Page 1 / 33

Circular No. 033/B/2010-DSB/AMCM

(Date: 17/9/2010)

Guideline on Provision and Distribution of Financial Products

The Monetary Authority of Macao (AMCM), under the powers conferred by Article 9

of the Charter approved by Decree-Law No.14/96/M of 11th

March and by Article 6

of the Financial System Act of Macao (FSAM) approved by Decree-Law No.

32/93/M of 5th

July, establishes the following:

Introduction

1. With technological advances and the evolution of more developed financial

markets, financial products have become increasingly more complex and

diverse in response to competitive pressures and changing customer demands.

In this connection, greater responsibility is placed on the board of directors

(the board) and senior management of a bank to ensure that the related risks

are well managed and the needs and rights of customers are appropriately

addressed.

2. The AMCM has from time to time implemented supervisory requirements on

the marketing of financial products by banks. To enhance the standards to be

maintained by banks in the offering of financial products and to enhance

confidence in the financial system, this Guideline sets out:

(a) the conditions and requirements for banks in the launching of new

financial products;

(b) the standards of business conduct expected of banks, and as appropriate

their staff and agents, in the provision and/or distribution of financial

products; and

(c) the specific responsibilities of banks, and as appropriate their staff and

agents, in the provision and/or distribution of financial products.

3. This Guideline will come into effect from 1st November 2010. The AMCM‟s

letter “Documents Required in Applications for Marketing Financial Products”

dated 28 October 2004 (Letter No. 5394/MC006-2004-DSB/AMCM) will then

be left to lapse.

4. This Guideline applies to all banks either locally incorporated or being

branches of overseas banks in Macao. Where applicable, this Guideline also

applies to financial intermediaries regulated by the provisions of the FSAM or

other applicable laws.

Page 2 / 33

Definitions

5. For the purpose of this Guideline:

(a) “customer” includes a prospective customer;

(b) “distributor of financial product” means the person who, in collaboration

with the provider of financial products, makes up the latter part of the

supply chain taking the financial product to the customer;

(c) “financial product” means any bond, stock1, warrant, mutual fund, unit

trust, futures contract, contract or arrangement for the purposes of foreign

exchange trading, contract or arrangement for the purpose of leveraged

foreign exchange trading, structured instrument linked to foreign

exchange or equity and any such other product as the AMCM may

prescribe as financial product; and

(d) “provider of financial product” means the person who issues, develops,

manages or packages financial products.

6. For avoidance of doubt, the reference to financial product in this Guideline

does not include deposit received by a bank or any instrument such as

certificate of deposit evidencing such deposit. In this connection, a bank

should not use the title or description “deposit” to describe a financial product

that is being provided or distributed by it.

Conditions and Requirements for Launching New Financial Products

7. A bank intending to launch a new financial product should first make an

internal assessment to ensure compliance of the following conditions:

(a) the financial product falls within the scope of the bank‟s prescribed

business activities;

(b) the bank has the capacity to adequately manage and control the risks

associated with the financial product, including the financial capacity

to support existing and new product lines;

(c) the bank is aware of the need and has taken necessary measures to treat

customers fairly;

(d) it is not to the knowledge of the bank that the financial product

1 When a bank is acting as the intermediary of its customer for the purchase and sale of a stock

or warrant listed in a stock exchange or, the purchase and sale of other listed financial

products, the bank should bear in mind that some specific practices recommended in this

guideline, like production of a key facts statement, may not be applicable. In addition, risk

assessment of the customer becomes optional when the customer involves just in stock trading

or trading of other listed financial products. In case of doubt, a bank should seek advice from

the Banking Supervision Department of the AMCM.

Page 3 / 33

(including its variations) concerned is prohibited in other jurisdictions

and which could potentially give rise to public concerns; and

(e) the financial product complies with all necessary approvals required

for its offer, the FSAM, this Guideline and/or any other applicable

regulatory requirements, including other related guidelines issued by

the AMCM.

8. Except where the provisions of paragraph 11 below are to be applied, the bank

should submit the following documents / information to the AMCM prior to

the launching of a new financial product:

(a) a statement given by a member of the management team of the bank

confirming that the conditions specified under paragraph 7 above have

been complied with;

(b) the documents / information specified under Part A of Appendix 1 (i.e.

procedural manual, code of conduct, internal control guidelines and

eligibility policy etc.); and

(c) the documents / information specified under Part B of Appendix 1 (i.e.

product-specific information).

9. The information required under items (b) and (c) of paragraph 8 above will be

used by the AMCM for an assessment of the adequacy of the bank‟s risk

management processes, internal control systems and staff competence and also

for its understanding of the financial product‟s features and associated risks.

The AMCM‟s specific expectations on the bank‟s proposal to provide or

distribute the new financial product are that:

(a) the bank should have adequate policies and procedures to prudently

manage risks associated with the offering of the new financial product;

and

(b) the bank should have given due regard to fair treatment of customers.

These expectations of the AMCM should be taken into consideration by a

bank as a basis to develop appropriate policies and procedures and to

determine if the requirements in paragraph 7(b) and 7(c) have been met.

Further discussions of the AMCM‟s requirements on these two expectations

are given at paragraph 12 to 16 below.

10. Pursuant to paragraph 8 and except where the provisions of paragraph 11

below are to be applied, a bank should not provide or distribute the new

financial product to its customers until:

(a) the expiry of 15 business days from the date of receipt by the AMCM

of the complete submission of information mentioned in paragraph 8;

or

(b) the receipt of the AMCM‟s response which does not raise any

objection.

Page 4 / 33

In both of the above cases, it remains the responsibility of the bank to

satisfactorily manage product risks and fulfill responsibilities to customers.

11. Notwithstanding the prior submission requirements in paragraphs 8 and 10

above, the AMCM may at its discretion allow a bank that has already

submitted to it the information required under item (b) of paragraph 8 to

launch the new financial product before the bank‟s submission of the

information required under items (a) and (c) of paragraph 8. The conditions

for the AMCM to exercise such discretion include:

(a) that the bank will only provide or distribute the new financial product

(i) to customers who are professional investors; or (ii) to selected

customers through a private placement arrangement acceptable to the

AMCM;

(b) that based on separate procedures the AMCM is satisfied that the bank

has adequate systems to manage and control the related risk; and

(c) that the bank has committed to submit to the AMCM the information

required under items (a) and (c) of paragraph 8 not later than the end of

the second business day of the launch of the new financial product.

