麻豆传媒

Platform Operators should conduct a holistic assessment of an investor’s understanding of the nature and risks of virtual assets based on information obtained from the investor during the know-your-client process.

The following are some criteria (which are not exhaustive) for assessing if an investor can be regarded as having knowledge in virtual assets:

(a)  whether the investor has undergone training or attended courses on virtual assets. These training courses may take different forms, for example, online or classroom courses offered by academic institutions or Platform Operators, as long as they provide investors with general knowledge of the nature and risks of virtual assets;

(b)  whether the investor has current or previous work experience related to virtual assets; or

(c)   whether the investor has prior trading experience in virtual assets, including the types of virtual assets which the investor has invested, volume and frequency of investor’s transactions in virtual assets and the period over which these transactions have been carried out.

Platform Operators should make appropriate enquiries of and gather relevant information about the investor so as to enable them to make the assessment. For example,

• if an investor indicated that he/she has undergone training, Platform Operators should enquire about the course provider type (such as financial institutions, Platform Operators, and academic institutions) and areas covered during the training; and

• if an investor indicated that he/she has work experience related to virtual assets, Platform Operators should obtain information on the business nature of the company (such as financial institutions, Platform Operators, and technology companies) which the investor worked at/with and enquire about the tasks or projects which the investor was involved in and the investor’s roles in these tasks or projects.

Platform Operators should maintain proper audit trails to demonstrate that they have made the assessment.

(Key references: Paragraph 9.4 of the VATP Guidelines)

When dealing with joint accounts, Platform Operators should assess whether the individual(s) who places the order or operates the relevant joint account has knowledge in virtual assets.

(Key references: Paragraph 9.4 of the VATP Guidelines)

When dealing with corporate investors, Platform Operators may determine the level of virtual asset knowledge of the corporate investor by considering, amongst other things, the following factors:

(a)  Firm type, for example, whether the investor is a large conglomerate with a dedicated investment function or is a small private company where the investment decision rests with the owner; and

(b)  Investment process and management structure of the firm, for example, how an investment decision is made within the firm and whether it is properly organised to have a specialised function responsible for making investment decisions, and past investment experience of the firm.

Hence, for example:

• where the corporate investor has a specialised function responsible for making investment decisions on its behalf, Platform Operators may consider the corporate’s investment process and management structure and assess the dedicated function’s ability in understanding the nature and risks of virtual assets; and
• where the corporate investor does not have an established corporate structure and investment process and where the investment decisions are effectively made by a single individual, such as the owner of the company, Platform Operators may assess the background and the knowledge of the person(s) responsible for making the investment decisions.

(Key references: Paragraph 9.4 of the VATP Guidelines)

The training programme should seek to provide investors with general knowledge of virtual assets so as to assist them in understanding the nature and risks of virtual assets.

(Key references: Paragraph 9.4 of the VATP Guidelines)

Platform Operators may adopt different methods for assessing a client’s risk tolerance level. For example, Platform Operators may assess a client’s risk tolerance level through information obtained during the know-your-client process and/or a risk-scoring questionnaire.

If Platform Operators use a risk-scoring questionnaire to support their assessment, they should pay particular attention to the design of the questions and the underlying scoring mechanism. For example, the questions and the list of possible answers to each of them, together with the risk-scoring mechanism, should be properly designed to accurately reflect the personal circumstances of a client, and to avoid producing skewed results towards high risk tolerance. Furthermore, Platform Operators should not ask a client to answer the questions in a particular way so as to produce a targeted risk tolerance level, for example, a high risk tolerance level.

(Key references: Paragraph 9.6 of the VATP Guidelines)

Th SFC generally considers virtual assets to be of high risk and only clients who are assessed to have a high risk tolerance level would be considered to be suitable for participating in the trading of virtual assets. If a client is assessed to be unsuitable for participating in the trading of virtual assets, the Platform Operator is not expected to provide services to the client. 

(Key references: Paragraph 9.6 of the VATP Guidelines)

The purpose of this disclosure requirement is to enable clients to form a general understanding of the methodology adopted for risk ratings provided by Platform Operators. The SFC does not expect Platform Operators to go into the technical details of the methodologies (eg, detailed disclosure of the weightings for the factors that a Platform Operator takes into account is not required). The focus is to enable clients to understand and assess how they should incorporate risk ratings into their investment decisions. Information should be communicated in an easily comprehensible manner by using plain language to make the disclosure easy for clients to read and understand.

