The Securities and Futures Commission (SFC) said in a statement on April 27 that it is considering to update its Investor Compensation Regime (ICR).


The ICR was first launched in April 2003 to protect people who invest in companies that default. The current regime allows investors to claim up to HK$150,000 to cover losses in stocks or futures contracts traded in Hong Kong stock or futures exchanges. 

For example, if an intermediary with both a securities and futures business defaults, its clients can claim up to HK$150,000 regarding his or her securities-related losses, on top of another HK$150,000 regarding their futures-related losses. However, the compensation quota for either category cannot be used to offset losses that exceed the HK$150,000 limit in the other category.

The SFC is now proposing to raise the maximum compensation figure to HK$500,000, according to the statement, which noted that a two-month consultation has began to determine if the changes would go through, and that investors have until June 27 to submit their comments to the SFC.

The SFC further pointed out that it is aiming to eventually have a coverage ratio of 80 percent, which would allow 80 percent of investors to receive compensation if their intermediaries default. The ratio is currently standing at 64 percent down from 75 percent in 2014, SFC said in its consultation paper.

The intention of the update is to bring the ICR in line with international standards, the SFC said, as the maximum amount of compensation offered under the current regime is significantly less than similar regulation offers in the Europe, the United Kingdom, the United States, and Canada.

“These changes are needed as the Hong Kong markets have undergone substantial change since the last formal review of the Investor Compensation Regime. The proposed enhancements will benefit investors and the wider market and better equip the SFC to manage potential systemic risks,” Ashley Alder, the SFC’s Chief Executive Officer, commented on the proposed changes to the ICR.

The SFC made it clear that the compensation scheme would also cover trading in any Mainland Chinese stocks by non-mainland investors under the “Stock Connect” schemes, a collaboration between the Hong Kong, Shanghai and Shenzhen Stock Exchanges that allow international and Mainland Chinese investors to buy and sell securities in each other’s markets through their home exchanges.

Meanwhile, the SFC also proposed to raise the trigger levels at which the investor compensation fund would suspend the Investor Compensation Fund levies on stock transactions to HK$3 billion from the current HK$1.4 billion. The lower level that would trigger reinstating the levies would also be lifted to HK$2 billion from HK$1 billion, the independent statutory body said.

 

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