The correct answer is that the SFC will consider the nature and severity of the tax evasion offense, its relevance to his duties as a representative, and the time that has passed since the conviction. The Securities and Futures Commission’s ‘Fit and Proper Guidelines’ stipulate that the assessment of an individual’s fitness and properness is a continuous and holistic process. A criminal conviction does not automatically lead to disqualification. Instead, the SFC evaluates the conviction’s context, including its seriousness, its connection to the individual’s honesty and integrity, and how it might impact their ability to perform their regulated activities competently and ethically. The other options are incorrect for specific reasons. The assertion that a conviction automatically and permanently revokes a license is false; the SFC must conduct a thorough review before making such a determination. The idea that only offenses directly related to leveraged foreign exchange trading are relevant is too narrow; any offense that casts doubt on a person’s integrity, such as tax evasion, is considered pertinent. Lastly, while the opinion of the employing licensed corporation might be taken into account, it is not the sole or primary factor; the SFC makes its own independent judgment to uphold market integrity.

The correct answer is that the primary factor the SFC will consider is the nature of the conviction as an offence involving dishonesty. The ‘Fit and Proper Guidelines’ issued by the SFC place significant emphasis on an individual’s reputation, character, reliability, and financial integrity. A conviction for theft, regardless of how minor or how long ago it occurred, directly calls into question an individual’s honesty and integrity, which are fundamental attributes for a licensed person entrusted with client assets and interests. The SFC will evaluate the conviction in the context of all other information, but the element of dishonesty is a critical concern. The other options are incorrect. There is no automatic time period, such as five years, after which a conviction is disregarded; the SFC assesses each case on its merits, and the passage of time is only one of many factors considered. A candidate’s ability to pass the licensing examinations pertains to their competence, which is a separate requirement from being ‘fit and proper’. A person can be competent but still fail the fitness and properness test due to character concerns. Finally, while the penalty, such as the amount of a fine, might be noted, it is far less significant than the underlying nature of the offence itself, which reflects on the individual’s character.

The correct answer is that the SFC is least likely to focus on the individual’s personal financial status at the time of the violation. The Securities and Futures Commission’s (SFC) ‘Fit and Proper Guidelines’ assess an individual’s honesty, integrity, reputation, financial status (solvency), and competence to protect the investing public. When evaluating past misconduct, the SFC’s primary concern regarding financial status is the applicant’s current financial soundness, not their financial condition at the time of a past, minor, and unrelated infraction. An applicant’s current solvency is relevant because it may impact their ability to perform their duties properly or indicate undue financial pressure. However, their financial state five years ago during a minor traffic incident is not a meaningful indicator of their present fitness and properness. In contrast, whether the individual made a full and frank disclosure is of paramount importance, as it directly reflects their honesty and integrity. The SFC also explicitly considers the relevance of any past conduct to the proposed regulated activities; in this case, it would note the low relevance of a traffic violation to leveraged foreign exchange trading. Finally, the time elapsed since the event is a key mitigating factor that the SFC always takes into account.

The correct answer is that the SFC will evaluate the conviction’s relevance to the candidate’s honesty and integrity, the seriousness of the offense, and the time elapsed since the event. The Securities and Futures Commission’s (SFC) assessment of whether an individual is ‘fit and proper’ is a comprehensive and holistic process. It is not based on a single, rigid rule. The SFC considers a range of factors outlined in its Fit and Proper Guidelines. When a past conviction is disclosed, the SFC will look at the specific circumstances, including the nature of the offense, how serious it was, how long ago it occurred, and whether it has any bearing on the individual’s ability to perform their proposed regulated activities honestly and competently. A minor offense from many years ago that is unrelated to financial matters may not necessarily prevent an individual from being licensed. The idea that a candidate is automatically disqualified for any criminal record is incorrect; the SFC exercises discretion based on the full context. Similarly, it is incorrect to state that a conviction will be disregarded entirely just because it is not financial in nature. The SFC must consider all information that could impact an individual’s character and reputation. Finally, requiring a formal pardon or expungement is not a standard SFC prerequisite; the commission makes its determination based on the facts presented, regardless of whether the conviction has been legally expunged.

