KFS Update

It has been just over three months since the implementation of the requirement for all issuers of Securities and Futures Commission (SFC) authorised funds to distribute product key facts statements (KFSs). On 27 September 2011, the SFC issued a revised illustrative KFS template for general funds. The revised template reflects the comments made by the SFC to the asset management industry during briefing sessions earlier this year.

Amongst the revisions to the template, the SFC clarified that for a UCITS fund which uses expanded powers, the KFS should clearly state that the fund will be using financial derivative instruments (FDIs) for investment purposes. In addition, the KFS should also disclose any information relating to the strategy being employed in order to achieve the investment target, for example, long / short strategy, event driven strategy or trend following strategy. If there is no specific strategy in relation to the use of FDIs, then a “nil” statement should be given. This theme tends to be raised by the SFC during its review of revised offering documents for funds using FDIs for investment purposes.

However, issuers should bear in mind that when updating the KFS to incorporate the SFC’s new disclosure requirements, the fund’s offering documents should also be updated for consistency purposes. The SFC requires the issuer to confirm that the KFS is consistent with the fund’s offering documents. As indicated in the SFC’s press release of 27 June 2011, there is a surveillance programme for KFS. If the SFC finds a KFS unsatisfactory, it may ask the issuer to suspend marketing of the relevant fund in Hong Kong until the KFS has been amended to the SFC’s satisfaction. The SFC may also ask the issuer to consider compensating Hong Kong investors.

In the revised KFS template, the SFC also noted that the KFS should include risk factors corresponding to the type of FDIs being used by the fund for investment purposes. Other points mentioned in the revised template include: the disclosure of “other fees” payable by investors when dealing in units of the fund as well as those payable by the fund; the notice period for fee increases; a reminder to Hong Kong investors that different intermediaries may impose different dealing cut-off times; and if the KFS refers to a website, the SFC would expect a clarification either in the offering document or the KFS that the website has not been reviewed by the SFC and may contain information on funds not authorised by the SFC.

Key Contacts

Alwyn Li

Partner | Financial Services

Email or call +852 2825 9627