For the purpose of sub-item (a)(i) of this paragraph, a professional investor is

defined as (1) an individual2 that has a portfolio of not less than MOP 8

million; or (2) a corporation or partnership that has either a portfolio of not

less than MOP 8 million or total assets of not less than MOP40 million. A

bank should before providing / distributing the new financial product ascertain

whether a person meets or continues to meet the definition of professional

investor herein and maintain proper record of the ascertainment.

For the purpose of sub-item (a)(ii) of this paragraph, a private placement

arrangement acceptable to the AMCM refers to a non-public offering

arrangement which is (1) available to not more than 50 persons; or (2) having

a minimum denomination of MOP500,000.

Managing Risks Associated with Offering of Financial Product

12. Pursuant to paragraph 9(a) above, the bank‟s policies and procedures should

be designed to identify and control risks across the life cycle of a financial

product. These policies and procedures should be formally endorsed by the

bank‟s board and/or senior management and properly documented. They

should be communicated in a timely manner to all relevant parties and levels

within the bank and reviewed at least annually and more frequently in the light

of changing circumstances.

2

This includes an individual on a joint account with his/her associates.

Page 5 / 33

13. The management of the risks arising from offering the new financial product

(product risks) should be well integrated within the bank‟s overall governance

framework and risk management system to ensure that product innovation is

carried out in a manner that is aligned with the bank‟s business objectives, and

consistent with its capability and capacity to manage associated risks.

14. A new financial product and/or material variations to existing financial

product should be authorized by the bank‟s board and/or senior management

as appropriate. The approving authorities within the bank should be clearly

defined and documented, setting out the scope of authority given, to whom the

authority is given and whether the authority may be further delegated. Such

authorization of new financial product should be supported by a process that is

objective and consistently applied and which serves to ensure that:

(a) systems and procedures are in place to manage related risks and

customer expectations;

(b) both frontline and back-office staff are adequately trained to support

the new financial product; and

(c) product illustrations and marketing strategies are appropriate and not

misleading.

Appendix 2 gives some examples of the information that is relevant to support

a request for internal authorization of a new financial product. One example

is the assessment of the appropriateness of the financial product for the

targeted customer group. Paragraphs 37, 38 and 39 regarding the

assessment on customer suitability and the suggested practices for dealing

with the elderly, illiterate or other vulnerable persons3 are also relevant.

15. A bank should also ensure that adequate procedures are in place and operating

effectively to monitor and control product risks on an ongoing basis. The

procedures should provide for the ongoing identification, measurement and

mitigation of existing and potential risks inherent in the bank‟s financial

product offerings. These measures / procedures include but are not limited

to:

(a) clearly defined responsibilities within business lines for managing

product risks within approved parameters/limits. Business lines should

also be responsible for ensuring continuous adherence to approved

policies and procedures;

(b) clearly delineated lines of responsibility for monitoring and controlling

risk by control functions that are independent of business lines;

(c) adequate systems for measuring risk on a continuing basis;

(d) regular reviews of identified risk exposures in the light of changing

3 For the purpose of this guideline, persons aged 65 or above and persons whose level of

education is elementary or below will be regarded as vulnerable persons. A bank may also

treat other customers that require greater protection as vulnerable persons.

Page 6 / 33

market conditions not previously factored in to ensure that all material

risks are identified and monitored;

(e) adequate coverage of the internal audit function to ensure the timely

identification of internal control weaknesses, adherence to regulatory

requirements and internal policies and procedures, and proper

accounting and capital treatment; and

(f) comprehensive and regular reports to the senior management and/or

the board on: (i) the overall effectiveness of policies and procedures for

managing product risks; (ii) current assessment of product risks and

any change in the direction of risk; (iii) material changes in market

conditions that may impact the product risk profile going forward; and

(iv) internal control breaches and weaknesses.

Fair Treatment of Customers

16. Pursuant to paragraph 9(b) above, a bank is expected to have policies and

procedures concerning fair treatment of customers to avoid the potential for

mis-selling, to mitigate reputational risk and to safeguard the bank from

liability under applicable anti-fraud and fair practice laws and regulations.

Specifically, the policies and procedures should ensure that:

(a) an explicit consideration of customer-related issues and implications is

incorporated within the development and authorization stages of the

financial product;

(b) customers are fully informed through appropriate disclosures of the

key features, terms, conditions, risk rating and other risks associated

with the financial product. In particular, customers are informed

whether or not a financial product is principal-guaranteed and,

disclosure of risk is given at prominent place in client agreement and

promotional materials with reasonable and appropriate font size;

(c) the financial product is appropriate for the target group of customers

taking into consideration their broad needs and risk appetite;

(d) fees and charges imposed on the customer are reasonable and

transparent;

(e) staff involved in sales are adequately trained in the financial product

being / to be offered so that they can properly advise customers;

(f) compensation arrangements for sales staff do not induce an excessive

bias towards high revenue-generating products that are likely to result

in unsuitable product recommendations or sales to customers;

(g) customer information is adequately safeguarded; and

(h) an adequate and effective system for resolving and monitoring

customer complaints is put in place, and customers are provided with

information on where and how to lodge a complaint.

Page 7 / 33

Specific Practices Expected of Banks

17. Experiences in Macao and in the region show that many complaint cases could

have been avoided if a bank have adequate policies and procedures to achieve

the various objectives given under paragraphs 15 and 16 above, especially the

following specific objectives:

(a) to make risks clearer to customers to enable customers to make

informed decisions and take responsibility for their decisions;

(b) to avoid potential for confusion in customers‟ minds between

traditional deposits and financial products;

(c) to remove potential conflict during the process to assess customers‟

risk profile;

(d) to remove or lessen areas for subsequent disputes regarding the sales

process;

(e) to conduct product due diligence on a continuous basis at appropriate

intervals;

(f) to document and retain the reasons for each product recommendation

made to each customer, in particular the justification in cases of risk

mismatch;

(g) to test check sales staff‟s understanding of the financial products and to

observe how the sales process is working in practice; and

(h) to ensure that remuneration structure of sales staff does not give rise to

conflict of interest.