According to Schedule 5 of the Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission, which outlines additional requirements for leveraged foreign exchange trading, a licensed person must adhere to specific client onboarding procedures. Statement I is correct because paragraph 14 of Schedule 5 mandates that a licensed person must provide the client with a separate risk disclosure statement specifically for leveraged foreign exchange trading, explain its contents, and obtain the client’s signature. Statement II is correct as per paragraph 10 of Schedule 5, which requires the licensed person to ascertain that the client has sufficient net worth to be able to assume the risks and bear the potential losses of trading. Statement III is incorrect; while firms set their own initial margin requirements, the SFC’s Code of Conduct does not prescribe a specific universal minimum deposit amount like HK$500,000 for all retail clients. Statement IV is also incorrect; the Code of Conduct does not mandate a formal training session. The requirement is to ensure the client understands the risks, which is primarily achieved through the risk disclosure process, not a compulsory training course. Therefore, statements I and II are correct.

The Securities and Futures Commission (SFC) assesses an individual’s fitness and properness based on several criteria outlined in the Fit and Proper Guidelines. Statement I is correct because an individual’s financial status and solvency, including any history of bankruptcy, are explicitly considered by the SFC. While a past bankruptcy is not an automatic disqualifier, it is a relevant factor in the assessment. Statement III is also correct as the SFC considers whether the person has been the subject of any disciplinary action by other financial services regulators, whether in Hong Kong or elsewhere. This reflects on the person’s reputation, character, and reliability. Statement II is incorrect because the SFC is primarily concerned with convictions for offenses involving fraud, dishonesty, or other conduct that questions an individual’s integrity, not minor, unrelated offenses like a simple speeding ticket. Statement IV is incorrect because the Continuous Professional Training (CPT) requirement is an ongoing obligation for individuals who are already licensed. It is not a prerequisite for an initial licence application. Therefore, statements I and III are correct.

This question tests the specific procedures for handling client orders in leveraged foreign exchange (LFX) trading as stipulated in Paragraph 14 of the Code of Conduct for Persons Licensed by or Registered with the SFC. Statement I is correct because the Code requires a licensed person to use their best endeavours to confirm the essential details of the order with the client when it is received. Statement II is correct as the Code mandates that for any client order not in writing, a written record of the order (including time of receipt and confirmation) must be made immediately by the person receiving it. Statement IV is also correct; a time-stamped written confirmation must be provided to the client as soon as practicable after the order is executed. Statement III is incorrect. While the Code requires telephone orders to be recorded, it provides alternative procedures if recording is not feasible (e.g., having another person listen to the conversation and preparing a written record). The order is not automatically invalid or required to be rejected simply because the line was not recorded, provided alternative compliance measures are taken. Therefore, statements I, II and IV are correct.

According to the Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission, specifically the section on ‘Additional Requirements for Licensed Persons Engaging in Leveraged Foreign Exchange Trading’, there are several key obligations when dealing with clients. Statement I is correct because licensed persons must provide clients with a specific risk disclosure statement that clearly explains the high risks associated with leveraged foreign exchange trading, separate from general risk disclosures. Statement II is also correct as the Code mandates that a formal client agreement must be in place. This agreement must include a confirmation signed by the client, acknowledging that they have been informed of and understand the nature and risks of leveraged foreign exchange trading. Statement III is incorrect; it is a serious breach of conduct to guarantee a client against losses. The nature of leveraged trading means that losses can, and often do, exceed the initial margin deposit. Statement IV is incorrect as it conflates the general requirements for retail clients with the specific criteria for being classified as a Professional Investor under the Securities and Futures (Professional Investor) Rules. While a high net worth is a criterion for Professional Investor status, it is not a prerequisite for all retail clients to engage in leveraged foreign exchange trading. Therefore, statements I and II are correct.

The correct answer is that the SFC will consider the relevance of the past misconduct to his proposed duties and his conduct since the incident. The Securities and Futures Commission’s (SFC) assessment of whether an individual is ‘fit and proper’ is a comprehensive and holistic evaluation. According to the Fit and Proper Guidelines, the SFC does not operate on a rigid, checklist basis but considers all relevant circumstances. Key factors include the nature, seriousness, and frequency of any past misconduct, how long ago it occurred, and its relevance to the functions the individual will perform. The SFC also places significant weight on the applicant’s subsequent conduct, looking for evidence of rehabilitation and a commitment to ethical behavior. A single, minor, historical incident, especially one unrelated to the proposed regulated activities, is considered in this broader context. The fact that an individual has any record of disciplinary action is not an automatic disqualifier; the context and severity are crucial. Similarly, while the absence of client financial loss is a positive factor, the SFC’s primary concern is the individual’s integrity and reputation, which can be compromised even without causing direct financial harm. Finally, while industry experience is relevant for assessing competence, it does not directly address the specific question of character and integrity raised by a past disciplinary action.

