Guidelines for the Implementation of the Administration of the Suitability of Investors in Futures Institutions

 2018-06-24  55



  • Document NumberNo. 60 [2017] of the China Futures Association
  • Area of LawFutures
  • Level of AuthorityIndustry Regulations
  • Date issued06-28-2017
  • Effective Date07-01-2017
  • StatusEffective
  • Issuing AuthorityChina Futures Association

Notice of the China Futures Association on Issuing and Implementing the Guidelines for the Implementation of the Administration of the Suitability of Investors in Futures Institutions (for Trial Implementation)
(No. 60 [2017] of the China Futures Association)
All member entities:
For the purposes of strengthening the protection of investors, further improving the self-regulation system of the futures sector, and directing the futures institutions to conduct administration of the investor suitability, the China Futures Association (“CFA”) has developed the Guidelines for the Implementation of the Administration of the Suitability of Investors in Futures Institutions (for Trial Implementation, hereinafter referred to as the “Guidelines”) under the requirements of the Measures of the China Securities Regulatory Commission for the Administration of the Suitability of Securities and Futures Investors (hereinafter referred to as the “Measures”). The Self-regulation Rules, as deliberated and adopted at the 14th meeting (provisional) of the fourth Council, are hereby issued and the following matters are notified as follows:
I. Basing on the practice in the sector, these “Guidelines” have fully absorbed the reasonable recommendations of the futures sector and the regulatory authorities, and have offered procedural guidance for the performance of the suitability obligations in the futures sector. The futures institutions shall attach great importance to the administration of suitability, develop and improve the suitability administration system under the requirements of these Measures and Guidelines, steadily take measures during the process of implementation, constantly summarize experience, and further improve the administration of suitability. In consideration of the differences of the futures institutions in the business nature, service capacity, management level, internal control mechanism and other respects, all futures institutions may, during the process of the implementation, with reference to the Guidelines and in light of their reality, further specify and improve the relevant procedures, methods, standards and processes, and effectively perform the suitability obligations.
II. All futures institutions shall strengthen the institutional improvement, staffing, and technical preparation. The futures institutions shall, within six months of the date when these Guidelines come into force, complete the transformation and upgrading of the technical system for the administration of suitability.
III. The existing investors participating in futures trading shall trade according to the original system and shall be subject to differential treatment under the principle of “non-retrospective.” The specific practice: the futures institutions shall sell products to or provide services for new clients, and sell (offer) products or services higher than the original risk level to previous clients under the requirements of these Measures and Guidelines; and may continue to sell (offer) products or services not higher than the original risk level to previous clients, without being affected. Concurrently, the futures institutions shall be encouraged to actively make proper arrangements for the administration of suitability of previous clients in light of the actual circumstances and in consideration of the return visit to clients, self-examination, assessment and other work.
IV. Ten annexes including the List of the Risk Levels of Products or Services, the Form of Investor's Basic Information (Natural Person and Organization), the Written Application of A Professional Investor, the Notification and Confirmation of A Professional Investor, the Written Application of An Ordinary Investor for Transforming to Professional Investor, the Written Application of A Professional Investor for Transforming to Ordinary Investor, the Ordinary Investor's Risk Tolerance Assessment Questionnaire and Reference Questions (Natural Person and Institution), the Notification on the Opinions for the Suitability Matching of Ordinary Investors, the Risk Warning for Ordinary Investors' Purchase of Products or Services with Risks Higher than Their Risk Tolerance, and the Risk Warning for Ordinary Investors' Purchase of Products or Services with High Risk Levels are the reference templates provided by the CFA for facilitating the futures institutions' performance of the suitability obligations. All futures institutions may, in light of their reality, make adjustment and supplements.
V. The CFA will continuously follow up and assess the information on the futures institutions' performance of the suitability obligations and pay continuous attention to the relevant problems during the implementation process.
June 28, 2017
Guidelines for the Implementation of the Administration of the Suitability of Investors in Futures Institutions (for Trial Implementation)
Chapter I General Provisions
Article 1 For the purposes of directing and urging the futures institutions to effectively implement the requirements for the administration of suitability and protecting investors' lawful rights and interests, these Guidelines are developed under the Regulation on the Administration of Futures Trading, the Measures for the Administration of the Suitability of Securities and Futures Investors (hereinafter referred to as the “Measures”) and the relevant laws and regulations.
