Control Standards of Banks in Hong Kong on Retail Sales of Structured Products

Chan, Shuk Lai (2005) Control Standards of Banks in Hong Kong on Retail Sales of Structured Products. [Dissertation (University of Nottingham only)] (Unpublished)

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Innovative structured products have proved particularly popular for potential high returns. Retail clients are generally lack of knowledge and expertise in structured products. The complexity of structured products arise wide concerns. Even sellers find structured products difficult to explain. There is a risk that customers may not really understand what they are buying. Assuring control standards and accurate representation are important for risk protection. Hong Kong is one of most active structured products markets in Asia. There is no limit to how complex a structured product can be if it is to be offered to Hong Kong retail market. More unsophisticated retail clients in that market are taking risky investments. This study is to find out whether the sales control of banks in Hong Kong on retail structured products are conformed to global standards, that is, the hypothesis being tested. A two-phase research composed of a questionnaire survey and an on-site examination program are conducted. The research findings show that the control standards of banks in Hong Kong on retail sales of structured products did not meet with global standards. Besides, the study finds that banks in Hong Kong in general tend to profit-oriented and do not put much emphasis on risk controls. Also, the following key issues are identified: (i) one fourth of sellers handling the complex structured products have less than one year's sales experience in structured products; (ii) the respondents of the survey reveal that incentive compensation programs of banks do result in unsuitable recommendations to clients; (iii) the role and obligation of banks and product owner have not been properly disclosed; (iv) the information of clients disclosed have not been properly documented; and (iv) the existence of gap between the knowledge and competence of staff and their behavioral performance at works towards sales control. Based on these findings, some suggestions are proposed: firstly, banks may need to secure both entry standards and continuing professional development to sellers to reduce risk of mis-representation; secondly, the disclosures of role and obligation of bank and product owner should become compulsory; lastly, it should be mandatory for sellers to assess retail clients' risk bearing ability before the selling. Whatever an excellent control policy is, it must be acted upon by staff, otherwise, it is meaningless to clients. Banks should closely monitor the behavioral performance and attitude of staff in sales control. Putting guidelines into practices is important.

Item Type: Dissertation (University of Nottingham only)
Keywords: structured products, Hong Kong, Sales Control, Control Standards, Global Standards,Potential Risk, Equity Linked Note
Depositing User: EP, Services
Date Deposited: 07 Dec 2005
Last Modified: 29 Dec 2017 04:29

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