Legislation passed for new fund vehicle

Earlier this month the Securities and Futures (Amendment) Ordinance 2016 (the Ordinance), which sets out the high level framework for the creation of a new investment vehicle in the form of a mutual fund (to be known as an open-ended fund company (OFC)), was enacted.

As the OFC will be an investment fund with variable capital, the OFC regime is under the SFC’s jurisdiction rather than that of the Companies Registry.

The commencement date of the Ordinance has not yet been announced as most of the detailed requirements will be in OFC Rules to be made by the SFC and/or in SFC codes or guidelines to be issued. In accordance with the earlier consultation some of the key requirements are that an OFC must have a fund manager which is a Type 9 (asset management) licensed or registered entity, the OFC’s registered office must be in Hong Kong, it needs at least two individual (rather than corporate) directors and a custodian should be appointed.

A statutory duty of care applies to directors and custodians. The OFC can have multiple sub-funds and segregated liability is conferred by the legislation.

The new OFC regime will create a welcome alternative to the unit trust for groups looking to establish funds in Hong Kong.