Article 2 These Guidelines shall apply to the futures companies, subsidiaries of the futures companies and other futures institutions (hereinafter referred to as the “business institutions”) that publicly sell or non-publicly assign futures and other derivative products to investors or provide business services relevant to securities and futures for investors.
Article 3 The business institutions shall, under the requirements of the laws, administrative regulations, regulatory provisions and these Guidelines, develop the rules on the administration of the investor suitability, diligently and prudently fulfill their duties in business operation, and sell suitable products or offer appropriate services to investors.
Article 4 The China Futures Association (hereinafter referred to as the “CFA”) shall, under these Measures, these Guidelines and other provisions, conduct self-discipline management of the business institutions' performance of the suitability obligations.
Chapter II Classification of Investors
Article 5 When selling products or offering services to investors, a business institution shall fully understand the investor information as prescribed in Article 6 of these Measures and may take, but not be limited to, the following methods:
(1) inquiring about and collecting investor information;
(2) questionnaires;
(3) knowledge testing; and
(4) other on-site or off-site communication, etc.
Article 6 An investor shall be responsible for the authenticity, accuracy and completeness of the information and supporting materials provided by it, and coordinate with the business institution's suitability assessment, classification and matching administration. An investor whose information provided has been significantly changed and may affect its classification of investors shall notify the business institution in a timely manner.
Article 7 A business institution shall, under the requirements of these Measures, classify investors into ordinary investors and professional investors and conduct differentiated administration of suitability.
Article 8 An investor that meets the conditions as specified in items (1), (2) and (3) of Article 8 of the Measures shall provide the business institution with its business license, business permit, registration or recordation certificate, certificate for the account type, and other identity qualification certificates. An investor passing the verification of the business institution may be directly identified as a professional investor and shall be notified of the identification result in writing.
Article 9 An investor that meets the conditions as specified in items (4) and (5) of Article 8 of these Measures shall be classified as a professional investor under the following procedures:
(1) The investor shall file an application and provide the following supporting documents:
(a) An institutional investor shall provide the financial statements, the proof documents on the financial assets, its investment experience, etc. of the most recent year.
(b) A natural person investor shall provide his or her proof documents on the financial assets of the most recent month or income certificate of the recent three years, investment experience or work certificate, professional qualification certificate, etc.
(2) An investor passing the verification of the business institution shall be recognized as a professional investor.
Article 10 A business institution shall, according to the risk tolerance, classify the ordinary investors into at least five levels, respectively C1 (including the lowest level of risk tolerance), C2, C3, C4 and C5, from low to high.
Article 11 A business institution may develop the assessment questionnaires for investor's risk tolerance to understand the investors' risk tolerance:
(1) A questionnaire shall at least include the source and amount of revenue, asset status, debts, investment knowledge and experience, risk appetite, integrity status and other factors.
(2) A questionnaire shall have no less than 10 questions.
(3) In a questionnaire, the score and weight of the options shall be reasonably set and the correspondence between the assessment score and the risk tolerance level shall be established, according to the correlation between the assessment option and the risk tolerance.
A business institution shall, according to the investor information obtained and in consideration of the results of questionnaire assessment, conduct comprehensive assessment of their risk tolerance.
When an investor fills out a risk tolerance assessment questionnaire, a business institution shall not induce, mislead or deceive the investor, thus to affect the results entered by the investor.
Article 12 Where a natural person investor whose risk tolerance is classified into C1 upon assessment falls under one of the following circumstances, a business institution may recognize it as an investor with the lowest risk tolerance:
(1) It has no full capacity for civil conduct.
(2) It has no risk tolerance or is reluctant to assume any investment loss.
(3) other circumstances as proscribed by laws or administrative regulations.
Article 13 An ordinary investor that meets the conditions as prescribed in Article 11 of these Measures may apply for being transformed to a professional investor. The process of applying for transformation is as follows:
(1) The investor shall fill out an application for transformation, confirm that it will independently assume the risks and consequences that may occur, and submit the supporting documents proving that it meets the conditions for transformation.
(2) The business institution shall examine the materials provided by the investor, conduct prudential assessment of the investor by additional understanding of the investor information, conducting the investment knowledge test or simulating transactions, and other means, and confirm that it satisfies with the requirements for transformation.
(3) A business institution that agrees with the transformation of the investor shall explain the difference in the performance of the suitability obligations between ordinary investors and professional investors, and warn the investment risks that may be assumed; and a business institution that disagrees with the transformation of the investor shall notify the investor of its assessment results and the reasons.
