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Authored by: Vincci Ip and Chiselle Kam
On 22 December 2023, Hong Kong’s Securities and Futures Commission (SFC) introduced further streamlined measures for SFC-authorised funds. New / revised forms, frequently asked questions, guides, checklists and confirmations have been published on the SFC’s website.
The key streamlined measures are summarised below:
(a) Appointment of investment delegates
- Appointment of a new investment delegate which is currently managing other existing SFC-authorised fund(s) – This no longer requires SFC prior approval, unless the appointment involves a new all-time investment management delegation arrangement or a change in any all-time investment delegation arrangement currently adopted by the fund. One month’s prior written notice will generally be required.
- Appointment of a new investment delegate which is not currently managing other existing SFC-authorised fund(s) – This is still subject to SFC prior approval, but the application would be processed by the SFC as a “simple application” and subject to a shorter approval time.
- New fund application with appointment of a new investment delegate which is not currently managing other SFC-authorised fund(s) – The application will be processed by the SFC as a “standard application” and subject to a shorter authorisation time, provided that the new investment delegate has good regulatory records.
(b) Reporting of material breaches
The SFC has issued new ongoing compliance forms to facilitate fund managers’ reporting of material breaches. In general, all fund managers are required to complete the standard ongoing compliance form for reporting of material breaches except for the following streamlined measures for UCITS funds.
- Where no Hong Kong investors invest in a UCITS fund or a class of the UCITS fund (as the case may be) during the affected period for a material breach – Fund manager of the UCITS fund is not required to report such material breach to the SFC. This streamlined measure also applies to reporting of a pricing error of a UCITS fund.
- Where there are Hong Kong investors in a UCITS fund during the affected period for a material breach – Fund manager of the UCITS fund is required to file a standard ongoing compliance form for reporting or filing of such material breach with the SFC. If the material breach solely involves a breach of the home regulator’s requirements, then the UCITS fund manager may only complete the ongoing compliance form for filing of material breaches under the streamlined measure.
(c) Post-authorisation notifications
- Scheme changes which require SFC prior approval – A shorter prior notice period (i.e. less than one month) is acceptable, provided that written consents from all affected investors have been obtained.
- Notice during prolonged suspension – The requirement to publish, at least once a month via appropriate means, the fact that dealing is suspended can be complied with by issuing notices (in printed and electronic forms) or by posting prominent message(s) on the fund’s / management company’s website with a hyperlink to the relevant suspension notice published on the website, as permitted by the fund’s constitutive documents and offering documents.
- Notice for publication of financial report – Separate notification to inform investors of the availability of a fund’s financial report is no longer required if the fund’s offering documents have already disclosed the means and the timeframe for investors to obtain the fund’s financial report. If the fund’s offering documents have to be revised to reflect that no specific notification will be provided upon the publication of financial report, SFC prior approval is not required, but one month’s prior written notice should be provided to investors.
(d) Derivative investments
- SFC prior approval is no longer required for a reduction in the extent of use of derivatives. One month’s prior written notice will generally be required.
- Further guidance has been provided on the flexibility in the calculation of a fund’s net derivative exposure when using options to achieve a structured return profile.
(e) Disclosure guidance
In view of the latest streamlined measures, fund managers are reminded:
- To review and update the fund’s offering documents and/or constitutive documents (if applicable) if they intend to make use of the flexibilities regarding the publication of notice for financial report and prolonged suspension, as well as the revised disclosure guidance set out in the Application Guide. Relevant SFC requirements (including any prior written notice requirement) should be observed.
- To review and update the internal control measures and policies, e.g. policies on reporting / filing of pricing error and material breach, to reflect the latest SFC requirements and ensure compliance with the SFC requirements on an ongoing basis.
- To assess the materiality of any breach and report material breaches to the SFC using the appropriate ongoing compliance forms.
- To use the new / latest version of the SFC forms, checklists and confirmations (published on the SFC’s website) for the application to or filing with the SFC.
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