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Circular No. 033/B/2010-DSB/AMCM

(Date: 17/9/2010)


Guideline on Provision and Distribution of Financial Products


The Monetary Authority of Macao (AMCM), under the powers conferred by Article 9
of the Charter approved by Decree-Law No.14/96/M of 11
th
March and by Article 6
of the Financial System Act of Macao (FSAM) approved by Decree-Law No.
32/93/M of 5
th
July, establishes the following:

Introduction

1. With technological advances and the evolution of more developed financial
markets, financial products have become increasingly more complex and
diverse in response to competitive pressures and changing customer demands.
In this connection, greater responsibility is placed on the board of directors
(the board) and senior management of a bank to ensure that the related risks
are well managed and the needs and rights of customers are appropriately
addressed.

2. The AMCM has from time to time implemented supervisory requirements on
the marketing of financial products by banks. To enhance the standards to be
maintained by banks in the offering of financial products and to enhance
confidence in the financial system, this Guideline sets out:
(a) the conditions and requirements for banks in the launching of new
financial products;
(b) the standards of business conduct expected of banks, and as appropriate
their staff and agents, in the provision and/or distribution of financial
products; and
(c) the specific responsibilities of banks, and as appropriate their staff and
agents, in the provision and/or distribution of financial products.

3. This Guideline will come into effect from 1
st
November 2010. The AMCMs
letter Documents Required in Applications for Marketing Financial Products
dated 28 October 2004 (Letter No. 5394/MC006-2004-DSB/AMCM) will then
be left to lapse.

4. This Guideline applies to all banks either locally incorporated or being
branches of overseas banks in Macao. Where applicable, this Guideline also
applies to financial intermediaries regulated by the provisions of the FSAM or
other applicable laws.



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Definitions

5. For the purpose of this Guideline:
(a) customer includes a prospective customer;
(b) distributor of financial product means the person who, in collaboration
with the provider of financial products, makes up the latter part of the
supply chain taking the financial product to the customer;
(c) financial product means any bond, stock
1
, warrant, mutual fund, unit
trust, futures contract, contract or arrangement for the purposes of foreign
exchange trading, contract or arrangement for the purpose of leveraged
foreign exchange trading, structured instrument linked to foreign
exchange or equity and any such other product as the AMCM may
prescribe as financial product; and
(d) provider of financial product means the person who issues, develops,
manages or packages financial products.

6. For avoidance of doubt, the reference to financial product in this Guideline
does not include deposit received by a bank or any instrument such as
certificate of deposit evidencing such deposit. In this connection, a bank
should not use the title or description deposit to describe a financial product
that is being provided or distributed by it.


Conditions and Requirements for Launching New Financial Products

7. A bank intending to launch a new financial product should first make an
internal assessment to ensure compliance of the following conditions:
(a) the financial product falls within the scope of the banks prescribed
business activities;
(b) the bank has the capacity to adequately manage and control the risks
associated with the financial product, including the financial capacity
to support existing and new product lines;
(c) the bank is aware of the need and has taken necessary measures to treat
customers fairly;
(d) it is not to the knowledge of the bank that the financial product

1
When a bank is acting as the intermediary of its customer for the purchase and sale of a stock
or warrant listed in a stock exchange or, the purchase and sale of other listed financial
products, the bank should bear in mind that some specific practices recommended in this
guideline, like production of a key facts statement, may not be applicable. In addition, risk
assessment of the customer becomes optional when the customer involves just in stock trading
or trading of other listed financial products. In case of doubt, a bank should seek advice from
the Banking Supervision Department of the AMCM.



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(including its variations) concerned is prohibited in other jurisdictions
and which could potentially give rise to public concerns; and
(e) the financial product complies with all necessary approvals required
for its offer, the FSAM, this Guideline and/or any other applicable
regulatory requirements, including other related guidelines issued by
the AMCM.

8. Except where the provisions of paragraph 11 below are to be applied, the bank
should submit the following documents / information to the AMCM prior to
the launching of a new financial product:
(a) a statement given by a member of the management team of the bank
confirming that the conditions specified under paragraph 7 above have
been complied with;
(b) the documents / information specified under Part A of Appendix 1 (i.e.
procedural manual, code of conduct, internal control guidelines and
eligibility policy etc.); and
(c) the documents / information specified under Part B of Appendix 1 (i.e.
product-specific information).

9. The information required under items (b) and (c) of paragraph 8 above will be
used by the AMCM for an assessment of the adequacy of the banks risk
management processes, internal control systems and staff competence and also
for its understanding of the financial products features and associated risks.
The AMCMs specific expectations on the banks proposal to provide or
distribute the new financial product are that:
(a) the bank should have adequate policies and procedures to prudently
manage risks associated with the offering of the new financial product;
and
(b) the bank should have given due regard to fair treatment of customers.
These expectations of the AMCM should be taken into consideration by a
bank as a basis to develop appropriate policies and procedures and to
determine if the requirements in paragraph 7(b) and 7(c) have been met.
Further discussions of the AMCMs requirements on these two expectations
are given at paragraph 12 to 16 below.

10. Pursuant to paragraph 8 and except where the provisions of paragraph 11
below are to be applied, a bank should not provide or distribute the new
financial product to its customers until:
(a) the expiry of 15 business days from the date of receipt by the AMCM
of the complete submission of information mentioned in paragraph 8;
or
(b) the receipt of the AMCMs response which does not raise any
objection.



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In both of the above cases, it remains the responsibility of the bank to
satisfactorily manage product risks and fulfill responsibilities to customers.

11. Notwithstanding the prior submission requirements in paragraphs 8 and 10
above, the AMCM may at its discretion allow a bank that has already
submitted to it the information required under item (b) of paragraph 8 to
launch the new financial product before the banks submission of the
information required under items (a) and (c) of paragraph 8. The conditions
for the AMCM to exercise such discretion include:
(a) that the bank will only provide or distribute the new financial product
(i) to customers who are professional investors; or (ii) to selected
customers through a private placement arrangement acceptable to the
AMCM;
(b) that based on separate procedures the AMCM is satisfied that the bank
has adequate systems to manage and control the related risk; and
(c) that the bank has committed to submit to the AMCM the information
required under items (a) and (c) of paragraph 8 not later than the end of
the second business day of the launch of the new financial product.
For the purpose of sub-item (a)(i) of this paragraph, a professional investor is
defined as (1) an individual
2
that has a portfolio of not less than MOP 8
million; or (2) a corporation or partnership that has either a portfolio of not
less than MOP 8 million or total assets of not less than MOP40 million. A
bank should before providing / distributing the new financial product ascertain
whether a person meets or continues to meet the definition of professional
investor herein and maintain proper record of the ascertainment.