(Key references: Paragraphs 9.6 and 9.21(b) of the VATP Guidelines)

Platform Operators should take into account, amongst other things, the following information obtained from clients:
(a)   the client’s financial situation, including the client’s net worth, annual income and liquid assets;
(b)   the client’s holdings in virtual assets (held with the Platform Operator or otherwise) at the time of setting (and subsequent reviews on) the Exposure Limit; and
(c)   the client’s other personal circumstances, such as the client’s risk tolerance level.

Where Platform Operators have used reasonable efforts to obtain information from clients, the Platform Operators may rely on the information provided by the clients unless they are aware or should reasonably be aware that such information is inaccurate or out of date. If conflicting information or incomplete information is provided by a client, Platform Operators should alert the client and seek clarification from the client.

(Key references: Paragraph 9.7 of the VATP Guidelines)

The purpose of setting an Exposure Limit is to ensure that a client’s exposure to virtual assets is commensurate with the client’s personal circumstances and to avoid undue concentration of virtual assets in a client’s portfolio. The Exposure Limit only seeks to limit the amount of virtual assets deposited with the Platform Operator.

Platform Operators should exercise due skill, care and diligence and take into account all relevant information obtained during the know-your-client process in determining the Exposure Limit and should be prepared to justify the limit set.

(Key references: Paragraph 9.7 of the VATP Guidelines)

Platform Operators should implement adequate controls to prevent the client from increasing its positions in virtual assets if the client has breached its Exposure Limit.

(Key references: Paragraph 9.7 of the VATP Guidelines)

The Suitability Clause must be incorporated verbatim with no modification to its original wording. However, the SFC has no objection to minor and inconsequential drafting amendments to the Suitability Clause which modify the references of ''we'' to ''the Firm'', ''you" to "the Customer" and "agreement" to "Terms" etc. so as to make them compatible with the cross-references in the Platform Operators’ underlying documents.

(Key references: Paragraph 9.11(g) of the VATP Guidelines)

The Suitability Clause is applicable where a Platform Operator “solicits the sale of or recommends any product including virtual assets to” a client. The clause would therefore not apply to unsolicited sales of virtual assets classified as complex products.

(Key references: Paragraph 9.11(g) of the VATP Guidelines)

The context (such as the manner of presentation) and content of virtual asset-specific materials posted on a platform coupled with the design and overall impression created by the platform content would determine whether the suitability requirement is triggered. The following are non-exhaustive lists of examples of when the posting of materials would or would not trigger the suitability requirement:

Examples of when the suitability requirement is NOT triggered: 

1. Posting of lists of, and provision of access to, virtual assets and posting of factual information about the virtual asset, including providing a link to the virtual asset’s official website and Whitepaper.
2. Posting of lists of virtual assets that are selected using objective criteria (eg, performance data).
3. Posting of advertisements of fee discounts not tied to any specific virtual asset (eg, time-limited reduced rates or loyalty discounts to reduce transaction fees in general).
4. Provision of objective filters for self-directed research on virtual assets (eg, one-year, three-year, five-year performance data or performance data since launch).
5. Posting of non-virtual asset-specific information such as market news or updates, industry and sector trends, and education materials.
6. The simple flashing of a “new” icon next to newly published reports.
7. Posting statistics or trends in customer activities involving a particular virtual asset that are factual and based on objective criteria and do not put pressure on a client to proceed with a transaction (eg, setting out a list of virtual assets with a description that “Other clients who bought virtual asset A also looked at these virtual assets”).
8. Posting of educational materials that are related to virtual assets as long as such materials do not include (standing alone or in combination with other communications) a recommendation of a specific virtual asset. 

Examples of when the suitability requirement IS triggered:

1. Posting of advertisements which include virtual asset-specific incentives (eg, cash rebates and fee discounts) for any transactions in a specific virtual asset.
2. Posting of reports on a specific virtual asset which include words such as “Don’t Miss Out!” or “Act Now!”.
3. Persistent pop-ups or flashing in connection with a specific virtual asset.
4. Presenting a specific list of virtual assets with an accompanying statement such as “these virtual assets may suit you or match your risk tolerance level” to clients immediately after the platform conducts a risk profiling of clients.
5. Upon a client’s completion of the know-your-client process or provision of information through a client profiling tool or upon a client providing updates to his or her information, generating a list of selected virtual assets which may be perceived to be based on a consideration of the information provided by the client.

