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SFC reaches conclusion on adopting the Principles of Responsible Ownership

On 7 March 2016, the Securities and Futures Commission (SFC) released its conclusion on the Principles of Responsible Ownership (Principles), following its consultation launched last year. The introduction of the Principles is aimed at providing guidance on how investors should fulfil their ownership responsibilities in relation to investments in Hong Kong listed companies.

Voluntary in nature

The Principles are open for investors to adopt on a voluntary basis.

Scope of “investors” to be captured by the Principles

The SFC envisages “investors” to include those who invest money, or hold shares, on behalf of clients and other stakeholders and are accountable to such clients and other stakeholders. Accordingly, the Principles should not include investors who are accountable only to themselves for their investments (or are accountable only to family members pursuant to a personal relationship, with no intention to create a client or business relationship), such as individual and retail investors. 

The seven Principles

The seven Principles ask the investors to:

  • establish and report to their stakeholders their policies for discharging their ownership responsibilities;
  • monitor and engage with their investee companies;
  • establish clear policies on when to escalate their engagement activities;
  • have clear policies on voting;
  • be willing to act collectively with other investors when appropriate;
  • report to their stakeholders on how they have discharged their ownership responsibilities; and
  • when investing on behalf of clients, have policies on managing conflicts of interests.

Application of the Principles

Investors are encouraged to:

  • adopt the Principles by disclosing to their stakeholders that they have done so; and 
  • either apply the Principles in their entirety and disclose how they have done so, or explain why aspects of the Principles do not, or cannot, apply to them.

Investors who do not think that the Principles are relevant to or suitable for them at the outset are encouraged to:

  • provide their stakeholders with disclosure which clearly explains why the Principles have not been adopted; and
  • if applicable, explain what alternative measures they have in place.

The consultation conclusions set out examples of how the following types of investors might choose to adopt the Principles:

Types of investors

How they might choose to adopt the Principles

Institutions with diversified divisions

They could generally commit to the Principles and in their policy clearly state why or how the Principles would not be relevant to certain parts of the institution.

Institutions operating various funds with differing goals or purposes

They could generally commit to the Principles and in their policy clearly carve out specific funds which the Principles would not apply to and clearly   explain the reasons for doing so.

Private wealth managers

They can adopt the Principles and actively discharge ownership responsibilities where they have ownership in investee companies.

For those who do not have ownership in their clients’ investee companies or the powers and rights to perform the actions associated with the Principles, they could support the Principles by explaining to their clients that the   responsibility of engagement remains with their clients and could advise   their clients on the procedures for obtaining regular communications from   investee companies and for voting shares. If appropriate, they could   implement policies and channels whereby they could assist or guide their   clients on how ownership responsibilities can be discharged.

Where it is not appropriate to adopt the Principles, they are encouraged to explain to their clients why the Principles do not apply.


They can support the Principles by encouraging their clients to adopt the   Principles. They could also implement policies and channels whereby they assist or guide their clients on how ownership responsibilities can be   discharged.

Bare trustees and nominees

They are not expected to fall within the scope of the Principles and hence the Principles would not apply or be relevant to them.

Hong Kong based investors with foreign investments

They are encouraged to observe similar codes or principles of other jurisdictions relating to their foreign investments or apply the Principles to their foreign investments.

Foreign investors


They are encouraged to observe the Principles for their investments in Hong Kong listed companies.


Next steps

After the introduction of the Principles, the SFC will review the following:

  • should there be requirements for specified institutions to disclose whether they have adopted the Principles and, if not, explain why;
  • should the disclosure of a fund manager’s engagement policy be mandated, whether by adoption of the Principles or an equivalent overseas stewardship code and, if so, how it should be disclosed; and
  • if intermediaries hold investments on behalf of individual investors, should intermediaries explain, if appropriate, in writing whether ownership responsibilities rest with the intermediaries or individuals and, if the latter, whether the individuals should be advised on how they can exercise their ownership responsibilities.

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