The correct answer is that the representative should promptly contact the client to request additional funds or instructions to reduce the position. The Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission places a strong emphasis on timely communication and risk management in leveraged foreign exchange trading. When a client’s margin level is at risk, the primary duty of the licensed person is to inform the client immediately, allowing them the opportunity to rectify the situation by depositing more funds or closing out part or all of the position. This aligns with the principles of acting with due skill, care, and diligence and in the best interests of the client. Unilaterally closing out the client’s position without first attempting to make contact is typically a last resort, reserved for situations where the client is unreachable or the margin is completely exhausted, as specified in the client agreement. Waiting for a market reversal constitutes a failure to manage risk and could expose both the client and the firm to greater losses. Advising the client to increase their position size would be irresponsible, as it would amplify the risk in an already precarious situation and likely violate suitability obligations.

The Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission sets out specific requirements for intermediaries dealing in leveraged foreign exchange (LFX) trading. Statement I is correct because licensed corporations must provide clients with the relevant risk disclosure statements as prescribed in Schedule 1 of the Code of Conduct, including those specific to LFX trading. Statement II is also correct; it is a mandatory follow-up to providing the disclosures. The firm must obtain a signed acknowledgement from the client confirming they have read and understood these statements before services are provided. Statement III is correct as it reflects the core suitability obligation. Before dealing in complex products like LFX, which are considered derivatives, the firm must assess the client’s knowledge of derivatives and their financial situation to ensure they can assume the associated risks and bear potential losses. Statement IV is incorrect. While a firm may set its own internal minimum deposit requirements, the SFC’s Code of Conduct does not prescribe a specific minimum initial margin amount like HK$500,000. The focus is on the client’s overall financial soundness and risk tolerance, not a fixed monetary threshold. Therefore, statements I, II and III are correct.

The Securities and Futures Commission (SFC) assesses an individual’s fitness and properness based on a range of criteria outlined in its Fit and Proper Guidelines. Statement I is correct because an individual’s financial status, including any history of bankruptcy, is a key consideration in determining their reliability and integrity. The SFC will review the circumstances of the bankruptcy even if it has been discharged. Statement II is correct as competence is a core component of the ‘fit and proper’ test. The SFC evaluates whether an individual has the necessary qualifications and experience for the specific regulated activity. A lack of direct, relevant experience is a significant factor in this assessment. Statement IV is correct because the SFC considers an individual’s reputation, character, and reliability. Any past disciplinary actions or sanctions by other regulatory bodies, whether local or overseas, are highly relevant to this assessment. Statement III is incorrect because personal matters, such as an amicable divorce, are generally not considered by the SFC unless they have a direct bearing on the individual’s financial solvency, integrity, or reputation in a manner that would compromise their ability to perform their functions properly. An amicable settlement is unlikely to meet this threshold. Therefore, statements I, II and IV are correct.

The correct answer is that the SFC’s primary consideration will be the extent of Mr. Leung’s responsibility and his conduct concerning the company’s failure, to assess its relevance to his integrity and competence. The Fit and Proper Guidelines require the SFC to take a holistic view of an applicant’s background. The focus is not merely on the event itself (the liquidation) but on what the applicant’s actions and role reveal about their character, reliability, and financial integrity. The SFC will want to understand if Mr. Leung’s conduct contributed to the failure or demonstrated a lack of diligence or sound judgment that would be relevant to his proposed regulated activities. The other options are incorrect. Simply determining whether Mr. Leung was personally declared bankrupt is too narrow; while personal bankruptcy is a significant factor, the absence of it does not automatically absolve him of scrutiny regarding his conduct as a director. The fact that the business was in a non-financial sector does not make the event non-pertinent; issues of integrity, competence, and reliability are transferable across industries. Lastly, there is no automatic time bar, such as five years, that renders a past event irrelevant. The SFC assesses the nature and seriousness of past conduct, regardless of when it occurred, to determine its impact on the applicant’s current fitness and properness.

