Websites offering investment advice need to be aware they may be breaking the law, warns the Hong Kong Securities and Futures Commission (SFC) in a circular on the provision of financial information on the internet released this week.
Even sites that just provide a link to another site offering advice may need to seek legal advice as to whether such an action constitutes "dealing in securities", which is subject to regulation.
The commission notes that "an increasing number of websites are engaged in the provision of financial information or investment advice", and it is "concerned that some of the websites may be operating unlawfully".
Keeping up with the changes in the financial markets presents a challenge for regulators, which aim to encourage new business and services, and at the same time protect investors. However, as the SFC states: "Regulated activities should be uniformly regulated, irrespective of whether such activities are conducted via paper-based or electronic media."
As a minimum, anyone dispensing investment advice must be registered in Hong Kong as an investment adviser. That is fine for sites which are the online vehicles of established investment banks or stockbroking firms û but there may be some unregistered sites engaged in dealing without knowing it.
While the report recommends licensing requirements not be extended to cover "activities concerned solely with the provision of generic factual market information where no recommendation on specific securities or investment advice has been made", hyperlinks to other sites which do provide such recommendations, in particular where there is some incentive for the viewer to "click through" to the other site, may mean a licence is required.
"In this regard," the commission says, "it should be noted that effecting any introduction of a client to a securities dealer in return for a commission or other remuneration may constitute 'dealing in securities' which may trigger a licensing requirement."
Other common services provided on investment-related sites include analytical tools, which may identify a variety of investment possibilities or recommendation presenting different choices to users. In this case, says the SFC, the provider would be regarded as giving investment advice.
"An example of an analytical tool able to make specific recommendation on the basis of the investment profile [risk aversion, age, projected cash flow] as determined by the user," it says.
The report also covers the receipt of remuneration, which it says has not been defined in any of the relevant ordinances. The SFC considers remuneration should include both direct and indirect forms.
"This is the approach that best serves the objective of investor protection, without the burden of over-regulation. In this context, notwithstanding that the websites concerned may not levy any direct charge on visitors for services or advice given, a benefit or advantage indirectly derived, such as from advertisements or hyperlinks with other websites, may amount to remuneration."
Website operators are advised to seek legal advice about how the law applies to their business.