In light of the experiences gained, banks in Macao are expected to implement

some specific practices such as the arrangement for audio or video4 recording

or asking customers to make a statement in their own handwriting that they are

aware of and willing to bear the risks in the financial products. These

specific practices are given at Appendix 3, which are by no means exhaustive.

There are two parts in this appendix. The first part sets out the practices to

achieve the above specific objectives and the second part the practices to deal

with the allegations from some known complaints cases.

Standards of Business Conduct

18. Paragraph 8 requires the submission of a bank‟s code of conduct to the AMCM.

The AMCM expects each bank to have a code of conduct that is

commensurate with its structure and complexity of operations to promote a

strong ethical corporate culture. The code of conduct should state the ethical

values of the bank and prescribe guidelines for its staff to observe when

discharging their duties. The code of conduct should include, for example,

4 For the purpose of this guideline, video recording should include the capturing of audio input

for subsequent output.

Page 8 / 33

guidelines on acceptance of gifts and entertainment, conflicts of interest,

personal benefits, confidentiality of information, and disclosure of and

restrictions on personal investments. In addition to general guidelines, a

bank may as necessary prescribe specific guidelines for the conduct of its staff

in different functional areas.

19. A bank should ensure that all staff understand and adhere to the code of

conduct. Unless otherwise specified, an agent of the bank should also adhere

to the code of conduct when acting on the bank‟s behalf. The code of

conduct should come under the purview of a senior staff or an appropriate unit.

The bank‟s staff, or as appropriate the bank‟s agents, should be required to

acknowledge in writing that they have read, understood and would observe the

code of conduct. Disciplinary actions should be taken against those who

breach the code of conduct.

20. The board and senior management of a bank should bear primary

responsibility for ensuring the maintenance of appropriate code of conduct and

adherence to proper procedures. The board and/or senior management

should periodically review the code of conduct in the light of changes in the

internal and external environment. There should be adequate policies,

systems and controls in place to ensure that personal investments or

transactions undertaken by staff do not result in situations where potential

conflicts of interest could arise between the staff and the bank or with the

bank‟s customers. In particular, a bank should require its staff to periodically

disclose situations where potential conflicts of interest could arise. Any

potential or actual conflict of interest should be escalated to management for

necessary action and disclosed to customers, where applicable.

21. In line with comparable principles promulgated by the International

Organization of Securities Commissions and other banking and securities

regulators, the AMCM sets out below the principles for the standards of

business conduct to be adopted by banks in Macao:

Principles Description

1. Honesty and Fairness A bank should act honestly, fairly, and

in the best interests of its customers

and the integrity of the market.

2. Diligence A bank should act with due skill, care

and diligence, in the best interests of

its customers and the integrity of the

market.

3. Capabilities A bank should have and employ

effectively the resources and

Page 9 / 33

Principles Description

procedures which are needed for the

proper performance of its business

activities. This should include the

employment of staff resources that

possess the relevant professional

qualifications and/or experience.

4. Information about customers A bank should seek from its

customers information about their

financial situation, investment

experience and investment objectives

relevant to the services to be

provided.

5. Information for customers A bank should make adequate

disclosure of relevant material

information in its dealing with its

customers.

6. Compliance A bank should comply with all

regulatory requirements applicable to

the conduct of its business activities

as well as proper internal procedures

and rules so as to promote the best

interests of customers and the

integrity of the market.

7. Responsibility of senior

management

The senior management of a bank

should bear primary responsibility for

managing the risks associated with

the business, including performing

continual monitoring and periodic

evaluation of risk management

process.

8. Conflict of interest A bank should try to avoid conflicts

of interest, and when they cannot be

avoided, should ensure that its

customers are fairly treated.

22. The AMCM expects banks, and as appropriate their staff and agents, to apply

the above principles as the basis of their standards of business conduct when

they are acting as providers or distributors of financial products. Further

illustrations of these principles are given under Appendix 4.

23. Principle 3 of the above standards of business conduct requires a bank to

employ staff resources that possess relevant professional qualifications and/or

Page 10 / 33

experience. A bank should therefore ensure that its staff / agents are

appropriately qualified for the role (or roles) that they perform. Among other

things, those staff / agents that deal with customers or advise customers on

financial products should have sufficient knowledge in the financial products

in which they deal or on which they advise. The same also applies to the

supervisors of these individuals. Accordingly, some examples of the

professional, industry or academic qualifications expected of these individuals

and their supervisors that are acceptable to the AMCM are given at Appendix

5 for reference purpose. Other qualifications may also be accepted as

equivalent to those referenced in Appendix 5, which will be reviewed and

updated periodically to take into account changes to qualifications, new

qualifications and comments received from the industry. In addition to

professional, industry or academic qualifications, it is also important for a

bank‟s frontline staff to have relevant industry experience. In particular, the

senior staff in charge of the relevant business lines should possess at least, say,

three years of relevant experience in the industry before taking up the

positions.

Responsibilities of a Bank as a Provider or Distributor of Financial Products

24. The actual requirements of the principles for the standards of conduct

specified under paragraph 21 above will depend on the circumstances,

including the riskiness or complexity of the financial product or portfolio, the

financial sophistication of the target market, who the bank is dealing with, and

the role and function of the bank undertaken in a transaction. A bank should

bear these factors in mind in order to interpret the requirements of the

principles in a way that is proportionate.

25. Depending on the precise nature of its business, the responsibilities of a bank

would mean addressing the fair treatment of customers at different stages (e.g.

product design; identifying target markets; promotion; sales and advice;

after-sales information and services; and complaints handling) of the product

life-cycle. These responsibilities of a bank as a provider or a distributor of

financial products are discussed under paragraphs 26 to 34 below. Before

providing or distributing such financial products, a bank should have gone

through the internal authorization process as discussed under paragraph 14.

Provider Responsibilities

26. When undertaking product design, the principles of honesty and fairness,

diligence, and capabilities are particularly relevant. A provider of financial

product should:

Page 11 / 33

(a) identify which types of customer the product or service is likely to be

suitable (or not suitable) for;

(b) stress-test the product or service to identify how it might perform in a

range of market environments and how the customer could be affected;

and

(c) have in place systems and controls to manage adequately the risks

posed by product design.