For the purpose of sub-item (a)(ii) of this paragraph, a private placement
arrangement acceptable to the AMCM refers to a non-public offering
arrangement which is (1) available to not more than 50 persons; or (2) having
a minimum denomination of MOP500,000.

Managing Risks Associated with Offering of Financial Product

12. Pursuant to paragraph 9(a) above, the banks policies and procedures should
be designed to identify and control risks across the life cycle of a financial
product. These policies and procedures should be formally endorsed by the
banks board and/or senior management and properly documented. They
should be communicated in a timely manner to all relevant parties and levels
within the bank and reviewed at least annually and more frequently in the light
of changing circumstances.



2
This includes an individual on a joint account with his/her associates.




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13. The management of the risks arising from offering the new financial product
(product risks) should be well integrated within the banks overall governance
framework and risk management system to ensure that product innovation is
carried out in a manner that is aligned with the banks business objectives, and
consistent with its capability and capacity to manage associated risks.

14. A new financial product and/or material variations to existing financial
product should be authorized by the banks board and/or senior management
as appropriate. The approving authorities within the bank should be clearly
defined and documented, setting out the scope of authority given, to whom the
authority is given and whether the authority may be further delegated. Such
authorization of new financial product should be supported by a process that is
objective and consistently applied and which serves to ensure that:
(a) systems and procedures are in place to manage related risks and
customer expectations;
(b) both frontline and back-office staff are adequately trained to support
the new financial product; and
(c) product illustrations and marketing strategies are appropriate and not
misleading.
Appendix 2 gives some examples of the information that is relevant to support
a request for internal authorization of a new financial product. One example
is the assessment of the appropriateness of the financial product for the
targeted customer group. Paragraphs 37, 38 and 39 regarding the
assessment on customer suitability and the suggested practices for dealing
with the elderly, illiterate or other vulnerable persons
3
are also relevant.

15. A bank should also ensure that adequate procedures are in place and operating
effectively to monitor and control product risks on an ongoing basis. The
procedures should provide for the ongoing identification, measurement and
mitigation of existing and potential risks inherent in the banks financial
product offerings. These measures / procedures include but are not limited
to:
(a) clearly defined responsibilities within business lines for managing
product risks within approved parameters/limits. Business lines should
also be responsible for ensuring continuous adherence to approved
policies and procedures;
(b) clearly delineated lines of responsibility for monitoring and controlling
risk by control functions that are independent of business lines;
(c) adequate systems for measuring risk on a continuing basis;
(d) regular reviews of identified risk exposures in the light of changing

3
For the purpose of this guideline, persons aged 65 or above and persons whose level of
education is elementary or below will be regarded as vulnerable persons. A bank may also
treat other customers that require greater protection as vulnerable persons.



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market conditions not previously factored in to ensure that all material
risks are identified and monitored;
(e) adequate coverage of the internal audit function to ensure the timely
identification of internal control weaknesses, adherence to regulatory
requirements and internal policies and procedures, and proper
accounting and capital treatment; and
(f) comprehensive and regular reports to the senior management and/or
the board on: (i) the overall effectiveness of policies and procedures for
managing product risks; (ii) current assessment of product risks and
any change in the direction of risk; (iii) material changes in market
conditions that may impact the product risk profile going forward; and
(iv) internal control breaches and weaknesses.

Fair Treatment of Customers

16. Pursuant to paragraph 9(b) above, a bank is expected to have policies and
procedures concerning fair treatment of customers to avoid the potential for
mis-selling, to mitigate reputational risk and to safeguard the bank from
liability under applicable anti-fraud and fair practice laws and regulations.
Specifically, the policies and procedures should ensure that:
(a) an explicit consideration of customer-related issues and implications is
incorporated within the development and authorization stages of the
financial product;
(b) customers are fully informed through appropriate disclosures of the
key features, terms, conditions, risk rating and other risks associated
with the financial product. In particular, customers are informed
whether or not a financial product is principal-guaranteed and,
disclosure of risk is given at prominent place in client agreement and
promotional materials with reasonable and appropriate font size;
(c) the financial product is appropriate for the target group of customers
taking into consideration their broad needs and risk appetite;
(d) fees and charges imposed on the customer are reasonable and
transparent;
(e) staff involved in sales are adequately trained in the financial product
being / to be offered so that they can properly advise customers;
(f) compensation arrangements for sales staff do not induce an excessive
bias towards high revenue-generating products that are likely to result
in unsuitable product recommendations or sales to customers;
(g) customer information is adequately safeguarded; and
(h) an adequate and effective system for resolving and monitoring
customer complaints is put in place, and customers are provided with
information on where and how to lodge a complaint.




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Specific Practices Expected of Banks

17. Experiences in Macao and in the region show that many complaint cases could
have been avoided if a bank have adequate policies and procedures to achieve
the various objectives given under paragraphs 15 and 16 above, especially the
following specific objectives:
(a) to make risks clearer to customers to enable customers to make
informed decisions and take responsibility for their decisions;
(b) to avoid potential for confusion in customers minds between
traditional deposits and financial products;
(c) to remove potential conflict during the process to assess customers
risk profile;
(d) to remove or lessen areas for subsequent disputes regarding the sales
process;
(e) to conduct product due diligence on a continuous basis at appropriate
intervals;
(f) to document and retain the reasons for each product recommendation
made to each customer, in particular the justification in cases of risk
mismatch;
(g) to test check sales staffs understanding of the financial products and to
observe how the sales process is working in practice; and
(h) to ensure that remuneration structure of sales staff does not give rise to
conflict of interest.
In light of the experiences gained, banks in Macao are expected to implement
some specific practices such as the arrangement for audio or video
4
recording
or asking customers to make a statement in their own handwriting that they are
aware of and willing to bear the risks in the financial products. These
specific practices are given at Appendix 3, which are by no means exhaustive.
There are two parts in this appendix. The first part sets out the practices to
achieve the above specific objectives and the second part the practices to deal
with the allegations from some known complaints cases.

