Regulatory updates on SFC-authorised funds

View PDF

Authored by: Alwyn Li, Eve Leung and Kent Ng

On 11 November 2022, Hong Kong’s Securities and Futures Commission (SFC) published various updated documents in respect of the following changes to their requirements applicable to authorised funds.

(A) Streamlined approach applicable to certain changes of investment delegate

Pursuant to 11.1(b) of the Code on Unit Trusts and Mutual Funds, changes of investment delegates of SFC-authorised funds and their regulatory status must be submitted to the SFC for prior approval.

With effect from 11 November 2022, the SFC has adopted a streamlined approach, under which the SFC’s prior approval will no longer be required in respect of the following changes of investment delegates:

(i) replacement of an existing investment delegate or appointment of a new investment delegate if the new investment delegate is currently managing other existing SFC-authorised fund(s), and belongs to the same corporate group as the management company or (in the case of delegation by the immediate delegate of the management company to the new sub-investment delegate) the immediate delegate of the management company; and

(ii) removal of an investment delegate if the management company confirms that the compliance confirmations and/or undertakings previously provided to the SFC remain valid, and the investment delegate to be removed was not appointed and delegated at all times with the investment management functions subject to the authorisation conditions imposed by the SFC.

The above streamlined arrangements, however, do not apply to changes of investment delegates which will involve new proposed all-time investment management delegation or result in a change to any all-time investment delegation arrangement currently adopted by the relevant SFC-authorised fund.

Notice

It is generally expected that one month’s prior written notice should be provided to Hong Kong investors of these changes and the notice should meet the content requirements set out in FAQ 16A – 16D of “Frequently Asked Questions on Post-Authorisation Compliance Issues of SFC-authorised Unit Trusts and Mutual Funds”.

Revised offering documents

No further SFC approval of the revised offering documents of the SFC-authorised fund is required to the extent it solely reflects the changes of investment delegates pursuant to the above streamlined approach.

Filing forms

The relevant filing forms have been updated by the SFC to facilitate the streamlined approach. For replacement of an existing investment delegate or appointment of a new investment delegate as mentioned in (i) above, the management company is required to provide the same confirmations and undertakings in respect of change of investment delegates as set out in the “List of Confirmations of Compliance related to Application for Approval of Scheme Change(s) pursuant to 11.1 of the Code of Unit Trusts and Mutual Funds”.

In light of the new streamlined approach, the SFC has updated the following documents to provide further guidance on changes of investment delegate that do not require the SFC’s prior approval:

(a) Frequently Asked Questions on Post-Authorisation Compliance Issues of SFC-authorised Unit Trusts and Mutual Funds – FAQs 11A and 12A

(b) Filing Form for Notice of Scheme Change(s) falling within 11.B of the Code on Unit Trusts and Mutual Funds and Do Not Require SFC’s Prior Approval

(c) Filing Form for Revised Offering Documents that Incorporate Changes Falling within 11.1B of the Code on Unit Trusts and Mutual Funds (UT Code) and Do Not Required SFC’s Prior Approval

(B) Other regulatory updates

The SFC has also introduced the following updates:

• streamlined disclosure requirements relating to PRC legal opinions on the custody arrangement for funds investing 70% or more of their net asset value in onshore PRC securities via the Qualified Investors (QI) / China Interbank Bond Market (CIBM) regime;

• revised FAQs 14 and 15 of the Frequently Asked Questions on the Implementation and Transition Arrangements of the Code on Unit Trusts and Mutual Funds (Effective on 1 January 2019) to clarify that the SFC’s prior consultation will be required if an SFC-authorised fund intends to invest primarily in debt instruments with loss-absorption features.
  
• on 15 November 2022, revised Circular on Mutual Recognition of Funds (MRF) between Thailand and Hong Kong to expand the eligible types of Thai funds applying for the SFC’s authorisation to include (i) listed real estate investment trusts; (ii) listed property funds; (iii) listed infrastructure funds, or some combination thereof.

Key Contacts

Alwyn Li

Partner | Financial Services

Email or call +852 2825 9627