27. When providing information to distributors, the principle of diligence is

particularly relevant. A provider of financial product should:

(a) make clear if that information is not intended for customer use; and

(b) ensure the information is sufficient, appropriate and comprehensible in

substance and form, including considering whether it will enable

distributors to understand it enough to give suitable advice (where

advice is given) and to extract any relevant information and

communicate it to the end customer.

28. When providing information to customers or to distributors for onward

transmission to customer, the principles of honesty and fairness, capabilities

and information for customers are particularly relevant. A provider of

financial product should:

(a) pay regard to its target market, including its likely level of financial

capability;

(b) take account of what information the customer needs to understand the

product or service, its purpose and the risks, and communicate

information in a way that is clear, fair and not misleading; and

(c) have in place systems and controls to manage effectively the risks

posed by providing information to customers.

29. When selecting distribution channels, the principles of honesty and fairness,

diligence and information for customers are particularly relevant. A provider

of financial product should:

(a) decide whether this is a product where customers would be wise to

seek advice;

(b) collect and analyze appropriate information so as to detect patterns in

distribution as compared with the planned target market, and to assess

the performance of the distribution channels; and

(c) act when it has concerns, for example by ceasing to use a particular

distribution channel.

30. In the area of post-sale responsibility, the principles of honesty and fairness,

diligence and information for customers are particularly important. A

provider of financial product should:

Page 12 / 33

(a) in supplying information direct to the customer, ensure that the

information is communicated in a way which is clear, fair and not

misleading;

(b) periodically review products whose performance may vary materially

to check whether the product is continuing to meet the general needs of

the target customer that it was designed for, or whether the product‟s

performance will be significantly different from what the provider

originally expected and communicated to the distributor or customer at

the time of the sale. If this occurs, the provider should consider what

action to take, such as whether and how to inform the customer of this

(to the extent the customer could not reasonably have been aware) and

of their option to seek advice, and whether to cease selling the product;

(c) communicate to the customer the contractual „breakpoints‟ (e.g. the

end of a long tie-in period) that may have a material impact on a

customer;

(d) act fairly and promptly when handling claims or when paying out on a

product that has been surrendered or reached maturity; and

(e) establish, implement and maintain effective and transparent customer

complaint-handling systems.

Distributor Responsibilities

31. In the area of financial promotions, the principles of honesty and fairness,

capabilities and information for customers are particularly relevant. A

distributor of financial product should:

(a) have in place systems and controls to manage effectively the risks

posed by financial promotions; and

(b) in passing on a promotion created by a provider, act with due skill, care

and diligence.

32. When providing information to a customer at or before the point of sale, the

principles of honesty and fairness, diligence and information for customers are

particularly relevant. A distributor of financial product should:

(a) ensure there is adequate disclosure of material information;

(b) consider, when passing provider materials to customers, whether it

understands the information provided;

(c) ask the provider to supply additional information or training where that

seems necessary to understand the product or service adequately;

(d) not distribute the product or service if it does not understand it

sufficiently, especially if it intends to provide advice; and

(e) when providing information to another distributor in a distribution

chain, consider how the further distributor will use the information,

such as whether it will be given to customers. The bank should

Page 13 / 33

consider what information the further distributor requires and the likely

level of knowledge and understanding of the further distributor and

what medium may suit it best for the transmission of information.

33. When recommending or advising on selection of a provider of financial

product, the principles of honesty and fairness and diligence are particularly

relevant. A distributor of financial product should:

(a) consider the nature of the products or services offered by the provider

and how they fit with the customer‟s needs and risk appetite (see also

paragraph 37 to 39 below); and

(b) consider what impact the selection of a given provider could have on

the customer in terms of charges or the financial strength of the

provider, or possibly, where information is available to the distributor,

how efficiently and reliably the provider will deal with the distributor

or customer.

34. In the area of post-sale responsibility, principles of honesty and fairness and

capabilities are particularly relevant. A distributor of financial product

should:

(a) comply with any contractual obligation it has to the customer, for

example to provide ongoing advice or periodic reviews. In

connection with this, it should also consider its responsibility to

maintain adequate systems and controls to deliver on such reviews;

(b) consider any implied or express representation it made. Where a

customer has reasonable expectations based on the prior statements of

a distributor, for example that performance will be monitored, the

distributor should meet these expectations;

(c) when involved in handling claims or paying out on a product that has

been surrendered or reached maturity, meet any reasonable

expectations that the distributor has created in the customer‟s mind

with regard to how the process would be handled;

(d) establish, implement and maintain effective and transparent customer

complaint-handling systems; and

(e) pass any communications received from customers (intended for or

suited to providers to act upon) to providers in a timely and accurate

way.

Apportion of Responsibilities

35. In determining whether the responsibilities of a provider or a distributor are

applying to it, a bank should consider the roles and functions that it undertakes

in the product life-cycle of a particular product. While there should be no

question on the responsibilities of the bank that is acting as both a provider

Page 14 / 33

and a distributor at the same time, the roles and functions fulfilled by separate

provider and distributor may be varied based on the product or particular

arrangements in place. For example, it is possible that a provider creates a

financial product to meet criteria or designs specified by a distributor. In

such instance, many of the responsibilities fall to the commissioning

distributor rather than the product maker. However, it is also possible that an

entity creates components that are later (and possibly without the entity‟s

knowledge) subsumed into retail financial products designed and marketed to

customers by retail distributor. In such instances, the component maker may

not have a contractual or other relationship with the underlying customer.

36. Whether providers and distributors can agree between themselves how to

apportion responsibilities between themselves will depend on the

circumstances. In particular, it depends on the extent to which such an

agreement would be reasonable, whether the arrangement is clear to both

parties and properly recorded and the systems and controls used to monitor

whether the agreement continues to be appropriate in the circumstances.

Assessment on Customer Suitability

37. A distributor of financial products should take particular care that it should not

recommend products to customers unless it is reasonably satisfied that the

product is suitable for the particular customer on the basis of information

sought and obtained from the customer. To ensure that a financial product,

especially non-conventional and sophisticated financial product, is only sold to

suitable customers, a bank acting as distributor of the financial product should

develop and implement internal customer suitability procedures to seek

sufficient knowledge5 about the customer to establish that:

(a) the customer has a practical understanding of the features of the

financial product and the investment risks assumed;

(b) the financial product would meet the customer‟s investment objectives

and horizon; and

(c) the product is consistent with the customer‟s appetite for risk.