Standards of Business Conduct

18. Paragraph 8 requires the submission of a banks code of conduct to the AMCM.
The AMCM expects each bank to have a code of conduct that is
commensurate with its structure and complexity of operations to promote a
strong ethical corporate culture. The code of conduct should state the ethical
values of the bank and prescribe guidelines for its staff to observe when
discharging their duties. The code of conduct should include, for example,

4
For the purpose of this guideline, video recording should include the capturing of audio input
for subsequent output.



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guidelines on acceptance of gifts and entertainment, conflicts of interest,
personal benefits, confidentiality of information, and disclosure of and
restrictions on personal investments. In addition to general guidelines, a
bank may as necessary prescribe specific guidelines for the conduct of its staff
in different functional areas.

19. A bank should ensure that all staff understand and adhere to the code of
conduct. Unless otherwise specified, an agent of the bank should also adhere
to the code of conduct when acting on the banks behalf. The code of
conduct should come under the purview of a senior staff or an appropriate unit.
The banks staff, or as appropriate the banks agents, should be required to
acknowledge in writing that they have read, understood and would observe the
code of conduct. Disciplinary actions should be taken against those who
breach the code of conduct.

20. The board and senior management of a bank should bear primary
responsibility for ensuring the maintenance of appropriate code of conduct and
adherence to proper procedures. The board and/or senior management
should periodically review the code of conduct in the light of changes in the
internal and external environment. There should be adequate policies,
systems and controls in place to ensure that personal investments or
transactions undertaken by staff do not result in situations where potential
conflicts of interest could arise between the staff and the bank or with the
banks customers. In particular, a bank should require its staff to periodically
disclose situations where potential conflicts of interest could arise. Any
potential or actual conflict of interest should be escalated to management for
necessary action and disclosed to customers, where applicable.

21. In line with comparable principles promulgated by the International
Organization of Securities Commissions and other banking and securities
regulators, the AMCM sets out below the principles for the standards of
business conduct to be adopted by banks in Macao:

Principles Description
1. Honesty and Fairness A bank should act honestly, fairly, and
in the best interests of its customers
and the integrity of the market.
2. Diligence A bank should act with due skill, care
and diligence, in the best interests of
its customers and the integrity of the
market.
3. Capabilities A bank should have and employ
effectively the resources and



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Principles Description
procedures which are needed for the
proper performance of its business
activities. This should include the
employment of staff resources that
possess the relevant professional
qualifications and/or experience.
4. Information about customers A bank should seek from its
customers information about their
financial situation, investment
experience and investment objectives
relevant to the services to be
provided.
5. Information for customers A bank should make adequate
disclosure of relevant material
information in its dealing with its
customers.
6. Compliance A bank should comply with all
regulatory requirements applicable to
the conduct of its business activities
as well as proper internal procedures
and rules so as to promote the best
interests of customers and the
integrity of the market.
7. Responsibility of senior
management
The senior management of a bank
should bear primary responsibility for
managing the risks associated with
the business, including performing
continual monitoring and periodic
evaluation of risk management
process.
8. Conflict of interest A bank should try to avoid conflicts
of interest, and when they cannot be
avoided, should ensure that its
customers are fairly treated.

22. The AMCM expects banks, and as appropriate their staff

and agents, to apply
the above principles as the basis of their standards of business conduct when
they are acting as providers or distributors of financial products. Further
illustrations of these principles are given under Appendix 4.

23. Principle 3 of the above standards of business conduct requires a bank to
employ staff resources that possess relevant professional qualifications and/or



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experience. A bank should therefore ensure that its staff / agents are
appropriately qualified for the role (or roles) that they perform. Among other
things, those staff / agents that deal with customers or advise customers on
financial products should have sufficient knowledge in the financial products
in which they deal or on which they advise. The same also applies to the
supervisors of these individuals. Accordingly, some examples of the
professional, industry or academic qualifications expected of these individuals
and their supervisors that are acceptable to the AMCM are given at Appendix
5 for reference purpose. Other qualifications may also be accepted as
equivalent to those referenced in Appendix 5, which will be reviewed and
updated periodically to take into account changes to qualifications, new
qualifications and comments received from the industry. In addition to
professional, industry or academic qualifications, it is also important for a
banks frontline staff to have relevant industry experience. In particular, the
senior staff in charge of the relevant business lines should possess at least, say,
three years of relevant experience in the industry before taking up the
positions.


Responsibilities of a Bank as a Provider or Distributor of Financial Products

24. The actual requirements of the principles for the standards of conduct
specified under paragraph 21 above will depend on the circumstances,
including the riskiness or complexity of the financial product or portfolio, the
financial sophistication of the target market, who the bank is dealing with, and
the role and function of the bank undertaken in a transaction. A bank should
bear these factors in mind in order to interpret the requirements of the
principles in a way that is proportionate.

25. Depending on the precise nature of its business, the responsibilities of a bank
would mean addressing the fair treatment of customers at different stages (e.g.
product design; identifying target markets; promotion; sales and advice;
after-sales information and services; and complaints handling) of the product
life-cycle. These responsibilities of a bank as a provider or a distributor of
financial products are discussed under paragraphs 26 to 34 below. Before
providing or distributing such financial products, a bank should have gone
through the internal authorization process as discussed under paragraph 14.

Provider Responsibilities

26. When undertaking product design, the principles of honesty and fairness,
diligence, and capabilities are particularly relevant. A provider of financial
product should:



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(a) identify which types of customer the product or service is likely to be
suitable (or not suitable) for;
(b) stress-test the product or service to identify how it might perform in a
range of market environments and how the customer could be affected;
and
(c) have in place systems and controls to manage adequately the risks
posed by product design.

27. When providing information to distributors, the principle of diligence is
particularly relevant. A provider of financial product should:
(a) make clear if that information is not intended for customer use; and
(b) ensure the information is sufficient, appropriate and comprehensible in
substance and form, including considering whether it will enable
distributors to understand it enough to give suitable advice (where
advice is given) and to extract any relevant information and
communicate it to the end customer.

