In a circular published today the Hong Kong Securities and Futures Commission (SFC) has once again reminded Forex brokers to follow regulatory and reporting standards that pertain to such areas as customer due diligence and trading activities.
The regulator points out that licensed FX firms must take steps to find out information about their clients prior to opening a trading account to determine suitability – whether or not a customer’s financial situation, investment experience and other factors suffice for the customer taking on the risks of retail margin trading. Furthermore, FX brokers are expected to provide information about how their orders are executed, depending on the execution model used by the broker.
Brokers adopting a Straight Through Processing model or executing orders on behalf of clients have to disclose information on:
- the capacity in which they trade with or act for the clients; and
- any intra-group link or relationship between the firm and the liquidity provider with which the client order is executed or hedged.
Brokers adopting a Dealing Desk model have to disclose information on:
- the fact that they act as the counterparty of client orders and take opposite position to a client’s order; and
- the circumstances which give rise to the potential and actual conflicts of interest in their principal-dealing and market-making activities;
The companies are expected to review their policies and controls to ensure compliance with the expected regulatory standards by January 1, 2021. The regulator is granting a long period of adoption to brokers in order to ensure that the majority of them are ready to report and disclose these required in-house procedures pertaining to KYC and order execution.