38. The customer suitability procedures should contain at least the following

components:

(a) processes that clearly describe the types of customers that a product

would generally be suitable for;

(b) clear lines of authority for approving transactions with customers that

do not meet generic customer suitability categorizations;

(c) staff who are suitably trained to properly analyze customers‟ needs and

5 The information to be obtained includes, for example, the customer‟s education, investment

experience by type and time period, net worth and risk appetite etc.

Page 15 / 33

risk appetites;

(d) effective supervision of personnel involved in sales; and

(e) appropriate documentation and record keeping to facilitate reviews of

compliance with approved procedures.

39. While greater due diligence is expected for new and retail customers, a bank

acting as distributor of financial product should also take note that some

groups of customers such as the elderly, illiterate or other vulnerable persons

may require more detailed explanations for an understanding of the risk

involved. To protect the interests of these people, the bank may wish to

adopt the following practices that are presently adopted by some market

participants:

(a) to suggest that the customer be accompanied by a person who is able to

explain to the customer what is being presented or recommended

unless the customer decides otherwise;

(b) to require the presence of the sales staff‟s supervisor so as to ensure

that the customer fully understands all material facts necessary to make

an informed decision including the product features, risks of the

product, and the applicable fees and charges; and

(c) to allow the execution of the sales transaction only upon approval by

the supervisor.

Supervisory Action

40. The AMCM will be guided by the conditions, requirements, principles and/or

responsibilities set forth in this Guideline in considering whether a bank or any

of its staff / agents is a fit and proper person to act as a provider of financial

products or a distributor of financial products in Macao. To enable the

AMCM to have a better understanding of banks‟ activities in the provision and

distribution of financial products, banks may be required to submit on regular

or ad hoc basis information on such activities. The information required will

generally include:

(a) name of the financial products (Chinese and English) offered;

(b) product type, risk rating and any update on risk rating;

(c) whether or not the product is capital guaranteed;

(d) whether the bank is acting as provider, distributer or both;

(e) maturity date (if any) of the financial product

(f) number of investors; and

(g) amounts involved.

41. It is the responsibility of the board and senior management to ensure that the

above conditions, requirements, principles and/or responsibilities are adhered

to / fulfilled at all times. Although the AMCM has no power to order a bank

Page 16 / 33

to compensate customers that have suffered losses or to order a bank to refund

or moderate any excessive or unreasonable fees and charges imposed, a bank

that fails to meet the above conditions, requirements, principles and/or

responsibilities will be subject to appropriate supervisory actions and these

may include:

(a) subject any new financial products to be introduced by the bank to

specific approval of the AMCM;

(b) direct the bank to recall any financial product offered;

(c) impose additional capital charge to provide for additional risks that are

not satisfactorily managed by the bank; and

(d) apply sanctions against the bank pursuant to provisions of Chapter II in

Part IV of the FSAM.

~End ~

Appendix 1

Page 17 / 33

Information / Documents Required in Support of

Application For Launching New Financial Products

A. Documents / information to be submitted to the AMCM for the marketing

of financial products in Macao, if such documents/information have not

been submitted before or, if such documents / information have been

revised:

1. The comprehensive procedural manual for the marketing of the financial

products, starting from the process on selection of issuer / product down to

actual operations including customer account opening and closing, regular

payment of interest and coupon, handling complaints etc. (enclosing any

relevant checklist or samples of confirmations to be sent to client etc.).

2. The code of conduct governing all staff and management concerned with

reference to the following principles: (a) honesty and fairness; (b) diligence; (c)

capabilities; (d) information about customers; (e) information for customers; (f)

compliance; (g) responsibility of senior management; and (h) conflict of

interest.

3. The internal control guidelines designed to protect the bank‟s own operations

and its customers from financial loss arising from theft, fraud and other

dishonest acts, professional misconduct or omissions e.g. obtaining all relevant

documents when opening accounts, proper segregation of duties, sending

confirmations to customers etc.

4. The eligibility policy specifying the minimum requirements for staff engaging

in the promotion and selling of financial products. The bank should inform

the AMCM in advance in case of any subsequent changes to the foresaid

policy. In addition, the bank should notify the AMCM regarding the

designated branches / departments and the number of staff that will be directly

involved in the promotion and selling of financial products as well as the

number of staff that is possessing professional qualifications and training in

financial products and have over at least three years of working experience in

the related area. The bank should update the AMCM on this information on

an annual basis.

B. Product-specific documents / information to be submitted in each

application for marketing a new financial product:

1. Brief description of principal features of the product, how it works, risk-rating

of the product, target customers and risks associated with the product;

Appendix 1

Page 18 / 33

2. The offering and constitutive documents of the product, including (a) base

program document; (b) product prospectus; (c) issue prospectus; (d) product

key fact statements6; and (e) sales key fact statements

6; and

3. Sample of Client Agreement that should contain at least the followings:

(a) the full name and address of the customer as verified by a retained

copy of the identity card or relevant sections of the passport (for

personal account), and business registration certificate, corporation

documents, or any other official document (for corporate account)

which uniquely identifies the customer;

(b) undertakings by the bank and the customer to notify the other in the

event of any material change to the information provided in the

agreement;

(c) a description of the nature of services to be provided to or available to

the customer;

(d) a description of any remuneration (and the basis for payment) that is to

be paid by the customer such as commission, brokerage, and any other

fees and charges; and

(e) a risk disclosure statement including all applicable risk disclosures

relevant to all kinds of transactions that the customer may be involved.

Disclosures should be in print at least as large as other text in the

Client Agreement. There should also be a declaration by staff that all

risk disclosures have been explained to customer who is also given a

chance to ask questions and this should be accompanied by an

acknowledgement by customer.

