The marketing and promotion of financial services and products takes various forms and are subject to a number of requirements under the Securities and Futures Ordinance (Cap 571) (SFO) and other relevant legislations. This Practice Note looks into one of the prevalent channels of financial promotions, namely unsolicited calls.
Section 174 of the SFO – prohibition of unsolicited calls
In respect of financial promotion via telephone calls, SFC licensed persons shall observe the requirements under SFO, s 174, read in conjunction with the Securities and Futures (Unsolicited Calls-Exclusion) Rules (Cap 571A) (Rules). Pursuant to SFO, s 174, subject to certain exceptions, an intermediary, or a representative of an intermediary shall not, during or as a consequence of an unsolicited call, make or offer to make with another person certain agreements under SFO, s 174(1)(a), or induce or attempt to induce another person to enter into such agreement, whether or not during the unsolicited call he does any other act or thing. This includes the agreement for the person to sell or purchase securities, futures contract or leveraged foreign exchange contract.
Here, a ‘call’ is broadly defined as a visit in person, or a communication by any means, whether mechanically, electronically, magnetically, optically, manually or by any other medium, or by way of production or transmission of light, image or sound or any other medium; whereas an ‘unsolicited call’ means any call made otherwise than at the express invitation of the person called upon.
Reference: SFO, s 174(7)
A ‘call’ does not include a ‘permissible communication’, which is pursuant to the Rules, s 3(3), as any communication that is not made in the course of
- a visit in person
- a telephone conversations, or
- any other interactive dialogue in the course of which statements and responses to them are exchanged immediately
In other words, non-instantaneous communications shall fall under ‘permissible communication’, such as facsimile, postal mail, and email. Note that commercial electronic messages, such as email communications, are governed by the Unsolicited Electronic Messages Ordinance (Cap 593) (UEMO) as well.
Reference: UEMO, Pt 2
An intermediary, or a representative of an intermediary, who contravenes SFO, s174(1) of the SFO commits an offence and is liable on conviction to a fine at level 5 (ie HK$50,000). By way of example, the SFC prosecuted Law Chun Pon for making unsolicited telephone calls to 6 clients who were not clients of his principal with a view to inducing them to enter into an agreement for trading in leveraged foreign exchange trading contracts. Law was fined HK$18,000 and ordered to pay investigation costs of HK$22,732 to the SFC.
References: SFC website, ‘SFC prosecutes Law Chun Pon for making unsolicited calls’ (27 April 2006)
Further, the SFC may discipline a licensed person for failure relating to unsolicited calls. A licensed or registered corporation should have in place internal control measures to ensure that its staff do not engage in cold calling. An internal policy prohibiting cold calling or requiring compliance with the applicable law and regulations is generally not enough. A licensed or registered corporation should not only ensure its staff have a reasonable understanding of the law but should also closely supervise and monitor their marketing or promotional efforts to ensure compliance. On the other hand, there are also provisions in the Code of Banking Practice that require the registered institutions of HKMA to exercise restraint in making unsolicited calls to customers.
SFC website, ‘SFC suspends Siu Hon Ming for improper conduct including failures relating to unsolicited calls’ (13 February 2006)
SFC Press Release, ‘Cold calling is illegal’ (27 September 2004)
Code of Banking Practice (February 2015)
Nonetheless, apart from the abovementioned ‘permissible communications’, there are other exceptions to SFO, s174(1), being:
- marketing to a person only upon receiving an ‘express invitation’ from him. However, providing contact information to you by the person does not constitute ‘express invitation’. There must be a more ‘pro-active’ act from the person in order to be deemed as an ‘express invitation’
- distributing promotional materials to the general public (provided that the persons distribution the materials do not enter into any interactive dialogue with the recipient on the contents of the materials, unless there is an ‘express invitation)
- organising events for introduction or promotion of financial products or services (eg seminars and talks) that are open to the general public (but one should only follow up if an attendee leaves a request in whatever form requesting for information)
- cross-selling where an ‘existing client’ (as defined under SFO, s 174(7)) has, within the last three years, entered into a client contract or has been given services where the subject matter of the contract or the services constitutes a regulated activity
- the person being called or marketed is a solicitor or accountant acting in his professional capacity, or is a licensed person, banks, money lender licence holder, ‘professional investor’ or ‘existing client’
- sale or purchase of shares in respect of which the person being called or marketed is already a shareholder of the subject company
SFC website, FAQ dated 28 July 2003; FAQ dated 5 December 2012
SFO, s 174(2)
Direct Marketing Regime under the Personal Data (Privacy) Ordinance (the PDPO)
Apart from the abovementioned restrictions, there are also requirements under the ‘direct marketing’ regime of the PDPO which govern activities including offering or advertising the availability of investment services through direct marketing means. ‘Direct marketing means’ is further defined to mean sending information or goods, addressed to specific persons by name, by mail fax, email or other means of communication; or making phone calls to specified persons. Hence, unsolicited business electronic messages sent to telephones, fax machines or email addresses without addressing to specific persons by name; or telephone calls made to phone numbers randomly generated are not considered ‘direct marketing’, despite these will still be subject to the restrictions under the SFO.
PDPO, s 35A(1)
Office of the Privacy Commissioner for Personal Data, ‘New Guidance on Direct Marketing’ (January 2013)
To comply with the PDPO, the basic requirement is to obtain the person’s specific consent before the unsolicited call is made upon the collection of personal data from the data subject (ie the promotion target), which entails the following:
- notify data subjects in writing of the purpose and nature of the data collection and obtain their client’s consent before using personal data in direct marketing activities or transferring personal data to another person (in this regard, a bundled consent will not be valid)
- notify clients of their right to opt-out of direct marketing when using data from the first time, and
- notify clients of their right to demand cessation of the use of their personal data for direct marketing at any time
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