fall below certain regulatory standards from time to time. If you suspect that the actions of relationship managers/investment advisors or practices of LCs to be questionable, you may consider investigating matters further and lodging a formal complaint with the relevant LC (and SFC) with grounds.
Examples of client complaints include:
complaints involving fraud and misappropriation of client assets;
- complaints concerning misconduct by staff (e.g. unauthorised trading and mis-selling of investment products);
- complaints against prolonged malfunctions of the firm’s trading system;
- complaints involving significant financial losses by clients or indicating that clients’ interests have been seriously jeopardised; and
- complaints highlighting significant operational risks of LCs.
Please feel free to contact us for more information and further advice on handling complaints involving LCs.
This article is provided for informational purposes only. It is not intended to be, nor should it be substituted for, legal advice, which turns on specific facts.