6 See Appendix 3, A(a).

Appendix 2

Page 19 / 33

List of information that is relevant to support a request for

internal authorization of a new financial product

The information includes, but is not limited to:

1. the objective of introducing the product, target customers and a description of

strategic alliance arrangements (if any);

2. the key features of the product, method of distribution and samples of the

term sheet and promotional material;

3. a quantification of the product‟s financial impact, including financial

projections based on the target take-up rate and expected market share,

risk-adjusted returns, sensitivity of projections to changes in market

conditions, and whether adequate capital has been provided for the product,

for both internal and regulatory capital purposes;

4. an assessment of the potential risks associated with the product, including

exposures to money-laundering risk, and how these risks will be measured,

monitored and controlled;

5. an assessment of the appropriateness of the product for the targeted customer

groups;

6. an assessment of the skills, expertise and resources (including computer

systems and infrastructure) required to sell and manage the product

throughout the pre, during and post contractual stages. The assessment should

address whether these elements are already fully present within the institution,

and if not, the actions that will be taken to ensure that the necessary elements

are met prior to the launch of the product;

7. a description of related accounting and tax implications attached to the

product, highlighting in particular accounting or tax treatments on which the

success of the product will hinge, or which will materially alter the product‟s

risk-return profile; and

8. whether the product complies fully with applicable legal and regulatory

requirements or restrictions, including a description of any unresolved legal

or regulatory issues.

Appendix 3

Page 20 / 33

Specific Practices that Banks are Expected to Implement

A. Practices to achieve specific objectives

Specific Objectives Practices Expected

(a) to make risks clearer to customers to

enable customers to make informed

decisions and to take responsibility

for their decisions.

on the understanding that few

customers will read a full

prospectus, it is desirable for a bank

to produce some key facts

statements to set out the nature,

risks and benefits of financial

products as well as other essential

information. For example, a

“product” key facts statement

should cover whether the product is

principal protected, the major risks

that the customer could suffer loss,

the limitation on any secondary

market etc. A “sales” key facts

statement should cover whether the

bank is acting as principal or agent,

any fees it receives, the fact that the

product is not deposit and the

complaints procedures, etc.

to attach to all derivatives products

a warning statement in reasonable

font size to remind customers not to

invest in them unless the customers

fully understand and are willing to

assume the associated risks.

(b) to avoid potential for confusion in

customers‟ minds between traditional

deposits and financial products.

to segregate physically retail

financial products business from

ordinary banking business.

to engage different staff for selling

financial products and for

conducting ordinary banking

business activity.

to use physical signs and warnings

to distinguish deposits and financial

products and particularly the risks

Appendix 3

Page 21 / 33

Specific Objectives Practices Expected

attached to financial products.

to separate information on a retail

customer‟s deposit accounts and

information on his/her financial

products accounts and, to disallow

the abused use of deposit-related

information to target and channel

retail customers into financial

products activities.

(c) to remove potential conflict during

the process to assess customers‟ risk

profile.

to separate the procedures for

assessing customers‟ risk profile

from the sales process and to

require such risk assessment

process to be carried out by staff

that have no role in the sales

process. The same arrangement

should also apply to subsequent

annual or periodical reviews and/or

any other reviews triggered by

events.

to provide the customer with a copy

of his/her risk profile and obtain

his/her agreement that the risk

profile is accurate.

to maintain adequate records,

including audio or video records, as

evidence of the risk assessment

process and the customer‟s

confirmation of agreement to the

risk assessment.

(d) to remove or lessen areas for

subsequent disputes regarding the

sales process.

to ensure adequate records,

including audio or video records

and audit trail are in place to show

that due sales process is being

followed.

to adopt also appropriate practices

under Part B below.

(e) to conduct product due diligence on

a continuous basis at appropriate

when the financial product that was

recommended and sold to a

Appendix 3

Page 22 / 33

Specific Objectives Practices Expected

intervals. customer has a higher risk rating, to

disclose such to the customer.

(f) to document and retain the reasons

for each product recommendation

made to each customer, in particular

the justification in cases of risk

mismatch.

to maintain adequate documentation

of the customer‟s reasons,

understanding and agreement to the

risk mismatch and to seek

endorsement from the handling

staff‟s supervisor.

to audio or video record the

discussions with the customer to

enhance audit trial.

(g) to test check sales staff‟s

understanding of the financial

products and to observe how the

sales process is working in practice.

to institute a mystery shopper

programme and/or customer

surveys to check the information

being given to customers and the

quality of advice offered.

(h) to ensure that remuneration structure

of sales staff does not give rise to

conflict of interest.

to remunerate frontline sales staff

not solely on the basis of financial

performance but also to take into

account other factors, e.g.

adherence to best practices and

code of conduct.

B. Practices to deal with the allegations from complaint cases

Allegations from complaint cases Practices Expected

(a) bank customers might not have

been given adequate information /

explanations on the features of

financial products.

(b) staff of banks might have

emphasized the positive factors of

financial products rather than their

negative factors.

(c) bank customers might have been

required to sign on documents

without given clear explanations.

for each financial product, a

document / information checklist

should be given to the customer for

the customer‟s understanding of the

standard documents that are

available to him/her.

a customer should be required to

sign to acknowledge receipt of the

documents / information provided

to him/her by the bank.

for each financial product, a product

key facts statement and a sales key

Appendix 3

Page 23 / 33

Allegations from complaint cases Practices Expected

facts statement (see Part A item (a)

above) should be drawn up to

facilitate explanations to customers

and/or for information of

customers.

for each financial product, a

checklist should be drawn up to set

out those key risks and features that

should be explained to customers.

after explaining the key risks and

features to a customer, the above

checklist should be signed by both

the handling staff and customer.

Before signing, it is desirable to ask

the customer to make a statement in

his/her handwriting that “he/she has

been given explanations of the

relevant risks of the financial

product, he/she understands and

knows clearly the risks involved

and is willing to bear the relevant

risks”. Where necessary, such

checklist should be countersigned

by the supervisor of the staff.

when a risk disclosure statement is

provided to a customer as part of

the account opening procedures, the

customer should be given

explanation of the content of the

risk disclosure statement. The

customer should sign to

acknowledge that he/she had been

given the explanations. Before

signing, it is desirable to ask the

customer to make a statement in

his/her handwriting that “he/she has

been given explanations of the risk

disclosure statement, he/she

understands and knows clearly the

risks involved and is willing to bear

the relevant risks”. The handling

Appendix 3

Page 24 / 33

Allegations from complaint cases Practices Expected

staff should also sign to declare that

he / she had explained the content

of the risk disclosure statement to

the customer. Where necessary,

supervisor of the staff and/or a third

party appointed by the customer

should also sign to witness these

signatures.

(d) staff of banks might have ignored

the background (such as education,

investment experience and risk

appetite) of customers when

introducing financial products.