Article 14 A professional investor that meets the conditions as prescribed in items (4) and (5) of Article 8 of these Measures and needs to be transformed to an ordinary investor shall notify the business institution in writing. A business institution shall, in accordance with the standards of ordinary investors, perform its corresponding obligations of suitability assessment, matching and administration.
Article 15 A business institution shall establish a database for investor suitability assessment, collect investor information and update it in a timely manner. The database shall contain at least the following information:
(1) the investor information as prescribed in Article 6 of these Measures;
(2) the record of the dishonesty behaviors caused by the investment activities of the investor in the business institution;
(3) the contents of the previous risk tolerance assessment questionnaires of the investor, the rating time, the rating results, etc.;
(4) the application of the investor for transformation to a professional investor or transformation to an investor of a different category, the examination records, etc.; and
(5) other information deemed necessary by the China Securities Regulatory Commission, the CFA and the business institution.
Article 16 A business institution shall ensure the normal operation of the investor assessment database, to effectively meet the needs of the administration of investor suitability.
The investor assessment database shall be incorporated into the business institution's operation and maintenance management system of the information technology system for unified management.
Article 17 A business institution shall use the investor assessment database, the record of transactions, and other information, continuously follow up and assess investors' risk tolerance, and adjustment their risk tolerance levels if necessary. A business institution that adjusts investors' risk tolerance levels shall deliver the risk tolerance assessment results to the investors for signing for confirmation, and record and keep them in written form.
Chapter III Classification of Products (Services)
Article 18 The CFA shall be responsible for developing the list of risk levels of the products or services in the futures sector. Where the products or services change, the CFA shall update the list in a timely manner according to the circumstances.
Article 19 The risk levels of the products or services in the futures sector shall be classified into five levels, R1, R2, R3, R4 and R5 respectively, from low to high in principle.
The risk levels of the relevant products or services assessed by a business institution shall not be lower than the risk levels as prescribed in the list of the CFA.
The products or services with high-risk levels may be independently determined by a business institution, but shall at least contain the products or services with the risk level of R5 as prescribed in these Guidelines.
Article 20 A business institution shall understand the information on the products sold or the services offered, give comprehensive consideration to the liquidity, maturity time, leverage, structural complexity, minimum amount of the products or relevant services of the investment entity, investment direction and investment scope, raising method, credit status of the issuer and other relevant subjects, previous performance of the similar products or services and other factors, and prudently assess and classify the risk levels according to the risk characteristics and degree.
A business institution shall develop an assessment form for the risk levels of the products or services, determine the values and weights of all assessment factors according to the correlation between the assessment factors and risk levels of the products or services, and establish the correspondence between the assessment values and the risk levels of the products or services.
Products or services involving investment portfolios shall be assessed on the basis of the overall risk levels of the products or services.
Article 21 Where there are access conditions and requirements on investors for products or services, a business institution shall strengthen the examination of the essential elements, and prudently sell products or offer services to qualified investors.
Article 22 A business institution that entrusts another institution to sell products or offer services issued by the institution shall confirm that the entrusted institution has the qualifications for selling relevant products and the personnel, internal control system, technical equipment and other capacity for implementing the requirements for the suitability obligations.
A business institution shall develop the suitability administration standards and requirements for the entrusted products or services provided and notify the seller by proxy of them, and the seller by proxy shall strictly implement them, except as otherwise prescribed by laws and administrative regulations, and other rules of the China Securities Regulatory Commission.
Chapter IV Matching and Administration of Suitability
Article 23 A business institution shall, under the principle of “selling suitable products to suitable investors,” sell products or offer services and shall comply with the following matching requirements:
(1) The investment period, investment varieties, expected revenue and other items meet the investment objectives of investors.
(2) The risk levels of the products or services comply with the investors' risk tolerance levels.
(3) Other matching requirements as prescribed by the China Securities Regulatory Commission, the CFA and the business institution.
Article 24 The matching between the risk tolerance levels of ordinary investors and the risk levels of the products or services shall be determined according to the following standards:
(1) C1 investors (including the category of the lowest risk tolerance) may purchase or accept the products or services with the risk level of R1.
(2) C2 investors may purchase or accept the products or services with the risk levels of R1 and R2.
(3) C3 investors may purchase or accept the products or services with the risk levels of R1, R2 and R3.
(4) C4 investors may purchase or accept the products or services with the risk levels of R1, R2, R3 and R4.
(5) C5 investors may purchase or accept the products or services with the risk levels of R1, R2, R3, R4 and R5.