This question assesses understanding of the specific business conduct requirements for licensed persons engaging in leveraged foreign exchange (LFX) trading, as outlined in the Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission. Statement I is correct; paragraph 13.5(a) of the Code of Conduct explicitly requires a licensed person to obtain specific written authorization from a client before effecting a transaction for that client on a discretionary basis. Statement II is also correct; paragraph 13.6 mandates that all telephone orders from clients must be recorded by the licensed person to ensure a proper audit trail and resolve potential disputes. Statement III is correct as well; paragraph 13.5(c) strictly prohibits licensed persons from guaranteeing a client against trading losses or limiting their liability to a specific amount, as this would misrepresent the inherent risks of LFX trading. Statement IV is incorrect; paragraph 13.4 requires that a written client agreement must be entered into with the client before the licensed person provides any services, not after the first transaction. Therefore, statements I, II and III are correct.

The correct answer is that the conviction will be assessed in the context of its relevance to his honesty and integrity, the time elapsed since the offense, and his conduct in the intervening period. The Securities and Futures Commission (SFC) evaluates an individual’s fitness and properness on a holistic basis. A past criminal conviction, especially one related to dishonesty like tax evasion, is a significant factor. However, it does not automatically lead to disqualification. The SFC’s Fit and Proper Guidelines require consideration of several factors, including the nature and seriousness of the offense, how much time has passed, and the applicant’s character and conduct since the event. The goal is to determine if the individual can be relied upon to perform their functions honestly, competently, and fairly. An answer suggesting automatic disqualification is incorrect because the SFC’s assessment is discretionary and considers the full context, not just the existence of a conviction. An answer stating that only market-specific convictions are relevant is incorrect because offenses that cast doubt on an individual’s integrity, such as tax evasion or theft, are highly relevant to their suitability to act as a licensed person. Finally, an answer suggesting the conviction is disregarded because it was long ago and involved no prison time is also incorrect; while the time elapsed and the penalty are considered, an offense related to honesty is not simply ignored based on a fixed time limit.

This question assesses the specific obligations of a licensed person when onboarding a client for leveraged foreign exchange (LFX) trading, as stipulated in Schedule 5 of the Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission.

Statement I is correct. Paragraph 14 of Schedule 5 of the Code of Conduct requires a licensed person to provide the client with a separate written explanation of the key terms and conditions of the client agreement. This explanation must highlight the risks involved and be provided before the client signs the agreement.

Statement II is correct. This refers to the ‘cooling-off period’. Paragraph 15 of Schedule 5 of the Code of Conduct grants the client a right to rescind the client agreement by giving written notice within two business days after the day on which the agreement was signed. The licensed person must inform the client of this right.

Statement III is incorrect. While a licensed person must assess a client’s financial situation and ensure suitability, there is no specific, mandatory net worth threshold (such as the HK$8 million required for Professional Investor status) for all retail clients to engage in LFX trading under the Code of Conduct. The assessment is based on the client’s individual circumstances.

Statement IV is incorrect. The requirement to have a telephone recording system for client orders is a general conduct requirement. However, its activation is not linked to the expiry of the cooling-off period. The system must be operational to record any orders placed via telephone from the moment trading is permitted, not just after the cooling-off period ends. Therefore, statements I and II are correct.

The correct course of action is to execute the order at the first available market price of 7.0450. A stop-loss order is an instruction to execute a trade at the best available market price once the trigger price (7.0500 in this case) is reached or breached. In a ‘gapping’ market, where the price moves sharply past the trigger level with no trading in between, the order becomes a market order. The licensed corporation’s duty under the Code of Conduct is to execute the client’s order promptly and at the best available price to protect the client’s interest by limiting further potential losses. Waiting for the price to recover to the client’s specified level would negate the purpose of a stop-loss order and could expose the client to significantly greater losses. Contacting the client for fresh instructions would cause a delay, which is inappropriate for a protective order in a fast-moving market and violates the duty of prompt execution. Executing the order at the client’s specified price and absorbing the loss is not a requirement; the firm acts as an agent to secure the best available market price, not to guarantee a specific price that no longer exists in the market.

