HKSI Paper 1 Business conduct and client relations question: Client identity rule for a BVI company

HKSI Paper 1Business conduct and client relations

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? I. Before trading, the firm must be satisfied on reasonable grounds about who ultimately originates Ocean Pearl's instructions. II. It must also be satisfied about who stands to gain the economic benefit of the trades or bear their risk. III. These identity requirements apply only to orders above HK$8 million. IV. It must keep a record of these details and give the SFC access to it on request.

A I, II and III only
B I, II and IV only
C I, III and IV only
D II, III and IV only

Show the answer and explanation

Answer: B. I, II and IV only

Statements I and II are true: paragraph 5.4(a) requires the firm to be satisfied on reasonable grounds about the identity, address and contact details of the person ultimately responsible for originating the instruction and the person that stands to gain the commercial or economic benefit or bear the risk, and 5.4(c) bars it from effecting the trade until it has complied. Statement III is false: the paragraph has no size threshold; it applies to transactions in listed or exchange-traded securities and futures and derivatives over them (5.4(e)). Statement IV is true: 5.4(b) requires a record of these details, kept in Hong Kong, with SFC access on request. Source: SFC Code of Conduct (33rd edn, Jan 2026) para 5.4(a)-(e) and Schedule 2 (as at October 2026).

Common mistake

Candidates stop at the company's own documents. The firm must look behind a shell company to whoever really gives instructions and bears the risk, before the first trade.

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Related HKSI Paper 1 questions

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?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?

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