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Authored by: Alwyn Li and George Ho
On 22 February 2022, the Hong Kong Securities and Futures Commission (SFC) released its consultation conclusions (Conclusions) and began a further consultation on the details of its proposals in 2019 to introduce a new type 13 regulated activity (RA13) to regulate trustees and custodians (i.e. depositaries) of SFC-authorised collective investment schemes (Relevant CIS). Our article on the 2019 consultation is available here.
Entities that will need to be licensed
Subject to a number of exemptions, entities (typically local banks) will need to be licensed or registered for RA13 if they carry on an activity of providing depositary services in Hong Kong for one or more Relevant CIS.
Proposed regulatory framework
Under the Securities and Futures Ordinance (SFO), a depositary licensed for RA13 will be subject to the same requirements as other SFC-licensed corporations, including the appointment of responsible officers and managers-in-charge and compliance with SFC codes, guidelines and circulars. A depositary conducting RA13 will also need to maintain a minimum amount of (i) paid-up capital of HK$10 million; and (ii) liquid capital of HK$3 million.
The SFC is proposing to amend Schedule 11 to the Code of Conduct for Persons Licensed By or Registered with the Securities and Futures Commission (Code of Conduct) for RA13, which will incorporate the trustee and custodian requirements that exist under the Code on Unit Trusts and Mutual Funds, the Code on Real Estate Investment Trusts and other product-specific codes (the Product Codes). The Product Codes as well as various subsidiary legislation under the SFO will also be amended accordingly to reflect the introduction of RA13.
The proposed Schedule 11 (Appendix B of the Conclusions) sets out additional requirements on management and supervision, operational controls and compliance, etc., applicable to an entity licensed or registered for RA13.
The SFC is inviting comments by 30 April 2022 on the proposed amendments to the relevant subsidiary legislation and SFC codes and guidelines to implement the regime.
The SFC takes the view that a transitional period of 18 months for the licensing / registration process for RA13 will be sufficient. However, the SFC will extend the application submission deadline to four months from the gazettal date.
The SFC indicated that if a depositary foresees that it may not be able to meet this general expectation due to exceptional circumstances, it should approach the SFC or the HKMA to discuss the specifics as soon as practicable. Although the details of the proposals are undergoing a further public consultation before gazettal, existing trustees and custodians of Relevant CIS will be subject to the new RA13 regulatory regime in due course and they should be prepared to comply with the relevant regulatory requirements and make a timely application for an RA13 licence.
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