The above examples are non-exhaustive and for illustration only. Platform Operators should consider their own circumstances having regard to guidance published by the SFC (which may be updated from time to time).

(Key references: Paragraph 9.20 of the VATP Guidelines)

The posting of factual, fair and balanced materials specific to a virtual asset would not in itself amount to a solicitation or recommendation and would not trigger the suitability requirement in the absence of other facts and circumstances that may reasonably be expected to influence investors.

In determining whether the posting of materials would trigger the suitability requirement, the assessment should take into account the content and context of these materials coupled with the design and overall impression created by the content.

The SFC has provided a list of examples of when the suitability requirement is and is not triggered (see FAQ 13 above). On factual, fair and balanced materials, the SFC has provided the example that the posting of lists of virtual assets (ie, such lists are not the full list of virtual assets available on the platform but are lists within the full list) selected using objective criteria would not trigger the suitability requirement. In this connection, Platform Operators should have a reasonable basis for coming up with the selected lists of virtual assets and the objective criteria used should also be set out or made available.

In other words, to trigger the suitability requirement, the SFC would expect additional factors to be present which would induce a client to enter into a transaction or that would put pressure on a client to proceed with a transaction, whether through the context (such as the manner of presentation), or the content of the materials. For example, the posting of advertisements with incentives on a specific virtual asset (eg, cash rebates and fee discounts) would trigger the suitability requirement. It may also be easier for pop-up messages and flashing icons to give the impression of making recommendations or solicitations which would trigger the suitability requirement. For example, persistent pop-ups or flashing in connection with a specific virtual asset would trigger the suitability requirement.

Some platforms may involve human interaction (eg, through hotlines or live chats) to assist clients with their enquiries. Whether the suitability requirement is triggered would depend on whether the human interaction involves a solicitation or recommendation which requires an analysis of the content and context of each interactive communication (see FAQ 15 below).

(Key references: Paragraph 9.20 of the VATP Guidelines)

Interactive communications between Platform Operators and their clients about virtual assets may occur in different forms (eg, face to face communication, phone conversation and electronic communication or a combination of any such forms). Whether an interactive communication between Platform Operators and a client about a virtual asset triggers the suitability requirement would depend on whether there is a solicitation or recommendation having regard to the facts and circumstances of each case. 

General guiding principles

Determining the facts and circumstances requires an analysis of the content and context of each interactive communication (eg, messages and materials (if any) sent to a client) as well as other relevant factors. These factors include but are not limited to the following: 

(a)  The content and context of the communication with a client, for example, whether the communication is limited to the provision of factual, fair and balanced information about a virtual asset, or whether it contains a representation involving an invitation or inducement to act on it and invest in a particular virtual asset;

(b)  Whether the communication is delivered to targeted clients; and

(c)  The series of actions taken, for example, whether the communication forms part of a multiple-step solicitation or recommendation process and hence triggers the suitability requirement. 

These factors may be interrelated and have to be taken into consideration in totality. For example, if after the wide dissemination of a report on a virtual asset, the Platform Operator makes a follow-up call to a client and recommends the client to buy or sell that virtual asset, this is likely to trigger the suitability requirement. Similarly, by communicating a short list of virtual assets for a client to consider and subsequently suggesting that the client places an order directly on the platform, this is likely to trigger the suitability requirement and the Platform Operator would need to ensure that the suitability obligations have been discharged.  

Specific examples

To facilitate Platform Operators in applying the above general guiding principles, a non-exhaustive list of scenarios illustrating when the suitability requirement is likely or unlikely to be triggered during interactive communications between Platform Operators and clients about virtual assets is set out below.

Examples illustrating when suitability requirement is UNLIKELY to be triggered

1. Execution of an order from a client only without any other communication that seeks to solicit or recommend the client to trade in a particular virtual asset.
2. Provision of factual information about a specific virtual asset to a client, for example, the link to the website and Whitepaper of a virtual asset, without any prior communication or any accompanying message which seeks to solicit or recommend the client to trade in that virtual asset.
3. Provision of factual information about a specific virtual asset at a client’s request, for example, the link to the website and Whitepaper of a virtual asset, without any prior communication or any accompanying message which seeks to solicit or recommend the client to trade in the specific virtual asset.
4. Provision of alerts to a client upon his or her request when there are updates of certain factual information about a virtual asset, for example, a particular virtual asset reaches a certain price, without any prior communication or any accompanying message which seeks to solicit or recommend the client to trade in that virtual asset.