Investors with the lowest risk tolerance may only purchase or accept the products or services with the risk level of R1.
Professional investors may purchase or accept the products or services with all risk levels.
Article 25 Where an investor voluntarily requests to purchase a product or accept relevant service whose risk level is higher than its risk tolerance, the business institution shall, after confirming that it is not an investor with the lowest risk tolerance, request the investor to sign a written special risk warning, and confirm that the investor has been aware of the risk characteristics of the product or service, the fact that the risk is higher than the investor's risk tolerance, and the possible consequences.
Article 26 Before selling products or offering services to ordinary investors, a business institution shall, under the provisions of Article 23 of these Measures, notify the possible risk matters and the specific suitability matching opinions.
Article 27 A business institution shall notify the investor to give comprehensive consideration to its own risk tolerance and the opinions of the business institution for suitability matching, independently make investment decisions and assume investment risk; the opinions of the business institution for suitability matching shall not indicate that the business institution has made substantial judgment or guarantee for the risk or revenue of the products or services, and a business institution's performance of the functions for investor suitability shall not replace investors' investment judgments, reduce the inherent risks of the products or services, or affect the investment risk, performance liability or expenses to be assumed by it according to the law.
Article 28 When selling or offering products or services with high risk levels to ordinary investors, a business institution shall perform the following suitability obligations:
(1) It shall have additional understanding of the relevant information on investors.
(2) It shall provide investors with written special risk warnings, to reveal the high risk characteristics of the products or services, and make investors signed thereupon for confirmation.
(3) It shall provide investors with at least 24 hours of cooling-off period or at least one additional return visit to notify the special risks.
Article 29 A business institution shall, in accordance with the changes in the information on the investors and the products or services, actively adjust the classification of investors, the classification of products or services, and the opinions for suitability matching, and notify the investors.
Chapter V Suitability Internal Control Management of Business Institutions
Article 30 A business institution shall establish an internal system for the administration of investor suitability, including but not limited to the following:
(1) understanding the standards, methods and processes of investors;
(2) the basis, method and process for the classification of investors;
(3) understanding the standards, methods and processes of the products or services;
(4) the basis, method and process for the classification of products or services;
(5) the criteria, methods and processes for the suitability matching; and
(6) the guarantee measures for the implementation of the internal system for the administration of investor suitability.
Article 31 A business institution that undergoes the informing and warning procedures as prescribed in Articles 13, 26, 28 and 29 of these Guidelines to ordinary investors by on-site means shall make audio-video recordings of the whole process; and a business institution that undergoes the informing and warning procedures through the Internet and by other off-site means shall improve the supporting trace-leaving arrangements and make ordinary investors confirm by electronic means as required by laws and administrative regulations.
Article 32 A business institution shall establish a mechanism for the assessment of investor suitability and sales isolation, and sales personnel shall not participate in the assessment for the classification of investors, assessment for the classification of products and services, or matching between investors and products or services.
Article 33 A business organization shall establish and improve a return visit system, and appoint employees other than sales promoters to pay suitability return visits of a certain proportion each year by telephone, e-mail, letter, SMS and other suitable means. For the following ordinary investors, a business institution shall pay return visits:
(1) Their sources of life mainly rely on savings or social security.
(2) They purchase or accept high-risk products or services.
(3) Other investors deemed necessary by the China Securities Regulatory Commission, the CFA and the business institution.
Article 34 The contents of a return visit shall include, but are not limited to:
(1) Whether the interviewee is the investor or the institution.
(2) Whether the interviewee has filled out the relevant information forms and questionnaires in person, and affixed autograph or seal as required.
(3) Whether the information previously provided by the interviewee has been significantly changed.
(4) Whether the interviewee has known the contents of the risk disclosure or warning.
(5) Whether the interviewee has known that the risk tolerance shall match with the product or service purchased.
(6) Whether the interviewee has known the possible costs and relevant investment losses.
(7) Whether the business institution and its employees have the behaviors prohibited in Article 22 of these Measures.
(8) Other contents deemed necessary by the China Securities Regulatory Commission, the CFA and the business institution.
Article 35 A business institution shall carry out at least one suitability training every year, improve the suitability administration knowledge and skills of the employees taking the relevant posts, and continuously improve the level of suitability practicing standards.
Article 36 A business institution shall designate a special department to supervise and inspect the implementation of the administration of suitability, conduct self-examination of suitability at least every half year, and form semi-annual self-examination reports at the end of each March and before the end of each September. A report shall include, but not limited to, the construction of the suitability system, suitability assessment and matching, database management, training records, data storage, complaint handling, problems that exist, and rectification measures, among others.
