No shortcuts online: SFC cracks down on suitability failures

On 6 January 2026, the Securities and Futures Commission (SFC) reprimanded and fined Saxo Capital Markets HK Limited (SCMHK) HK$4 million fine for failures in relation to the distribution of virtual asset-related products on its online trading platform¹. The case underscores the importance of robust compliance with suitability obligations under the Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission (Code of Conduct) and the Guidelines on Online Distribution and Advisory Platforms (Guidelines).

Among other findings, the SFC determined that SCMHK failed to make adequate enquiries or gather sufficient information to properly assess clients’ knowledge of derivatives and to characterize them based on such knowledge. Instead, SCMHK relied largely on self-declarations in its risk profiling questionnaire, without verifying whether clients understood the nature and risks of derivative products. SCMHK’s failures were found to be in breach of the Code of Conduct and the Guidelines.

The enforcement action serves as a reminder that suitability obligations apply equally in an online environment and that deficiencies in investor characterization and product due diligence can result in significant regulatory consequences.

Suitability obligations apply equally online

One long-standing feature is the requirement for licensed or registered persons to ensure that any recommendation or solicitation, or any transaction involving complex products, is suitable for the client in all the circumstances (Suitability Requirement), as set out under paragraph 5.2 of the Code of Conduct.

The Guidelines, issued in July 2019, confirm that the Suitability Requirement applies to all online distribution and advisory platforms for investment products operated by licensed or registered persons (Online Platforms). The increasing use of digital tools, including robo-advisory services, does not diminish such obligations.

What triggers suitability online?

Whether the Suitability Requirement is triggered depends on whether there is a recommendation or solicitation. In an online environment, this assessment is fact-specific and considers the manner of presentation and overall impression created by the Online Platforms. For instance, according to paragraph 5.3 of the Guidelines:

• Posting factual, fair and balanced product-specific information does not, in itself, amount to a recommendation.
• On the other hand, highlighting certain products over others, offering product-specific incentives (such as cash rebates or fee discounts), or interacting with clients will likely trigger the Suitability Requirement.

Key compliance expectations for platform operators

Where the Suitability Requirement is triggered, the licensed corporation must discharge it at the point of sale or advice according to the requirements under the Code of Conduct. Notably, according to paragraph 5.7 and 5.8 of the Guidelines, the licensed corporation should:

• Investor characterization: Match the risk return profile of the investment product selected by a client with the personal circumstances of that client, which normally involves (i) an assessment of the client’s risk tolerance based on information obtained through know-your client processes and (ii) product due diligence to ascertain the risk return profile of an investment product.
• Diligent and unbiased advice: Where applicable, advise the client on any available alternative investment products based on thorough analysis rather than commission-driven considerations.
• Holistic suitability mechanisms: Establish a mechanism to assess suitability of investment products via Online Platforms which takes into consideration all relevant factors concerning the personal circumstances of a client.

Heightened safeguards for complex products

The Guidelines impose heightened requirements for unsolicited sales of complex products on Online Platforms². Complex products are defined under the Guidelines as investment products whose, terms, features and risks are not reasonably likely to be understood by a retail investor because of its complex structure. The SFC published a non-exhaustive list of examples of investment products that are “complex products” and “non-complex products” (see here) which it may revise from time to time.  Notably, it is a misconception that a product is necessarily non-complex if it is traded publicly. In particular, while shares traded on the Hong Kong Stock Exchange (SEHK) are listed as non-complex, equity derivatives traded on the SEHK are complex.

Even where no recommendation or advice is given (i.e. even when the Suitability Requirement is not triggered), licensed corporations must ensure that transactions in complex products (except for derivatives traded on an exchange, in which case paragraph 6.5 of the Guidelines will apply) are suitable for the client in all the circumstances, in other words, the Suitability Requirement must still be met to the standard discussed above. Notably, licensed corporations are exempted from this requirement when dealing with institutional professional investors.

Takeaway

The recent disciplinary action against SCMHK underscores that technology does not diminish or dilute regulatory expectations around suitability obligations. Licensed corporations operating Online Platforms should re-examine their investor characterization processes, product governance frameworks, and digital distribution models to ensure compliance with the Code of Conduct and the Guidelines.

Authored by Maria Sit and Bryan Wong.