Examples illustrating when suitability requirement is LIKELY to be triggered

1. After provision of factual information about a virtual asset to a client, following up with a call to the client and recommending the client to buy or sell that virtual asset.
2. Discussion with a client or a selected group of clients on the merits of a particular virtual asset or a portfolio of virtual assets and presenting the virtual asset or portfolio implicitly or explicitly as suitable for the client(s).
3. Any communication that may be perceived to be based on consideration of the circumstances of the client (eg, risk appetite) to invest in a particular virtual asset. 
4. During the initial offering of a virtual asset, calling a client and recommending the client to buy that virtual asset. 
5.  Shortlisting of virtual assets based on the circumstances of a client (eg, risk appetite) and providing factual information about the shortlisted virtual assets to the client.
6. Having regard to the personal circumstances of a client, finding a virtual asset based on parameters or specifications provided by the client.

(Key references: Paragraph 9.20 of the VATP Guidelines)

In addition to the information obtained during the know-your-client process under paragraphs 9.5 and 9.6 of the VATP Guidelines, in order to better understand the client information for the purpose of the suitability assessments, Platform Operators should collect from each client information that includes the client’s investment knowledge and experience (see also FAQ 1 above), investment horizon and risk tolerance (including risk of loss of capital) (see also FAQ 5 above), where appropriate.

Where Platform Operators have used reasonable efforts to obtain information from clients, the Platform Operators may rely on the information provided by the clients in discharging the know-your-client requirement unless they are aware or should reasonably be aware that such information is inaccurate or out of date.

If conflicting information is provided by a client, the Platform Operators should alert and seek clarification from the client and reconcile the inconsistences before performing the suitability assessments. Platform Operators could implement control procedures to direct clients to the inconsistent information and provide the opportunity for them to change their previous answers and provide the most up-to-date and accurate information.

If disclosure by the client is incomplete, the Platform Operators should alert the client and seek clarification from the client before performing the suitability assessments.

Where a client refuses to disclose his/her/its financial position, the Platform Operators should only take into account the amount of assets of the client held with the Platform Operators when conducting the suitability assessment and avoid making assumptions based on incomplete information or speculation. The less information about the client that the Platform Operator has, the more conservative the suitability assessment should be.

Each client’s information should be properly documented and where appropriate, updated on a continuous basis.

(Key references: Paragraph 9.20, 9.21 and 9.22 of the VATP Guidelines)

Suitability involves Platform Operators matching the risk return profile of the virtual asset with the client’s personal circumstances. Therefore, Platform Operators should use their professional judgement to assess diligently whether the characteristics and risk exposures of the virtual asset are actually suitable for the client and are in the best interests of the client, taking into account the client’s investment objectives, investment horizon, investment knowledge and experience, risk tolerance, and financial situation (such as net worth and immediate liquidity needs), etc.

Platform Operators should give due consideration to all relevant circumstances specific to a client, including concentration risk, when assessing the suitability of the virtual asset to the client. Platform Operators are expected to assess concentration risk based on available information about the client (eg, virtual asset portfolio held with the Platform Operators and information about the client’s financial situation) and all relevant factors.

Senior management of Platform Operators should also implement adequate controls to ensure that all suitability assessments are properly conducted.

(Key references: Paragraph 9.20, 9.21 and 9.22 of the VATP Guidelines)

No. Paragraph 9.20 of the VATP Guidelines requires that the Platform Operator should, when making a recommendation or solicitation, ensure the suitability of the recommendation or solicitation for that client is reasonable in all the circumstances. A Platform Operator should ensure the virtual asset is suitable for the client before making the solicitation or recommendation, or at the latest, before executing the order.

(Key references: Paragraph 9.20, 9.21 and 9.22 of the VATP Guidelines)

Where the Platform Operator, being under the obligation to ensure suitability, has assessed the transaction to be unsuitable for the client but the client wishes to proceed with the transaction despite this, the Platform Operator should not proceed to effect the transaction.

(Key references: Paragraph 9.20, 9.21 and 9.22 of the VATP Guidelines)

Platform Operators should, where available, provide each client with up-to-date information on the recommended virtual assets. For the avoidance of doubt, it is not enough for Platform Operators to just send the client these documents, ask the client to read them, or merely read the documents to the client.