28. When providing information to customers or to distributors for onward
transmission to customer, the principles of honesty and fairness, capabilities
and information for customers are particularly relevant. A provider of
financial product should:
(a) pay regard to its target market, including its likely level of financial
capability;
(b) take account of what information the customer needs to understand the
product or service, its purpose and the risks, and communicate
information in a way that is clear, fair and not misleading; and
(c) have in place systems and controls to manage effectively the risks
posed by providing information to customers.

29. When selecting distribution channels, the principles of honesty and fairness,
diligence and information for customers are particularly relevant. A provider
of financial product should:
(a) decide whether this is a product where customers would be wise to
seek advice;
(b) collect and analyze appropriate information so as to detect patterns in
distribution as compared with the planned target market, and to assess
the performance of the distribution channels; and
(c) act when it has concerns, for example by ceasing to use a particular
distribution channel.

30. In the area of post-sale responsibility, the principles of honesty and fairness,
diligence and information for customers are particularly important. A
provider of financial product should:



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(a) in supplying information direct to the customer, ensure that the
information is communicated in a way which is clear, fair and not
misleading;
(b) periodically review products whose performance may vary materially
to check whether the product is continuing to meet the general needs of
the target customer that it was designed for, or whether the products
performance will be significantly different from what the provider
originally expected and communicated to the distributor or customer at
the time of the sale. If this occurs, the provider should consider what
action to take, such as whether and how to inform the customer of this
(to the extent the customer could not reasonably have been aware) and
of their option to seek advice, and whether to cease selling the product;
(c) communicate to the customer the contractual breakpoints (e.g. the
end of a long tie-in period) that may have a material impact on a
customer;
(d) act fairly and promptly when handling claims or when paying out on a
product that has been surrendered or reached maturity; and
(e) establish, implement and maintain effective and transparent customer
complaint-handling systems.

Distributor Responsibilities

31. In the area of financial promotions, the principles of honesty and fairness,
capabilities and information for customers are particularly relevant. A
distributor of financial product should:
(a) have in place systems and controls to manage effectively the risks
posed by financial promotions; and
(b) in passing on a promotion created by a provider, act with due skill, care
and diligence.

32. When providing information to a customer at or before the point of sale, the
principles of honesty and fairness, diligence and information for customers are
particularly relevant. A distributor of financial product should:
(a) ensure there is adequate disclosure of material information;
(b) consider, when passing provider materials to customers, whether it
understands the information provided;
(c) ask the provider to supply additional information or training where that
seems necessary to understand the product or service adequately;
(d) not distribute the product or service if it does not understand it
sufficiently, especially if it intends to provide advice; and
(e) when providing information to another distributor in a distribution
chain, consider how the further distributor will use the information,
such as whether it will be given to customers. The bank should



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consider what information the further distributor requires and the likely
level of knowledge and understanding of the further distributor and
what medium may suit it best for the transmission of information.

33. When recommending or advising on selection of a provider of financial
product, the principles of honesty and fairness and diligence are particularly
relevant. A distributor of financial product should:
(a) consider the nature of the products or services offered by the provider
and how they fit with the customers needs and risk appetite (see also
paragraph 37 to 39 below); and
(b) consider what impact the selection of a given provider could have on
the customer in terms of charges or the financial strength of the
provider, or possibly, where information is available to the distributor,
how efficiently and reliably the provider will deal with the distributor
or customer.

34. In the area of post-sale responsibility, principles of honesty and fairness and
capabilities are particularly relevant. A distributor of financial product
should:
(a) comply with any contractual obligation it has to the customer, for
example to provide ongoing advice or periodic reviews. In
connection with this, it should also consider its responsibility to
maintain adequate systems and controls to deliver on such reviews;
(b) consider any implied or express representation it made. Where a
customer has reasonable expectations based on the prior statements of
a distributor, for example that performance will be monitored, the
distributor should meet these expectations;
(c) when involved in handling claims or paying out on a product that has
been surrendered or reached maturity, meet any reasonable
expectations that the distributor has created in the customers mind
with regard to how the process would be handled;
(d) establish, implement and maintain effective and transparent customer
complaint-handling systems; and
(e) pass any communications received from customers (intended for or
suited to providers to act upon) to providers in a timely and accurate
way.

Apportion of Responsibilities

35. In determining whether the responsibilities of a provider or a distributor are
applying to it, a bank should consider the roles and functions that it undertakes
in the product life-cycle of a particular product. While there should be no
question on the responsibilities of the bank that is acting as both a provider



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and a distributor at the same time, the roles and functions fulfilled by separate
provider and distributor may be varied based on the product or particular
arrangements in place. For example, it is possible that a provider creates a
financial product to meet criteria or designs specified by a distributor. In
such instance, many of the responsibilities fall to the commissioning
distributor rather than the product maker. However, it is also possible that an
entity creates components that are later (and possibly without the entitys
knowledge) subsumed into retail financial products designed and marketed to
customers by retail distributor. In such instances, the component maker may
not have a contractual or other relationship with the underlying customer.

36. Whether providers and distributors can agree between themselves how to
apportion responsibilities between themselves will depend on the
circumstances. In particular, it depends on the extent to which such an
agreement would be reasonable, whether the arrangement is clear to both
parties and properly recorded and the systems and controls used to monitor
whether the agreement continues to be appropriate in the circumstances.

Assessment on Customer Suitability

37. A distributor of financial products should take particular care that it should not
recommend products to customers unless it is reasonably satisfied that the
product is suitable for the particular customer on the basis of information
sought and obtained from the customer. To ensure that a financial product,
especially non-conventional and sophisticated financial product, is only sold to
suitable customers, a bank acting as distributor of the financial product should
develop and implement internal customer suitability procedures to seek
sufficient knowledge
5
about the customer to establish that:
(a) the customer has a practical understanding of the features of the
financial product and the investment risks assumed;
(b) the financial product would meet the customers investment objectives
and horizon; and
(c) the product is consistent with the customers appetite for risk.

