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Sale and Distribution of Debt Instruments with Loss-absorption Features


21 November 2018

On 30 October 2018, the Hong Kong Monetary Authority (MA) issued guidance on enhanced investor protection measures on the sale and distribution of debt instruments with loss-absorption features and related products (Circular).

The Circular is directed at registered institutions (RIs) ie banks in Hong Kong who are registered with the Securities and Futures Commission (SFC) to undertake regulated activities – in particular sales and distribution.

Given debt instruments with loss-absorption features are subject to the risk of being written down or converted to ordinary shares, potentially resulting in a substantial loss to the investors concerned, the MA is of the view that such debt instruments and investment products that invest mainly in, or whose returns are closely linked to the performance of such instruments (together, Loss-absorption Products) are inherently complex, of high risk and generally unsuitable for retail investors.

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