Platform Operators should help each client make informed decisions by giving the client proper explanations of why recommended virtual assets are suitable for the client and the nature and extent of risks the virtual assets bear. In addition to explaining the good points of the virtual assets, Platform Operators should always present balanced views, drawing the client’s attention to the disadvantages and downside risks as well. Platform Operators should use simple and plain language, and in a language that the client can readily understand. The explanations must be fair and not misleading.

Each client should be given sufficient time to digest, consider and evaluate the information and recommendations provided by Platform Operators and be given sufficient opportunity to raise queries with the Platform Operators. Under no circumstances should Platform Operators use high-pressure or unfair techniques to force or entice any client to make hasty investment decisions.

(Key references: Paragraph 9.20, 9.21 and 9.22 of the VATP Guidelines)

Platform Operators should maintain records documenting the suitability assessment conducted. If Platform Operators made solicitation and recommendations to clients, they should document the rationale underlying investment recommendations made to the clients and provide a copy of the rationale for the recommendations to the clients upon their request.

To demonstrate compliance with regulatory requirements, Platform Operators should document and record contemporaneously the information given to each client, including any material queries raised by the clients and the responses given by the Platform Operators. 

Platform Operators may choose to fulfil the documentation requirement by maintaining a written record or an audio record having regard to their mode of operations. Notwithstanding, all records (written or audio) should be retained for at least 7 years.

(Key references: Paragraph 9.20, 9.21 and 9.22 of the VATP Guidelines)

If a Platform Operator solicits the sale of or recommends a virtual asset to a client, it should comply with paragraphs 9.20 and 9.21 of the VATP Guidelines and ensure that the virtual asset is suitable for the client regardless of whether it is complex or non-complex. In this case, there is no further need for the Platform Operator to comply with paragraph 9.22 of the VATP Guidelines. For the avoidance of doubt, Platform Operators should comply with all applicable regulatory requirements, including these FAQs, and provide all relevant material information to clients when discharging their suitability obligations.

If a Platform Operator executes a transaction in a virtual asset which is classified as a complex product for a client off-platform without making any solicitation or recommendation in respect of the transaction (ie, the client purchases the virtual asset which is classified as a complex product on an unsolicited basis), then the Platform Operator is required to comply with paragraph 9.22 of the VATP Guidelines.

(Key references: Paragraph 9.22 of the VATP Guidelines)

It should be noted that while a virtual asset may have been suitable previously it may no longer be suitable due to changes in a client’s personal circumstances or market conditions. Further, depending on the risks of the virtual asset classified as a complex product, repeat purchases may increase the concentration of risk in a client’s investment portfolio. It is thus necessary for Platform Operators to ensure suitability even in the case of repeat purchases. However, Platform Operators are free to design the steps they could take to discharge the suitability obligations for repeat purchases (eg, the steps could be different from those for a first-time purchase) provided that they can still be reasonably satisfied that a repeat purchase is suitable for a client having regard to the personal circumstances of the client.

(Key references: Paragraph 9.22 of the VATP Guidelines)

Under the VATP Guidelines, a Platform Operator should act with due skill, care and diligence when posting information and materials on its platform to ensure that all information is, amongst other things, accurate. This would include acting with due skill, care and diligence in the selection, appointment and ongoing monitoring of any third-party service provider to enable it to be reasonably satisfied that the information provided by the service provider is accurate and reliable.

For example, while the SFC does not generally expect Platform Operators to monitor the accuracy of each and every news feed item, if Platform Operators become aware of incidents which may suggest that the third party may no longer be competent in providing its services, they should consider whether to continue to engage its services.

(Key references: Paragraph 9.25 of the VATP Guidelines)

Platform Operators are expected to provide clients with information as soon as reasonably practicable. This includes information concerning material changes to, or material events concerning, a virtual asset (eg, forking).

Generally, where the associated entities of Platform Operators hold a virtual asset on behalf of the Platform Operators’ clients, the Platform Operators are expected to disseminate or procure the dissemination of material information regarding the virtual asset to their clients on a timely basis.

Platform Operators are expected to post on its website updated information about the virtual assets which are available for trading on the platform. Where a virtual asset held by their clients is no longer available for trading on the platform, the Platform Operators should still disseminate or procure the dissemination of material information regarding the virtual asset to their clients if their associated entities hold the virtual asset on behalf of their clients.

(Key references: Paragraphs 9.27(d) and 9.28 of the VATP Guidelines)