(e) bank customers might have relied

on the credit worthiness of banks

instead of making their own

judgement on the investment.

(f) bank customers might have tried to

avoid responsibility by claiming

themselves as illiterate or elderly

etc.

the bank should perform customer

suitability procedures before

opening an investment account for a

customer and/or before the offering

of a financial product. The

procedures should be conducted by

non-sales staff and should include a

simple test of the customer‟s

investment knowledge and risk

tolerance. While adequate records

of the process, including audio or

video records, should be

maintained, the result of the test

should be countersigned by a

supervisor of the handling staff.

The customer should be given a

copy of his/her risk profile and

confirm his/her agreement that the

risk profile is accurate.

the subscription form for financial

products should contain a statement

that the customer is making his / her

own judgement. Such statement

should be given in bold print to

remind the customer that he / she is

making such own judgement.

customers who are illiterate or

senior in age would be encouraged

to bring a friend or family member

when making investment decisions.

audio or video recording of the

distribution process should be

Appendix 3

Page 25 / 33

Allegations from complaint cases Practices Expected

arranged to provide subsequent

proof that the customer was making

an investment decision by his/her

own judgement. The relevant audio

or video records should be kept in

such manner and in such period to

meet with the requirements of

applicable laws; to facilitate

verification with customers; and to

enable an internal review (e.g. by

the compliance function or the

internal audit) to be properly carried

out.

(g) bank customers might have been

required to make quick decisions.

after promoting a financial product,

the bank should give its customer a

think-over break instead of

requiring the customer to decide on

a transaction right away. In case a

think-over break would work to the

detriment of customer e.g. where

there might be substantial variations

in the value of the relevant financial

product, the customer should be

advised of such. If the customer

chooses not to have a think-over

break, the bank should audio or

video record the relevant

conversation.

Appendix 4

Page 26 / 33

Principles for Standards of Business Conduct

Principle 1

Honesty and fairness: In conducting its business activities, a bank should act

honestly, fairly, and in the best interests of its customers and the integrity of the

market.

For example:

(a) A bank should not engage in any conduct involving fraud or dishonesty, or

commit any act that reflects adversely on its honesty or trustworthiness or that

compromises its integrity.

(b) A bank should take all reasonable steps to enable customers to make informed

investment decisions and should avoid misleading or deceptive representations

or practices.

(c) A bank should not engage in practices that distort prices or artificially inflate

trading volume with the intent to mislead market participants.

(d) A bank‟s charges should not be unfair in their incidence or unreasonable in

their amount. They should be directly related to the circumstances and nature

of the services being provided.

(e) A bank that possesses material nonpublic information that could affect the

value of an investment should not act or cause others to act on the information.

Principle 2

Diligence: In conducting its business activities, a bank should act with due skill,

care and diligence, in the best interests of its customers and the integrity of the

market.

For example:

(a) A bank should take all reasonable steps to process customer orders promptly,

in accordance with the instructions of customers and on the best available

terms.

(b) A bank should provide its customers with prompt written confirmation or

documentation that the customers‟ orders have been executed.

Appendix 4

Page 27 / 33

(c) A bank should deal with customer and own account orders fairly and in due

turn.

(d) When allocating orders, a bank should not give unfair preference to itself or to

any customer for whom it has dealt.

(e) A bank should not advise a customer nor in the exercise of discretion, enter

into transactions with unnecessary frequency having regard to the customer‟s

agreed investment objectives.

(f) Where a bank is responsible for providing advice to or exercising discretion

for its customers, it should obtain, document and maintain any information

about the circumstances (both financial and otherwise) and investment

objectives of the customer that are relevant to the services to be provided.

Management should regularly review these records to evaluate the suitability

of the recommendations made by the bank‟s staff / agents.

(g) Where a customer declines to provide information concerning his/her

circumstances and investment objectives, a bank should not provide advice to

or exercise discretion on behalf of the customer unless it has first disclosed to

the customer that the lack of such information may adversely affect the service

that it can provide.

(h) Where a bank is responsible for providing advice or exercising discretion for

its customers, it should be able to demonstrate that the advice or exercise of

discretion is suitable for that client having regard to:

(i) the facts disclosed by that customer;

(ii) the terms of any agreement with that customer; and

(iii) any other relevant facts about the customer of which the bank is, or

reasonably should be, aware.

Principle 3

Capabilities: A bank should have and employ effectively the resources and

procedures which are needed for the proper performance of its business activities.

This should include the employment of staff resources that possess the relevant

professional qualifications and/or experience.

For example:

Appendix 4

Page 28 / 33

(a) A bank should have written policies and procedures relating to the business of

providing and/or distributing financial products. Such policies and

procedures should be approved by the board of directors of the bank or an

appropriate level of senior management. The policies and procedures should

be periodically reviewed to ensure that they are appropriate to the size, nature

and complexity of the bank‟s business and remain appropriate as such business

and market circumstances change.

(b) A bank should have internal control arrangements and financial and

operational capabilities to protect its operations and its customers from

financial loss arising from theft, fraud, and other dishonest acts, professional

misconduct or omissions. These include arrangements for

(i) maintaining and testing adherence to policies and procedures covering

the operation of the business;

(ii) establishing effective complaints handling systems;

(iii) maintaining procedures governing authorizations for handling

customer assets;

(iv) reviewing periodically the internal control systems to ensure that they

continue to work effectively;

(v) keeping adequate and orderly records of the business transactions;

(vi) ensuring that adequate business resumption, disaster recovery and

other contingency arrangements are in place and tested at appropriate

intervals; and

(vi) ensuing that systems are in place to enable management to guard

properly against involvement in financial crime including fraud,

market abuse, money laundering and the financing of terrorism.

(c) A bank should have adequate systems and procedures in place to ensure proper

supervision of its staff / agents and their activities.

(d) A bank should ensure that the staff / agents it employs or appoints to conduct

business for or with customers is suitably qualified and competent, and that the

staff / agents possess the relevant professional training or experience to act in

the capacity so employed or appointed.

(e) A bank should provide its staff / agents with relevant training so as to enhance

their competence, knowledge and skills.

(f) A staff / agent of a bank should keep abreast of advances in the financial

services industry and participate in continuing education throughout his / her

professional career in order to maintain the necessary competence, knowledge

and skills in the business activities he / she is engaged in.