The correct answer is that the representative must explain that discretion cannot be exercised on a non-discretionary account and must ask for a specific instruction. According to the Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission, a licensed person must not effect a transaction for a client unless the client has given a specific instruction for that transaction or has provided written authority for the licensed person to act on a discretionary basis. Mr. Chan’s instruction, ‘buy.. if you see a good entry point,’ is not specific and requires the representative to use their judgment on timing and price, which constitutes exercising discretion. Since the account is non-discretionary, the representative is prohibited from acting on such an order. The proper procedure is to clarify the nature of the account’s limitations to the client and request a precise order, such as a market order for immediate execution or a limit order with a specified price. Executing the order using personal judgment would be a direct violation of the rules governing non-discretionary accounts. Obtaining verbal consent to treat a single trade as discretionary is insufficient; discretionary authority must be formally established in writing. Simply documenting the ambiguous instruction and waiting passively is not a proactive or compliant approach, as it fails to clarify the client’s intent and could lead to a missed opportunity or a dispute.

This question assesses the candidate’s knowledge of the specific business conduct requirements for licensed corporations engaging in leveraged foreign exchange trading, as stipulated in the Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission.

Statement I is correct. Paragraph 13.3 of the Code of Conduct requires a licensed person to enter into a written client agreement with a client before it provides any services to the client. This is a fundamental requirement to establish the terms of the relationship.

Statement II is incorrect. Paragraph 13.4 of the Code of Conduct mandates that the required Risk Disclosure Statement must be provided to the client, and the client must sign an acknowledgement of receipt, before the client agreement is signed or the first transaction is effected. Providing it after the first trade is a violation of this rule.

Statement III is correct. Paragraph 13.6 of the Code of Conduct specifies that a licensed person should maintain a central record of all orders and time-stamp them immediately upon receipt. This ensures a proper audit trail and fair handling of client instructions.

Statement IV is incorrect. Paragraph 13.5 of the Code of Conduct explicitly states that a licensed person should not effect a transaction for a client on a discretionary basis unless it has obtained prior written authorization from the client. Verbal instruction is insufficient to commence trading, even with the promise of subsequent written confirmation. Therefore, statements I and III are correct.

This question tests the specific requirements for client agreements and risk disclosure under the Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission, particularly those applicable to leveraged foreign exchange trading.

Statement I is correct. Paragraph 14.2(a) of the Code of Conduct mandates that the client agreement must include a written explanation of the basis upon which fees, charges, commissions, and other remuneration payable by the client are determined.

Statement II is correct. Paragraph 14.2(b) of the Code of Conduct requires the client agreement to state whether the licensed person is acting as a principal or an agent in its transactions with the client. In leveraged foreign exchange trading, the firm typically acts as a principal, and this must be clearly disclosed.

Statement III is incorrect. While a firm must assess a client’s financial situation and ensure suitability, there is no specific requirement in the Code of Conduct for all retail clients to declare a minimum net worth of HK$8 million to trade leveraged FX. This figure is associated with the definition of a high-net-worth individual Professional Investor under the Securities and Futures (Professional Investor) Rules, which is a separate classification and not a universal prerequisite for leveraged FX trading.

Statement IV is correct. Paragraph 14.3 of the Code of Conduct requires licensed persons to provide clients with a specific risk disclosure statement before the first transaction. This statement must be in a prescribed form and explicitly warn that trading leveraged foreign exchange is highly speculative and that losses may exceed the amount of the initial margin funds. Therefore, statements I, II and IV are correct.

The Securities and Futures (Client Money) Rules (Cap 571I) are designed to protect client assets. A core principle of these rules is the strict segregation of client money from the licensed corporation’s own funds. Client money must be paid into a designated trust account or segregated account maintained with an authorized financial institution. The correct course of action is to reject the suggestion immediately. These funds are held on trust for the client and cannot be used to meet the firm’s business expenses, cover trading losses, or for any purpose other than transactions on behalf of the client. The intention to repay the funds, the short duration of the borrowing, or obtaining internal authorization does not remedy the breach. The prohibition is absolute to safeguard client assets in case of the firm’s insolvency. Therefore, using client money for operational expenses is a direct violation of the rules. Seeking senior management approval or documenting the transaction does not make a prohibited action permissible. Similarly, notifying the SFC after the fact does not cure the breach. While obtaining a short-term loan is a valid business practice for managing liquidity, it must be done using the firm’s own credit and resources, not by misappropriating client funds.

