Findings of Mystery Shopping Programme on Banks' Sales Practices

The Hong Kong Monetary Authority (HKMA) released today (Tuesday) the findings of a mystery shopping exercise (the "Exercise") on the sales practices of retail banks in respect of unlisted securities and futures investment products and structured deposits (collectively "Investment Products")¹.

The HKMA and the Securities and Futures Commission jointly engaged an external service provider to carry out the Exercise², with the objectives of understanding the industry-wide sales practices of intermediaries and identifying areas for improvements. To promote good sales practices, the HKMA has shared the mystery shopping findings with the industry today.

The Exercise revealed that the selected banks generally had complied with the know-your-client requirements. However, some sampled cases have revealed deficiencies and areas requiring improvements in the sales process of some banks. These include, among others:

• a need for improvement in the disclosure of the features and risks of the recommended products, for instance the insurance nature as well as fees and charges of investment-linked assurance scheme products;
• failure to take into account all relevant personal circumstances of the customers in ensuring suitability of investment recommendations; and
• inadequacy in the procedures of identifying vulnerable customers with low education.

The Exercise also revealed some good sales practices. For example, some bank staff proactively reminded the shoppers to avoid being too "aggressive" and to watch out for the high investment risks of Investment Products that the shoppers were interested in. Some bank staff advised the shoppers not to make hasty investment decisions.

"Banks have a duty to ensure that their staff disclose accurate and adequate information and present balanced views about investment products to help customers make informed investment decisions," said Mr Arthur Yuen, the HKMA's Deputy Chief Executive. "Banks should also take reasonable steps to ensure that the recommended product is suitable for a customer having regard to all relevant personal circumstances of the customer," he added.

Mr Yuen said that the HKMA has already required the individual banks concerned to take corrective actions. Areas where shortcomings were identified in the Exercise will be subject to greater scrutiny in the HKMA's supervisory process for all banks. The HKMA will continue to deploy mystery shopping from time to time to assess the industry's compliance with regulatory requirements.

Annex

Hong Kong Monetary Authority
24 May 2011

1The Exercise covered four major areas, namely know-your-client process, explanation of product features and disclosure of risks, suitability assessment, and selling practices in respect of vulnerable customers.

2For the banking sector, the Exercise covered 350 samples from a mix of 20 small, medium and large banks which engaged in selling Investment Products to Hong Kong investors through their branches.