Payment and ownership structures between financial advisers2 and product providers have become increasingly complex and diverse. Investors are often not fully aware of the existence, nature or implications of these payment or ownership structures. Commercial arrangements between financial advisers and product providers may also give rise to issues relating to the independence of financial advisers.

Section 29(1)(a) of the Banking Act limits credit facilities2 granted by a bank to any one person, or group of persons under the control or influence of any one person, to 25% of its capital funds, while section 29(1)(b) limits substantial loans to 50% of total credit facilities. These sections seek to limit large risk concentrations, and hence the maximum possible loss arising from the failure of a single counterparty or group of related counterparties. However, the existing approach sets limits only on the amount of credit facilities granted by a bank. It does not capture all of a bank’s exposures to a counterparty that could lead to losses to the bank, e.g. from the diminution in value of equity investments, or from the cost of replacing off-balance sheet transactions, in the event that the counterparty fails.