The correct answer is that the licensed representative must notify the SFC in writing of the conviction within seven business days. The ‘Fit and Proper’ requirement, as stipulated by the SFC, is a continuous obligation for all licensed persons. This means that an individual must remain fit and proper at all times, not just at the point of license application. According to the Securities and Futures (Licensing and Registration) (Information) Rules, a licensed representative is required to inform the SFC in writing of any significant changes to the information previously provided, including being convicted of any criminal offence in Hong Kong or elsewhere. This notification must be made promptly, specifically within seven business days of the event. The nature of the crime, whether financial or not, is not for the representative to filter; the SFC must be informed to make its own assessment of the individual’s continued fitness and properness. Waiting until the annual license renewal to disclose the conviction would be a breach of the timely notification requirement. While informing the firm’s compliance department is a necessary internal step, it does not absolve the individual of their direct regulatory obligation to notify the SFC. The idea that a non-financial crime is irrelevant is incorrect, as any criminal conviction can cast doubt on a person’s character, reputation, and reliability, which are key pillars of the ‘fit and proper’ assessment.

The correct answer is that the SFC will consider the event as a relevant factor, evaluating the circumstances of the insolvency, Mr. Chan’s role, and the time that has passed since the event. The SFC’s ‘Fit and Proper Guidelines’ require a holistic assessment of an applicant’s character, reputation, and financial integrity. Being a director of a company that was wound up due to insolvency is a specific matter the SFC will consider when evaluating an individual’s ability to manage a business with competence and probity. However, it is not an automatic disqualifier. The SFC will examine the context, such as the reasons for the insolvency, the individual’s degree of responsibility, and whether their conduct was questionable. The time elapsed since the event is also a mitigating factor. The other options are incorrect. The involvement with an insolvent company does not lead to an automatic refusal; the SFC’s assessment is discretionary and based on the full circumstances. The event is not considered irrelevant simply because it occurred more than three years ago or was outside the financial industry; the guidelines do not set such a strict time limit and are concerned with overall business competence and reputation. Finally, the SFC’s consideration is not limited to cases where the applicant was personally declared bankrupt; their role as a director in the failed company is sufficient to warrant scrutiny.

The Securities and Futures (Client Money) Rules (Cap 571I) under the SFO establish strict requirements for handling client money to protect client assets. Statement I is correct because licensed corporations must deposit client money into a segregated account maintained with an authorized financial institution (or other approved institution). This segregation is fundamental to protecting client assets from the firm’s creditors. Statement II is also correct as the rules explicitly require that the account title must designate the account as a ‘trust account’ or ‘client account’ to make its nature clear to the bank and third parties. Statement III is incorrect; using one client’s money to meet the obligations of another client is a serious breach of the rules and constitutes misappropriation. Client money must only be applied for the purposes of the specific client to whom it belongs. Statement IV is incorrect because client money must be paid into a segregated client account as soon as reasonably practicable after receipt and must not be mixed with the licensed corporation’s own funds by first being deposited into a house account. Therefore, statements I and II are correct.

The Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission (SFC) sets out specific requirements for handling client orders, particularly in the context of leveraged foreign exchange trading. Statement I is incorrect because the client’s instruction, ‘when you think the time is right’, is not specific as to price or exact timing, thereby granting discretion to the licensed representative. Statement II is correct; such an instruction constitutes a discretionary order. A licensed person can only execute discretionary orders if the client has given prior written authorization to operate the account on a discretionary basis. Without this formal agreement, the representative cannot act on the instruction. Statement III is correct. Paragraph 3.9 of the Code of Conduct requires licensed persons to use a telephone recording system to record orders and to maintain a record of the time of receipt and the particulars of the order. Even if the order cannot be executed, the instruction itself must be recorded promptly. Statement IV is incorrect because subsequent confirmation cannot retroactively validate an unauthorized discretionary trade. The authorization must be in place before the discretion is exercised. Therefore, statements II and III are correct.

This question assesses understanding of the specific requirements for licensed persons engaging in leveraged foreign exchange trading, as outlined in Schedule 3 of the Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission.

Statement I is correct. Paragraph 3(a) of Schedule 3 to the Code of Conduct explicitly requires that the client agreement for leveraged foreign exchange trading must specify the basis on which interest and other charges will be imposed.

Statement II is correct. Paragraph 2 of Schedule 3 mandates that before opening an account for a client, the licensed person must provide the client with a separate standardized risk disclosure statement. The client must be asked to sign and return a copy of this statement to acknowledge that they have read and understood its contents before the first transaction is effected.

Statement III is incorrect. The requirement for providing statements of account is governed by the Securities and Futures (Contract Notes, Statements of Account and Receipts) Rules. A daily statement is only required for a day on which a transaction has been effected in the account. If there are no transactions, a monthly statement is sufficient, provided there is an outstanding balance.

