It can be done on a portfolio level at the outset, subject to some conditions being met. These conditions include the preparation of an Investment Mandate stipulating the types, risks and allocation of investments after taking into account all relevant circumstances of the client. The Investment Mandate should be explained to and agreed by the client, and a copy of the Mandate should be provided to and acknowledged by the client. The Investment Mandate should of course be reviewed and, if necessary, modified whenever there are material changes to the relevant circumstances of the private banking customer. Usually the review of client risk profile is expected to be conducted at least once every two years. However, we appreciate that private banks need to minimise demand on the time of customers and have regard to the fact that private banking services are normally conducted on a continuous basis. As a result, the HKMA agrees that private banking clients need not go through the biennial reviews if they can confirm that there is no material change in their circumstances that warrants updating or modification of the Investment Mandate. Moreover, private banks may choose to document the rationale for recommendations in writing instead of audio-recording a face-to-face interview with the clients. I am pleased to say that the above-mentioned measures, which are aimed at making private banking more user friendly, will be promulgated in an HKMA Circular to be issued later today.
This is an expanded definition to cater for the operational needs of private banks. Once we have defined who qualifies as a “Private Banking Customer”, the next step is to consider specific measures that would help make private banking more “user friendly” without compromising the need to accord appropriate protection to private banking customers. First of all, let’s talk about suitability assessment. The HKMA agrees that private banks need not mechanically match their client’s overall risk tolerance level to product risk level. This is because in private banking, customers often look to their private bankers for investment advice on a continuous basis having regard to the customers’ entire portfolios or balance sheets. This is quite different from the retail end of the market in which one-off sales transactions are common. We therefore consider that suitability assessment for private banking customers can be conducted on a holistic or portfolio basis, taking into account all the relevant circumstances of the customers. For example, as long as the portfolio allocation and the overall risk level agreed with the client is adhered to, a low or medium risk tolerance client buying high risk products that only constitute a minor proportion of his portfolio is not necessarily a “mismatch”. The same principle applies to some other aspects like investment tenor and concentration risk of AUM with any individual private bank because the entire portfolio of the customer will be taken into account. Also, we agree that the documentation of rationale for recommendations need not be on a per transaction basis.