A business institution finding violations of the requirements for the administration of suitability shall handle and actively report them under the relevant requirements.
Article 37 A business institution shall incorporate the information on the performance of the suitability work by the employees taking relevant positions and the complaints into the supervision and accountability mechanism, to ensure that the employees diligently perform their obligations of suitability.
No business institution shall take any assessment or incentive mechanism or measures that may encourage their employees to sell unsuitable products or offer unsuitable services to investors.
Article 38 A business institution may disclose its suitability administration system to investors. The CFA shall encourage the business institution to disclose the policies for the classification of investors, the policies for the classification of products or services, and the self-examination reports, among others through the website, business premise, etc.
Article 39 A business institution shall appropriately keep the information and materials relevant to the performance of the functions for the administration of investor suitability, including but not limited to the matching plan, informing warning information, audio-video recordings, self-examination reports, etc., for no less than 20 years.
Article 40 A business institution and its employees shall keep the investor information, investors' risk tolerance assessment results and other information and materials obtained from the process of performing the functions of investor suitability strictly confidential, to prevent the leakage or inappropriate utilization of the information or materials.
Article 41 A business institution shall incorporate the handling of suitability disputes into its complaints administration methods and specify the handling mechanism for disputes. Where an investor puts forward mediation, a business institution shall actively cooperate with it and give priority to the settlement of disputes through consultation.
Chapter VI Self-discipline Management
Article 42 The CFA may regularly or irregularly inspect the information on the establishment and implementation of the investor suitability system by the business institutions by on-site or off-site inspection and other means.
Article 43 The business institutions and their employees shall actively cooperate with the inspection work of the CFA and shall not refuse or delay the provision of relevant information or provide any unauthentic, inaccurate or incomplete information.
Article 44 Where a business institution and its employees violate these Guidelines when performing the functions of investor suitability, the CFA shall, under the provisions on the self-discipline rules, take self-disciplinary punishment measures.
In the event of a suitability dispute between a business institution and an investor, an application may be filed with the CFA for mediation.
Chapter VII Supplementary Provisions
Article 45 For the purposes of these Guidelines, the written form includes paper or electronic form.
Article 46 When performing the obligation of investor suitability, a business institution may, in light of the actual circumstances, adjust and supplement the contents of the annexes, but the adjusted and supplemented standards shall not be lower than the standards as prescribed in these Guidelines and the annexes.
Article 47 Except under the circumstance that an overseas futures institution appoints an agent to conduct transactions of specific varieties, a business institution that sells products or offer services to overseas investors shall comply with the provisions of these Guidelines.
Article 48 With the consent of the Council, the CFA shall issue a list of risk levels for the products or services.
Article 49 In the event of concurrence between the clauses as prescribed in these Guidelines and the clauses of other securities and futures self-discipline rules, the relatively strict provisions and clauses shall apply under the premise of not be contrary to the contents, principles, spirit or internal logic of these Measures or the relevant interpretations of the China Securities Regulatory Commission.
Article 50 These Guidelines have been deliberated and adopted at the 14th meeting (provisional) of the fourth Council of the CFA.
Article 51 The power to interpret these Guidelines shall remain with the Council of the CFA.
Article 52 These Guidelines shall come into force on July 1, 2017. The Procedures for the Assessment of the Investor Suitability for the Asset Management Business of Futures Companies issued on September 27, 2012 and amended on April 3, 2015 and the Rules for the Administration of the Implementation of the Suitability System for Financial Futures Investors by the Futures Companies (Revision) issued on February 9, 2010 and revised on September 3, 2013 shall be concurrently repealed.
Annexes: 1. List of the Risk Levels of Products or Services
2. Form of Investor's Basic Information (Natural Person and Institution)
3. Written Application of A Professional Investor
4. Notification and Confirmation of A Professional Investor
5. Written Application of An Ordinary Investor for Transforming to Professional Investor
6. Written Application of A Professional Investor for Transforming to Ordinary Investor
7. Ordinary Investor's Risk Tolerance Assessment Questionnaire and Reference Questions (Natural Person and Institution)
8. Notification on the Opinions for the Suitability Matching of Ordinary Investors
9. Risk Warning for Ordinary Investors' Purchase of Products or Services with Risks Higher than Their Risk Tolerance
10. Risk Warning for Ordinary Investors' Purchase of Products or Services with High Risk Levels