Statement IV is incorrect. Licensed corporations are permitted to act as principal in leveraged foreign exchange transactions. However, Paragraph 7 of Schedule 3 requires that if a firm intends to consistently act as a principal in its dealings with a client, this fact must be clearly disclosed in the client agreement. Therefore, statements I and II are correct.

This question assesses the candidate’s understanding of the specific requirements for licensed persons engaging in leveraged foreign exchange trading, as stipulated in the Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission.
Statement I is correct. Paragraph 13.3 of the Code of Conduct requires a licensed person to provide the client with a standardized Risk Disclosure Statement for leveraged foreign exchange trading and obtain a signed acknowledgement from the client confirming they have read and understood it before opening an account.
Statement II is correct. Paragraph 13.4(a) of the Code of Conduct mandates that the client agreement must contain a provision stating that the licensed person is not, and does not hold itself out as, a fiduciary of the client.
Statement III is correct. Paragraph 13.6 of the Code of Conduct specifies that if a client wishes to authorize the licensed person to effect transactions without the client’s specific authorization for each transaction (i.e., a discretionary account), this authority must be given in writing and must be separate from the client agreement.
Statement IV is incorrect. While a ‘cooling-off’ period is a concept applicable to certain financial products in Hong Kong (e.g., investment-linked assurance schemes), it is not a mandatory requirement under the SFC Code of Conduct for establishing a leveraged foreign exchange trading account. The primary requirement is ensuring the client understands the risks via the Risk Disclosure Statement before trading commences. Therefore, statements I, II and III are correct.

The Securities and Futures Ordinance (SFO) requires that an individual must be a ‘fit and proper’ person to be licensed. The SFC’s Fit and Proper Guidelines outline the criteria for this assessment. Statement I is correct because the financial status and solvency of an applicant are key considerations. A history of significant financial distress could suggest a lack of financial prudence or create a motive for misconduct. Statement II is correct as educational qualifications and relevant industry experience are fundamental to assessing an individual’s competence to perform the regulated activity. Statement IV is also correct as it encapsulates the core principle of the fit and proper test, which is to ensure that licensed persons act with integrity and competence. Statement III is incorrect; the political affiliations of an applicant’s family members are entirely irrelevant to the assessment of their fitness and properness. The SFC’s evaluation is focused solely on the individual’s own character, reputation, experience, competence, and financial integrity. Therefore, statements I, II and IV are correct.

The correct answer is that the licensed person should not provide any trading advice or recommendations unless they have obtained a written discretionary account authority from the client. The Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission contains specific requirements for those engaged in leveraged foreign exchange trading. A core principle is that a licensed person must not effect a transaction for a client unless it is upon a specific instruction from the client or pursuant to a written authority to operate the account on a discretionary basis. Simply asking for a ‘tip’ does not constitute a specific instruction. Therefore, providing a recommendation in this situation, even with risk warnings, would be a breach of conduct. The other options are incorrect. While providing research reports is a generally acceptable practice for informing clients, it does not directly address the representative’s obligation when asked for a personal recommendation. Providing a recommendation and then documenting it does not remedy the initial breach of making an unsolicited recommendation. Similarly, accompanying a recommendation with a risk disclosure statement is a separate requirement and does not grant the representative the authority to make the recommendation in the first place.

The correct answer is that a criminal conviction for theft, even from five years ago, would be of most significant concern. The Securities and Futures Commission’s (SFC) ‘Fit and Proper Guidelines’ place a strong emphasis on an individual’s honesty, integrity, and reputation. A criminal conviction, particularly for an offence involving dishonesty such as theft, directly calls these qualities into question. Such a record suggests a potential risk to clients and the market’s integrity, making it a primary concern for the regulator during the licensing assessment, regardless of the time elapsed or the nature of the sentence. The other options are less concerning. A past personal bankruptcy from which the applicant was officially discharged seven years ago is a relevant factor concerning financial status, but the discharge and the passage of time mitigate the concern. It is generally considered less severe than a criminal record for dishonesty. An ongoing civil dispute with a former landlord is a personal matter and does not inherently reflect on professional integrity or competence in financial services. A formal warning from a non-financial professional body for a minor administrative breach is also of lower concern, as it is minor, not related to financial services, and administrative in nature rather than an issue of fundamental dishonesty.