Appendix 4

Page 29 / 33

Principle 4

Information about customers: A bank should seek from its customers

information about their financial situation, investment experience and

investment objectives relevant to the services to be provided.

For example:

(a) A bank should take all reasonable steps to establish the true and full identity of

its customers and should ensure compliance with the “customer identification

process” in the AML/CFT guidelines issued by the AMCM.

(b) When making a recommendation on a financial product to a customer, a bank

should take all reasonable steps to determine the customer‟s financial

objectives, risk tolerance, financial situation, investment experience and

particular needs.

Principle 5

Information for customers: A bank should make adequate disclosure of relevant

material information in its dealing with its customers.

(a) A bank should provide customers with adequate information about its business.

It should also disclose the types of financial products it is allowed to market to

customers. In the case where a bank is part of a financial services group and

its staff also acts for one or more related companies, the staff should inform

the customer of the capacity in which he / she is acting.

(b) Information disclosed to customers should meet regulatory requirements and

accord with industry best practices. The information provided should be

sufficient to help customers make an informed decision.

(c) The information disclosed to customers in any advertisement or publicity

material in any media should be presented in plain language, and in a manner

that is easy for the customer to understand. Jargon or technical terms used

should be clearly explained to customers.

(d) When making a recommendation on a financial product, a bank should make

adequate disclosure of all material facts relating to the key features of the

product, including:

(i) the nature of the investment, including the underlying financial

instruments and how these instruments work, if applicable;

(ii) the benefits of investing in the product;

Appendix 4

Page 30 / 33

(iii) the risks involved. In particular, in the case of futures contracts,

contracts or arrangements for the purposes of foreign exchange trading,

contracts or arrangements for the purposes of leveraged foreign

exchange and other complex product transactions, the bank should

assure itself that the customer understands the risks related to investing

in such products and that the customer has sufficient financial

resources to assume the risks and bear the potential loss of investing in

such products

(iv) the salient terms and conditions of the product;

(v) the fees and charges the customer will have to pay, including any

recurring charges or fees, if applicable;

(vi) early termination clauses, including the procedures, charges and

restrictions on early redemption as well as any other material

information associated with early redemption; and

(vii) any pecuniary or other disadvantages that the customer will or may

suffer as a result of switching from the original product to the

replacement product, if applicable.

(e) A bank should draw the customer‟s attention to the warnings, exclusions and

disclaimers in all documents, advertising materials and literature relating to a

financial product it is recommending to the customer.

(f) A bank should distinguish between facts and opinion in its presentation of

recommendations to a customer. Where an opinion is expressed, there should

be a reasonable basis for expressing the opinion and it should be

unambiguously stated that it is a statement of opinion.

(g) A bank should ensure at all times that any representation made and

information provided to the customer is clear, adequate and not false or

misleading.

(h) Documents to be given to customers should be kept up-to-date and reviewed at

least annually.

Principle 6

Compliance: A bank should comply with all regulatory requirements applicable

to the conduct of its business activities as well as proper internal procedures and

rules so as to promote the best interests of customers and the integrity of the

market.

For example:

(a) A bank should maintain adequate knowledge of and comply with all applicable

Appendix 4

Page 31 / 33

laws, rules and regulations relevant to its business activity.

(b) A bank should take all reasonable steps to ensure that the staff / agents it

employs or appoints to conduct business for or with customers is conversant

and comply with all applicable laws, rules and regulations relevant to its

business activity.

(c) A bank should maintain and enforce internal control and compliance

procedures as part of the policies and procedures required in principle 3(a)

above to ensure that the provision and distribution of financial products by the

bank is in accordance with applicable laws and regulations (including this

Guideline) as well as its internal procedures.

Principle 7

Responsibility of senior management: The senior management of a bank should

bear primary responsibility for managing the risks associated with the business,

including performing continual monitoring and periodic evaluation of risk

management process.

For example:

(a) Senior management of a bank should ensure that adequate procedures are in

place and operating effectively to monitor and control the risks associated with

the business on an ongoing basis.

(b) Senior management of a bank should ensure the implementation of ongoing

identification, measurement and mitigation of existing and potential risks

inherent in the bank‟s product offerings.

(c) Senior management should have access to all relevant information about the

business on a timely basis and should have available to them and seek where

appropriate all necessary advice on that business and on their own

responsibilities.

(d) Senior management should ensure the maintenance of appropriate code of

conduct within the bank and adherence to proper procedures by the staff.

The code of conduct should be periodically reviewed in the light of changes in

the internal and external environment.

Principle 8

Conflict of interest: A bank should try to avoid conflicts of interest, and when

they cannot be avoided, should ensure that its customers are fairly treated.

Appendix 4

Page 32 / 33

For example:

(a) A bank should act in the best interest of its customers when providing and/or

distributing financial products to its customers. It should disclose in writing

to the customer any actual or potential conflicts of interest arising from any

connection to or association with any product provider / distributor, including

any material information or facts that might compromise its objectivity or

independence in carrying out its business.

(b) A bank should not place its staff in situation where conflicts of interest may

arise. The bank should ensure that there is proper segregation of duties to

minimize any possible conflicts of interest.

(c) Where conflicts of interest between the bank and its customer are unavoidable,

the bank should disclose them fully to the customer.

Appendix 5

Page 33 / 33

Acceptable Professional, Industry or Academic Qualifications for Persons

Dealing in or Advising on Financial Products

1. Internationally recognized professional qualifications in Law, Accounting or

Finance; or

2. Recognized industry qualifications provided for people working in the

securities and investment industry; or

3. Degree in Accounting, Business Administration, Economics, Finance or Law.

Examples of acceptable professional qualifications in Finance and industry

qualifications include:

Qualification Awarding Body

Chartered Financial Analyst (CFA) CFA Institute

Certified International Investment

Analyst (CIIA)

The Association of Certified

International Investment Analyst

Certified Financial Planner (CFP) Certified Financial Planner Board of

Standards Inc.

Certified Financial Management Planner

(CFMP)

Hong Kong Institute of Bankers and

Macau Institute of Financial Services

Diploma Programme Examination Hong Kong Securities Institute

Professional Diploma in Financial

Markets

Hong Kong Securities Institute

Licensing Examination for Securities

and Futures Intermediaries

Hong Kong Securities Institute