Hong Kong: Client Classification Notice

The three categories

An eligible counterparty is a regulated institution, a sovereign body, a fund or a company that deals for its own account in the ordinary course of its business. A per se professional client is an entity with net assets of at least US$10 million, or a principal with investable assets of at least US$5 million, whose experience the firm has tested and recorded. An elective professional client sits below those thresholds and has asked in writing to be treated as professional, which the Hong Kong entity grants only after a documented assessment of knowledge, dealing history and capacity to bear loss. No client anywhere is classified as retail.

What the category changes

Category decides the protections that attach to a relationship, not the standard of care the firm applies to it. An eligible counterparty receives less by way of statutory warning, may deal in instruments closed to others, and is assumed to price risk for itself. A professional client receives suitability work, valuation reporting at the frequency the mandate sets, and the full complaints process. What does not vary with category is candour about cost, the quality of execution and the right to a human decision. Every mandate letter states the category on its first page, and it is repeated in the annual statement sent to Hong Kong clients.

How a category is set, confirmed and changed

Classification happens before the first mandate, on evidence rather than on a description the client gives of itself, and is approved by two people, one of them in compliance. It is confirmed once a year. Where a confirmation runs 60 days late, new mandates stop until the file is complete. A client may ask at any time to be treated as having more protection, and that request is granted without argument. A request in the other direction is decided within 10 business days against the evidence standard used at onboarding, and it can be refused. The office in Hong Kong keeps the record for seven years after the relationship ends.

Local categories and how they map

Most jurisdictions define investor categories of their own. Where they do, IGUAKO Capital (Hong Kong) Limited applies both: the local category the law requires and the group category that governs how the relationship is run.

Hong Kong's securities law defines professional investors in two groups: institutional professional investors, which are regulated firms, sovereign bodies and collective schemes, and corporate and individual professional investors who meet the portfolio thresholds set by the rules. IGUAKO Capital (Hong Kong) Limited serves professional investors only. Institutional professional investors are eligible counterparties under the group standard. Corporate professional investors must pass the assessment of knowledge and experience the rules require before the entity treats them as professional, and the group maps them to per se professional clients; the group's US$10 million net-asset test for entities is applied on top of the local portfolio threshold. Individual professional investors are not onboarded in Hong Kong and are referred to Singapore. The written consent to professional treatment required by the rules is obtained before the first transaction.

A client is told its group category and its local category in the same letter, and the Asia-Pacific desks apply the stricter of the two thresholds wherever the two differ.

Classification is not a marketing distinction. It decides which vehicles a client can be shown, what the firm has to tell it before it commits, and what protection it keeps if something goes wrong. The firm therefore sets it on evidence and revisits it every year.