38. The customer suitability procedures should contain at least the following
components:
(a) processes that clearly describe the types of customers that a product
would generally be suitable for;
(b) clear lines of authority for approving transactions with customers that
do not meet generic customer suitability categorizations;
(c) staff who are suitably trained to properly analyze customers needs and

5
The information to be obtained includes, for example, the customers education, investment
experience by type and time period, net worth and risk appetite etc.



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risk appetites;
(d) effective supervision of personnel involved in sales; and
(e) appropriate documentation and record keeping to facilitate reviews of
compliance with approved procedures.

39. While greater due diligence is expected for new and retail customers, a bank
acting as distributor of financial product should also take note that some
groups of customers such as the elderly, illiterate or other vulnerable persons
may require more detailed explanations for an understanding of the risk
involved. To protect the interests of these people, the bank may wish to
adopt the following practices that are presently adopted by some market
participants:
(a) to suggest that the customer be accompanied by a person who is able to
explain to the customer what is being presented or recommended
unless the customer decides otherwise;
(b) to require the presence of the sales staffs supervisor so as to ensure
that the customer fully understands all material facts necessary to make
an informed decision including the product features, risks of the
product, and the applicable fees and charges; and
(c) to allow the execution of the sales transaction only upon approval by
the supervisor.

Supervisory Action

40. The AMCM will be guided by the conditions, requirements, principles and/or
responsibilities set forth in this Guideline in considering whether a bank or any
of its staff / agents is a fit and proper person to act as a provider of financial
products or a distributor of financial products in Macao. To enable the
AMCM to have a better understanding of banks activities in the provision and
distribution of financial products, banks may be required to submit on regular
or ad hoc basis information on such activities. The information required will
generally include:
(a) name of the financial products (Chinese and English) offered;
(b) product type, risk rating and any update on risk rating;
(c) whether or not the product is capital guaranteed;
(d) whether the bank is acting as provider, distributer or both;
(e) maturity date (if any) of the financial product
(f) number of investors; and
(g) amounts involved.

41. It is the responsibility of the board and senior management to ensure that the
above conditions, requirements, principles and/or responsibilities are adhered
to / fulfilled at all times. Although the AMCM has no power to order a bank



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to compensate customers that have suffered losses or to order a bank to refund
or moderate any excessive or unreasonable fees and charges imposed, a bank
that fails to meet the above conditions, requirements, principles and/or
responsibilities will be subject to appropriate supervisory actions and these
may include:
(a) subject any new financial products to be introduced by the bank to
specific approval of the AMCM;
(b) direct the bank to recall any financial product offered;
(c) impose additional capital charge to provide for additional risks that are
not satisfactorily managed by the bank; and
(d) apply sanctions against the bank pursuant to provisions of Chapter II in
Part IV of the FSAM.


~End ~


Appendix 1
Page 17 / 33

Information / Documents Required in Support of
Application For Launching New Financial Products

A. Documents / information to be submitted to the AMCM for the marketing
of financial products in Macao, if such documents/information have not
been submitted before or, if such documents / information have been
revised:

1. The comprehensive procedural manual for the marketing of the financial
products, starting from the process on selection of issuer / product down to
actual operations including customer account opening and closing, regular
payment of interest and coupon, handling complaints etc. (enclosing any
relevant checklist or samples of confirmations to be sent to client etc.).

2. The code of conduct governing all staff and management concerned with
reference to the following principles: (a) honesty and fairness; (b) diligence; (c)
capabilities; (d) information about customers; (e) information for customers; (f)
compliance; (g) responsibility of senior management; and (h) conflict of
interest.

3. The internal control guidelines designed to protect the banks own operations
and its customers from financial loss arising from theft, fraud and other
dishonest acts, professional misconduct or omissions e.g. obtaining all relevant
documents when opening accounts, proper segregation of duties, sending
confirmations to customers etc.

4. The eligibility policy specifying the minimum requirements for staff engaging
in the promotion and selling of financial products. The bank should inform
the AMCM in advance in case of any subsequent changes to the foresaid
policy. In addition, the bank should notify the AMCM regarding the
designated branches / departments and the number of staff that will be directly
involved in the promotion and selling of financial products as well as the
number of staff that is possessing professional qualifications and training in
financial products and have over at least three years of working experience in
the related area. The bank should update the AMCM on this information on
an annual basis.

B. Product-specific documents / information to be submitted in each
application for marketing a new financial product:

1. Brief description of principal features of the product, how it works, risk-rating
of the product, target customers and risks associated with the product;



Appendix 1
Page 18 / 33

2. The offering and constitutive documents of the product, including (a) base
program document; (b) product prospectus; (c) issue prospectus; (d) product
key fact statements
6
; and (e) sales key fact statements
6
; and

3. Sample of Client Agreement that should contain at least the followings:
(a) the full name and address of the customer as verified by a retained
copy of the identity card or relevant sections of the passport (for
personal account), and business registration certificate, corporation
documents, or any other official document (for corporate account)
which uniquely identifies the customer;
(b) undertakings by the bank and the customer to notify the other in the
event of any material change to the information provided in the
agreement;
(c) a description of the nature of services to be provided to or available to
the customer;
(d) a description of any remuneration (and the basis for payment) that is to
be paid by the customer such as commission, brokerage, and any other
fees and charges; and
(e) a risk disclosure statement including all applicable risk disclosures
relevant to all kinds of transactions that the customer may be involved.
Disclosures should be in print at least as large as other text in the
Client Agreement. There should also be a declaration by staff that all
risk disclosures have been explained to customer who is also given a
chance to ask questions and this should be accompanied by an
acknowledgement by customer.


