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14 March 2013
Financial activity in Macau is regulated under the Financial System Act (Decree Law 32/93/M). The law mainly lays out the activities of financial institutions. Of particular interest is the chapter dedicated to the role of the financial intermediary. According to the act, a financial intermediary is:
"any individual or corporate body whose business is to buy and sell, on behalf of third parties, in a habitual form and with a view to profit, securities or other negotiable instruments transacted in the money, financial or foreign exchange markets, or to merely accept investors' orders relating to the disposal of these instruments".
Moreover, Article 118 of the act states that activity as a financial intermediary requires prior authorisation from the chief executive, to be granted on a case-by-case basis, and must be subject to advice from the Monetary Authority of Macau. All authorised and licensed institutions – including financial intermediaries – are bound to a special registration with the monetary authority prior to the commencement of their activities and are subject to its supervision.
The monetary authority, as regulator of monetary and financial markets, has implemented certain supervisory requirements for the distribution of financial products by banks. On September 17 2010 it issued the Guidelines on Provision and Distribution of Financial Products (Circular 033/B/2010-DSB/AMCM), which mention:
Notwithstanding the circular being addressed prima facie to banks – similarly to the provisions of the Financial System Act – it contains specific provisions for their staff and agents, who must be appropriately qualified for the role (or roles) that they will perform and have sufficient knowledge of the financial products with which they will deal.
The circular lays down the principles that banks must set in their codes of conduct and advises how banks should guide the attitude of their staff in fulfilling their duties. These codes of conduct should be submitted to the monetary authority.
According to the act, the financial intermediary can be an individual or a corporate body. In both the act and the licensing guidelines, it is visualised as a corporate body and referred to as an institution. Requirements regarding its capital and statutory bodies are imposed on it by the act and guidlines.
Therefore, it seems that even if financial intermediaries as individuals are subject to the issuance of a licence, the system in Macau has no specific provisions for licensing these individuals. In fact, comparing the Macau model with its counterparts in Hong Kong or Singapore, it could arguably be concluded that these are much more stringent in implementing requirements. In Hong Kong, for example, the Securities and Futures Commission, as the sector supervisor, has issued specific provisions on the licensing of individuals who intend to work as financial intermediaries.
The Monetary Authority of Singapore requires the licensing of all individuals who perform a regulated activity on behalf of a financial institution that is subject to the issuance of a capital markets services licence, or on behalf of a licensed financial adviser.
Should the status quo of the Macau regulatory framework last or, on the contrary, should Macau follow its neighbours' examples and establish tighter requirements with respect to individuals who sell financial products? For example, should Macau law set up mandatory submission to an examination prior to the issuance of the authorisation or licence? It must be kept in mind that the strict requirements in this area concern the need for greater protection of the consumer, generally considered to be the 'weaker party' in a consumer relationship.
Financial Intermediaries are professionals who deal directly with clients and advise them on savings plans, investments or insurance protection. These individuals play a crucial role when it comes to choosing a financial product. In this sense, it is essential to ensure, foremost, that the individuals possess solid knowledge of the financial products they work with, so they are able to convey appropriate information to customers and advise them on the best products to suit their needs.
Candidates should prove that they have knowledge about securities and tax regulations, marketing and sales, evaluation of customers, securities markets, finance and economics. Moreover, they should prove that they are able to evaluate customers in terms of their financial needs and knowledge about products, and to demonstrate that they will be able to help customers understand the specifications of each product and make an informed choice.
Even though some of these requirements are already included in the circular, it is thought that tighter control of their verification is necessary, not only after the issuance of the authorisation – in the exercise of its supervisory powers – but especially before granting the authorisation. Arguably, the regulator should assume this control a priori and not leave the responsibility exclusively to the employer.
To prevent the misselling and misrepresentation of the products, it is essential to ensure that the subjects involved in the sale of financial products hold the qualities necessary for this market to operate fairly and transparently.
In line with the monetary authority and circular, there is still much to be done in order to provide greater protection to consumers.
For further information on this topic please contact Pedro Cortés or Marta Mourão Teixeira at Rato Ling Vong Lei & Cortés Advogados by telephone (+853 2856 2322), fax (+853 2858 0991) or email (firstname.lastname@example.org or email@example.com).
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