UPDATED – SFC to Raise Investor Compensation Limit

Respondents to an April 2018 consultation strongly supported an increase in the compensation limit, among other proposals, which the SFC expects to implement in early 2020.

11 Oct 2019 – published in gazette

16 Oct 2019 – tabled before LegCo for negative vetting 

1 Jan 2020 – rules to come into operation

Hong Kong’s SFC (Securities and Futures Commission) has decided to proceed with amendments to raise the compensation payable to investors who suffer losses as a result of a default by a licensed intermediary or authorised financial institution.

A consultation paper on proposed enhancements to the ICF (Investor Compensation Fund) regime was issued in April 2018. A total of 10 submissions were received, including from individuals, intermediaries and the IFPHK (Institute of Financial Planners of Hong Kong).

The paper proposed to raise the compensation limit from HKD 150,000 to HKD 500,000 (USD 63,700) per investor per default. In line with this, it also proposed to raise the trigger levels for suspending the ICF levies from HKD 1.4 billion to HKD 3 billion, and for reinstating the ICF levies from HKD 1 billion and HKD 2 billion.

Most respondents agreed that the existing compensation limit was too low and raising it would enhance investor confidence and overall market competitiveness. Two respondents had suggested raising it further, which the SFC said was not appropriate given that HKD 500,000 is already over three times the current limit, and is on par with the HKMA deposit protection limit.

The consultation paper also proposed to adjust the coverage of the ICF regime so that it covers the northbound leg of Stock Connect and excludes the southbound leg. Of the four respondents who commented on this proposal, all supported it.

The SFC will proceed with all the above proposals. Subject to the legislative process, the changes are expected to be implemented in early 2020.

The paper had also proposed to empower the SFC to make interim compensation payments out of the ICF in exceptional circumstances where urgent pay-outs are necessary to manage potential systemic or financial stability risks.

But, respondents raised questions on how the arrangement would work, namely around the measures taken to ensure the new powers are exercised openly, fairly and consistently, and a lack of guidance on the recovery of overpayments. The SFC has decided not to pursue this proposal for now.

The consultation conclusions are published here.

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