6
See Appendix 3, A(a).


Appendix 2
Page 19 / 33

List of information that is relevant to support a request for
internal authorization of a new financial product

The information includes, but is not limited to:

1. the objective of introducing the product, target customers and a description of
strategic alliance arrangements (if any);

2. the key features of the product, method of distribution and samples of the
term sheet and promotional material;

3. a quantification of the products financial impact, including financial
projections based on the target take-up rate and expected market share,
risk-adjusted returns, sensitivity of projections to changes in market
conditions, and whether adequate capital has been provided for the product,
for both internal and regulatory capital purposes;

4. an assessment of the potential risks associated with the product, including
exposures to money-laundering risk, and how these risks will be measured,
monitored and controlled;

5. an assessment of the appropriateness of the product for the targeted customer
groups;

6. an assessment of the skills, expertise and resources (including computer
systems and infrastructure) required to sell and manage the product
throughout the pre, during and post contractual stages. The assessment should
address whether these elements are already fully present within the institution,
and if not, the actions that will be taken to ensure that the necessary elements
are met prior to the launch of the product;

7. a description of related accounting and tax implications attached to the
product, highlighting in particular accounting or tax treatments on which the
success of the product will hinge, or which will materially alter the products
risk-return profile; and

8. whether the product complies fully with applicable legal and regulatory
requirements or restrictions, including a description of any unresolved legal
or regulatory issues.


Appendix 3
Page 20 / 33

Specific Practices that Banks are Expected to Implement

A. Practices to achieve specific objectives

Specific Objectives Practices Expected
(a) to make risks clearer to customers to
enable customers to make informed
decisions and to take responsibility
for their decisions.
on the understanding that few
customers will read a full
prospectus, it is desirable for a bank
to produce some key facts
statements to set out the nature,
risks and benefits of financial
products as well as other essential
information. For example, a
product key facts statement
should cover whether the product is
principal protected, the major risks
that the customer could suffer loss,
the limitation on any secondary
market etc. A sales key facts
statement should cover whether the
bank is acting as principal or agent,
any fees it receives, the fact that the
product is not deposit and the
complaints procedures, etc.
to attach to all derivatives products
a warning statement in reasonable
font size to remind customers not to
invest in them unless the customers
fully understand and are willing to
assume the associated risks.
(b) to avoid potential for confusion in
customers minds between traditional
deposits and financial products.

to segregate physically retail
financial products business from
ordinary banking business.
to engage different staff for selling
financial products and for
conducting ordinary banking
business activity.
to use physical signs and warnings
to distinguish deposits and financial
products and particularly the risks


Appendix 3
Page 21 / 33

Specific Objectives Practices Expected
attached to financial products.
to separate information on a retail
customers deposit accounts and
information on his/her financial
products accounts and, to disallow
the abused use of deposit-related
information to target and channel
retail customers into financial
products activities.
(c) to remove potential conflict during
the process to assess customers risk
profile.
to separate the procedures for
assessing customers risk profile
from the sales process and to
require such risk assessment
process to be carried out by staff
that have no role in the sales
process. The same arrangement
should also apply to subsequent
annual or periodical reviews and/or
any other reviews triggered by
events.
to provide the customer with a copy
of his/her risk profile and obtain
his/her agreement that the risk
profile is accurate.
to maintain adequate records,
including audio or video records, as
evidence of the risk assessment
process and the customers
confirmation of agreement to the
risk assessment.
(d) to remove or lessen areas for
subsequent disputes regarding the
sales process.
to ensure adequate records,
including audio or video records
and audit trail are in place to show
that due sales process is being
followed.
to adopt also appropriate practices
under Part B below.
(e) to conduct product due diligence on
a continuous basis at appropriate
when the financial product that was
recommended and sold to a


Appendix 3
Page 22 / 33

Specific Objectives Practices Expected
intervals. customer has a higher risk rating, to
disclose such to the customer.
(f) to document and retain the reasons
for each product recommendation
made to each customer, in particular
the justification in cases of risk
mismatch.
to maintain adequate documentation
of the customers reasons,
understanding and agreement to the
risk mismatch and to seek
endorsement from the handling
staffs supervisor.
to audio or video record the
discussions with the customer to
enhance audit trial.
(g) to test check sales staffs
understanding of the financial
products and to observe how the
sales process is working in practice.
to institute a mystery shopper
programme and/or customer
surveys to check the information
being given to customers and the
quality of advice offered.
(h) to ensure that remuneration structure
of sales staff does not give rise to
conflict of interest.
to remunerate frontline sales staff
not solely on the basis of financial
performance but also to take into
account other factors, e.g.
adherence to best practices and
code of conduct.

B. Practices to deal with the allegations from complaint cases


Allegations from complaint cases Practices Expected
(a) bank customers might not have
been given adequate information /
explanations on the features of
financial products.
(b) staff of banks might have
emphasized the positive factors of
financial products rather than their
negative factors.
(c) bank customers might have been
required to sign on documents
without given clear explanations.
for each financial product, a
document / information checklist
should be given to the customer for
the customers understanding of the
standard documents that are
available to him/her.
a customer should be required to
sign to acknowledge receipt of the
documents / information provided
to him/her by the bank.
for each financial product, a product
key facts statement and a sales key


Appendix 3
Page 23 / 33

Allegations from complaint cases Practices Expected
facts statement (see Part A item (a)
above) should be drawn up to
facilitate explanations to customers
and/or for information of
customers.
for each financial product, a
checklist should be drawn up to set
out those key risks and features that
should be explained to customers.
after explaining the key risks and
features to a customer, the above
checklist should be signed by both
the handling staff and customer.
Before signing, it is desirable to ask
the customer to make a statement in
his/her handwriting that he/she has
been given explanations of the
relevant risks of the financial
product, he/she understands and
knows clearly the risks involved
and is willing to bear the relevant
risks. Where necessary, such
checklist should be countersigned
by the supervisor of the staff.
when a risk disclosure statement is
provided to a customer as part of
the account opening procedures, the
customer should be given
explanation of the content of the
risk disclosure statement. The
customer should sign to
acknowledge that he/she had been
given the explanations. Before
signing, it is desirable to ask the
customer to make a statement in
his/her handwriting that he/she has
been given explanations of the risk
disclosure statement, he/she
understands and knows clearly the
risks involved and is willing to bear
the relevant risks. The handling


Appendix 3
Page 24 / 33

Allegations from complaint cases Practices Expected
staff should also sign to declare that
he / she had explained the content
of the risk disclosure statement to
the customer. Where necessary,
supervisor of the staff and/or a third
party appointed by the customer
should also sign to witness these
signatures.
(d) staff of banks might have ignored
the background (such as education,
investment experience and risk
appetite) of customers when
introducing financial products.
(e) bank customers might have relied
on the credit worthiness of banks
instead of making their own
judgement on the investment.
(f) bank customers might have tried to
avoid responsibility by claiming
themselves as illiterate or elderly
etc.

