Reminders for advertisements of authorised funds

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Authored by: Alwyn Li, Eve Leung and Lawrence Yeung

The SFC conducts surveillance on marketing materials of authorised funds. Fund managers are reminded of their obligations to ensure compliance with applicable SFC requirements, including but not limited to, the Code on Unit Trusts and Mutual Funds, Advertising Guidelines and the SFC’s FAQ on Advertising Materials.

Below is a summary of some of the key compliance issues:

1) An advertisement of an authorised fund should contain an upfront risk disclosure box (RDB) highlighting all the key risks of the fund. The box must be presented upfront and prominently. The risk disclosures should be clearly seen and of appropriate prominence. The SFC pays particular attention to the presentation of benefits and returns in advertisements. In particular, returns and dividend yields should not be presented disproportionately larger than the risks of the fund. The SFC expects that the font size of the risk disclosures should be comparable to the main text. Unfortunately, the SFC does not provide any specific requirements or guidance in respect of appropriate font size and fund managers need to adopt a holistic approach to ensure that the risk disclosure, in terms of overall impression, is reader-friendly and “eye-catching”, especially for large items e.g., displays in the MTR.

2) For advertisements which highlight dividend payments or distribution features, the disclaimers regarding the payment of dividends out of capital should be disclosed in the RDB if applicable. If the fund does not offer a fixed dividend arrangement, the disclosed rate of dividend payments should be accompanied by the SFC-prescribed disclaimers that the amount of dividend or the rate of distribution is not guaranteed.

3) A substantiated prospective yield may only be allowed in an advertisement if the fund invests substantially in fixed income securities, money market instruments or other investments that provide regular and stable distributions.

4) For a newly launched fund which does not guarantee or make dividend payment at a fixed rate, it would generally not be acceptable for the fund to include prospective dividend yield in its advertisement unless the above condition is met.

5) Lucky draws, gifts and other non-fee related incentives are generally prohibited.

If the SFC has any concern about an advertisement of an authorised fund, the fund manager will likely be required to submit all the advertisements of the relevant fund during a specific period to the SFC for review. The fund manager may also be required to cease publication of the advertisement as soon as possible.

Key Contacts

Alwyn Li

Partner | Financial Services

Email or call +852 2825 9627