HKSI Paper 1 Business conduct and client relations question: Client assets held overseas (Code para 11.1)

HKSI Paper 1Business conduct and client relations

Mrs Cheung asks Lockhart Road Securities Ltd to buy US-listed shares for her. The firm will hold them through its New York sub-custodian, not in Hong Kong. What must it do under paragraph 11.1 of the Code of Conduct?

A Give her additional risk disclosures that the assets may not enjoy the same protection as under the SFO and its client asset rules
B Nothing extra, because the general client agreement signed at account opening already covers assets held by any custodian anywhere
C Refuse to hold the shares overseas, because client securities of a Hong Kong licensed corporation must be held in Hong Kong
D Obtain the SFC's prior written approval for each overseas custodian before any client securities are deposited with it

Show the answer and explanation

Answer: A. Give her additional risk disclosures that the assets may not enjoy the same protection as under the SFO and its client asset rules

Paragraph 11.1(a) requires a firm to ensure client assets are accounted for properly and promptly and adequately safeguarded, which reflects GP8. Paragraph 11.1(b) adds that where a client's assets are received or held overseas, additional risk disclosures should be provided, because those assets may not enjoy the same protection as that conferred under the SFO, the Securities and Futures (Client Money) Rules and the Securities and Futures (Client Securities) Rules. The general client agreement is not enough on its own. The Code does not ban overseas custody, and it does not require SFC approval for each overseas custodian. Source: SFC Code of Conduct (33rd edn, Jan 2026) GP8 and para 11.1 (as at October 2026).

Common mistake

Candidates assume overseas custody is either banned or needs no extra step. The Code allows it but requires an additional risk disclosure about weaker protection.

Practise more Paper 1 Business conduct and client relations questions

Exam-style questions with worked answers, then full timed mocks. Free to start.

Start practising →

Study note: Business conduct and client relations HKSI Paper 1 practice questions & mock exams

Related HKSI Paper 1 questions

Ocean Pearl Ltd, a company incorporated in the British Virgin Islands, opens an account with Hollywood Road Capital Ltd to trade SEHK-listed shares. Mr Ho, 'just a director', phones in its orders. Which of the following statements are CORRECT under paragraph 5.4?Peel Street Securities Ltd executes SEHK trades for the Harbour Growth Fund, a unit trust managed with full discretion by Kam Tin Investment Management Ltd. Mr Lau, the largest unitholder, overrides Kam Tin and directs a purchase through Peel Street. Under paragraph 5.4, whose details must Peel Street record?Shouson Hill Securities Ltd is a Hong Kong subsidiary of a Singapore group. To save costs, it keeps its paragraph 5.4 client identity records for HKFE futures orders only on a Singapore server. Which ONE of the following statements is INCORRECT?

Build a daily practice habit — a few exam-style questions a day, with worked answers. Free to start.

Start practising →

Original study material mapped to the public HKSI Paper 1 syllabus. Unofficial, not endorsed by HKSI Institute or the SFC. Verify figures and rules against current guidance before relying on them.