the bank should perform customer
suitability procedures before
opening an investment account for a
customer and/or before the offering
of a financial product. The
procedures should be conducted by
non-sales staff and should include a
simple test of the customers
investment knowledge and risk
tolerance. While adequate records
of the process, including audio or
video records, should be
maintained, the result of the test
should be countersigned by a
supervisor of the handling staff.
The customer should be given a
copy of his/her risk profile and
confirm his/her agreement that the
risk profile is accurate.
the subscription form for financial
products should contain a statement
that the customer is making his / her
own judgement. Such statement
should be given in bold print to
remind the customer that he / she is
making such own judgement.
customers who are illiterate or
senior in age would be encouraged
to bring a friend or family member
when making investment decisions.
audio or video recording of the
distribution process should be


Appendix 3
Page 25 / 33

Allegations from complaint cases Practices Expected
arranged to provide subsequent
proof that the customer was making
an investment decision by his/her
own judgement. The relevant audio
or video records should be kept in
such manner and in such period to
meet with the requirements of
applicable laws; to facilitate
verification with customers; and to
enable an internal review (e.g. by
the compliance function or the
internal audit) to be properly carried
out.
(g) bank customers might have been
required to make quick decisions.
after promoting a financial product,
the bank should give its customer a
think-over break instead of
requiring the customer to decide on
a transaction right away. In case a
think-over break would work to the
detriment of customer e.g. where
there might be substantial variations
in the value of the relevant financial
product, the customer should be
advised of such. If the customer
chooses not to have a think-over
break, the bank should audio or
video record the relevant
conversation.


Appendix 4
Page 26 / 33


Principles for Standards of Business Conduct

Principle 1
Honesty and fairness: In conducting its business activities, a bank should act
honestly, fairly, and in the best interests of its customers and the integrity of the
market.

For example:

(a) A bank should not engage in any conduct involving fraud or dishonesty, or
commit any act that reflects adversely on its honesty or trustworthiness or that
compromises its integrity.

(b) A bank should take all reasonable steps to enable customers to make informed
investment decisions and should avoid misleading or deceptive representations
or practices.

(c) A bank should not engage in practices that distort prices or artificially inflate
trading volume with the intent to mislead market participants.

(d) A banks charges should not be unfair in their incidence or unreasonable in
their amount. They should be directly related to the circumstances and nature
of the services being provided.

(e) A bank that possesses material nonpublic information that could affect the
value of an investment should not act or cause others to act on the information.


Principle 2
Diligence: In conducting its business activities, a bank should act with due skill,
care and diligence, in the best interests of its customers and the integrity of the
market.

For example:

(a) A bank should take all reasonable steps to process customer orders promptly,
in accordance with the instructions of customers and on the best available
terms.

(b) A bank should provide its customers with prompt written confirmation or
documentation that the customers orders have been executed.



Appendix 4
Page 27 / 33

(c) A bank should deal with customer and own account orders fairly and in due
turn.

(d) When allocating orders, a bank should not give unfair preference to itself or to
any customer for whom it has dealt.

(e) A bank should not advise a customer nor in the exercise of discretion, enter
into transactions with unnecessary frequency having regard to the customers
agreed investment objectives.

(f) Where a bank is responsible for providing advice to or exercising discretion
for its customers, it should obtain, document and maintain any information
about the circumstances (both financial and otherwise) and investment
objectives of the customer that are relevant to the services to be provided.
Management should regularly review these records to evaluate the suitability
of the recommendations made by the banks staff / agents.

(g) Where a customer declines to provide information concerning his/her
circumstances and investment objectives, a bank should not provide advice to
or exercise discretion on behalf of the customer unless it has first disclosed to
the customer that the lack of such information may adversely affect the service
that it can provide.

(h) Where a bank is responsible for providing advice or exercising discretion for
its customers, it should be able to demonstrate that the advice or exercise of
discretion is suitable for that client having regard to:

(i) the facts disclosed by that customer;

(ii) the terms of any agreement with that customer; and

(iii) any other relevant facts about the customer of which the bank is, or
reasonably should be, aware.


Principle 3
Capabilities: A bank should have and employ effectively the resources and
procedures which are needed for the proper performance of its business activities.
This should include the employment of staff resources that possess the relevant
professional qualifications and/or experience.

For example:



Appendix 4
Page 28 / 33

(a) A bank should have written policies and procedures relating to the business of
providing and/or distributing financial products. Such policies and
procedures should be approved by the board of directors of the bank or an
appropriate level of senior management. The policies and procedures should
be periodically reviewed to ensure that they are appropriate to the size, nature
and complexity of the banks business and remain appropriate as such business
and market circumstances change.

(b) A bank should have internal control arrangements and financial and
operational capabilities to protect its operations and its customers from
financial loss arising from theft, fraud, and other dishonest acts, professional
misconduct or omissions. These include arrangements for
(i) maintaining and testing adherence to policies and procedures covering
the operation of the business;
(ii) establishing effective complaints handling systems;
(iii) maintaining procedures governing authorizations for handling
customer assets;
(iv) reviewing periodically the internal control systems to ensure that they
continue to work effectively;
(v) keeping adequate and orderly records of the business transactions;
(vi) ensuring that adequate business resumption, disaster recovery and
other contingency arrangements are in place and tested at appropriate
intervals; and
(vi) ensuing that systems are in place to enable management to guard
properly against involvement in financial crime including fraud,
market abuse, money laundering and the financing of terrorism.

(c) A bank should have adequate systems and procedures in place to ensure proper
supervision of its staff / agents and their activities.

(d) A bank should ensure that the staff / agents it employs or appoints to conduct
business for or with customers is suitably qualified and competent, and that the
staff / agents possess the relevant professional training or experience to act in
the capacity so employed or appointed.

(e) A bank should provide its staff / agents with relevant training so as to enhance
their competence, knowledge and skills.

(f) A staff / agent of a bank should keep abreast of advances in the financial
services industry and participate in continuing education throughout his / her
professional career in order to maintain the necessary competence, knowledge
and skills in the business activities he / she is engaged in.



Appendix 4
Page 29 / 33


Principle 4
Information about customers: A bank should seek from its customers
information about their financial situation, investment experience and
investment objectives relevant to the services to be provided.

For example:

(a) A bank should take all reasonable steps to establish the true and full identity of
its customers and should ensure compliance with the customer identification
process in the AML/CFT guidelines issued by the AMCM.

(b) When making a recommendation on a financial product to a customer, a bank
should take all reasonable steps to determine the customers financial
objectives, risk tolerance, financial situation, investment experience and
particular needs.


Principle 5
Information for customers: A bank should make adequate disclosure of relevant
material information in its dealing with its customers.

(a) A bank should provide customers with adequate information about its business.
It should also disclose the types of financial products it is allowed to market to
customers. In the case where a bank is part of a financial services group and
its staff also acts for one or more related companies, the staff should inform
the customer of the capacity in which he / she is acting.

(b) Information disclosed to customers should meet regulatory requirements and
accord with industry best practices. The information provided should be
sufficient to help customers make an informed decision.

(c) The information disclosed to customers in any advertisement or publicity
material in any media should be presented in plain language, and in a manner
that is easy for the customer to understand. Jargon or technical terms used
should be clearly explained to customers.

(d) When making a recommendation on a financial product, a bank should make
adequate disclosure of all material facts relating to the key features of the
product, including:
(i) the nature of the investment, including the underlying financial
instruments and how these instruments work, if applicable;
(ii) the benefits of investing in the product;


Appendix 4
Page 30 / 33

(iii) the risks involved. In particular, in the case of futures contracts,
contracts or arrangements for the purposes of foreign exchange trading,
contracts or arrangements for the purposes of leveraged foreign
exchange and other complex product transactions, the bank should
assure itself that the customer understands the risks related to investing
in such products and that the customer has sufficient financial
resources to assume the risks and bear the potential loss of investing in
such products
(iv) the salient terms and conditions of the product;
(v) the fees and charges the customer will have to pay, including any
recurring charges or fees, if applicable;
(vi) early termination clauses, including the procedures, charges and
restrictions on early redemption as well as any other material
information associated with early redemption; and
(vii) any pecuniary or other disadvantages that the customer will or may
suffer as a result of switching from the original product to the
replacement product, if applicable.

(e) A bank should draw the customers attention to the warnings, exclusions and
disclaimers in all documents, advertising materials and literature relating to a
financial product it is recommending to the customer.

(f) A bank should distinguish between facts and opinion in its presentation of
recommendations to a customer. Where an opinion is expressed, there should
be a reasonable basis for expressing the opinion and it should be
unambiguously stated that it is a statement of opinion.

(g) A bank should ensure at all times that any representation made and
information provided to the customer is clear, adequate and not false or
misleading.

(h) Documents to be given to customers should be kept up-to-date and reviewed at
least annually.

Principle 6
Compliance: A bank should comply with all regulatory requirements applicable
to the conduct of its business activities as well as proper internal procedures and
rules so as to promote the best interests of customers and the integrity of the
market.

For example:

(a) A bank should maintain adequate knowledge of and comply with all applicable


Appendix 4
Page 31 / 33

laws, rules and regulations relevant to its business activity.

(b) A bank should take all reasonable steps to ensure that the staff / agents it
employs or appoints to conduct business for or with customers is conversant
and comply with all applicable laws, rules and regulations relevant to its
business activity.

(c) A bank should maintain and enforce internal control and compliance
procedures as part of the policies and procedures required in principle 3(a)
above to ensure that the provision and distribution of financial products by the
bank is in accordance with applicable laws and regulations (including this
Guideline) as well as its internal procedures.

Principle 7
Responsibility of senior management: The senior management of a bank should
bear primary responsibility for managing the risks associated with the business,
including performing continual monitoring and periodic evaluation of risk
management process.

For example:

(a) Senior management of a bank should ensure that adequate procedures are in
place and operating effectively to monitor and control the risks associated with
the business on an ongoing basis.

(b) Senior management of a bank should ensure the implementation of ongoing
identification, measurement and mitigation of existing and potential risks
inherent in the banks product offerings.

(c) Senior management should have access to all relevant information about the
business on a timely basis and should have available to them and seek where
appropriate all necessary advice on that business and on their own
responsibilities.

(d) Senior management should ensure the maintenance of appropriate code of
conduct within the bank and adherence to proper procedures by the staff.
The code of conduct should be periodically reviewed in the light of changes in
the internal and external environment.


Principle 8
Conflict of interest: A bank should try to avoid conflicts of interest, and when
they cannot be avoided, should ensure that its customers are fairly treated.


Appendix 4
Page 32 / 33


For example:

(a) A bank should act in the best interest of its customers when providing and/or
distributing financial products to its customers. It should disclose in writing
to the customer any actual or potential conflicts of interest arising from any
connection to or association with any product provider / distributor, including
any material information or facts that might compromise its objectivity or
independence in carrying out its business.

(b) A bank should not place its staff in situation where conflicts of interest may
arise. The bank should ensure that there is proper segregation of duties to
minimize any possible conflicts of interest.

(c) Where conflicts of interest between the bank and its customer are unavoidable,
the bank should disclose them fully to the customer.


Appendix 5
Page 33 / 33


Acceptable Professional, Industry or Academic Qualifications for Persons
Dealing in or Advising on Financial Products


1. Internationally recognized professional qualifications in Law, Accounting or
Finance; or

2. Recognized industry qualifications provided for people working in the
securities and investment industry; or

3. Degree in Accounting, Business Administration, Economics, Finance or Law.


Examples of acceptable professional qualifications in Finance and industry
qualifications include:

Qualification Awarding Body
Chartered Financial Analyst (CFA) CFA Institute
Certified International Investment
Analyst (CIIA)
The Association of Certified
International Investment Analyst
Certified Financial Planner (CFP) Certified Financial Planner Board of
Standards Inc.
Certified Financial Management Planner
(CFMP)
Hong Kong Institute of Bankers and
Macau Institute of Financial Services
Diploma Programme Examination Hong Kong Securities Institute
Professional Diploma in Financial
Markets
Hong Kong Securities Institute
Licensing Examination for Securities
and Futures Intermediaries
Hong Kong Securities Institute