New streamlined measures for changes to SFC-authorised funds

Background

The procedures and regulations governing the authorisation and subsequent ongoing reporting obligations of Hong Kong's authorised funds are contained in the Securities and Futures Commission's (SFC's) Code on Unit Trusts and Mutual Funds (Code). The Code is supplemented by circulars issued by the SFC from time to time, which serve to clarify the SFC's application of the Code on specific issues as well as impose and/or relax certain requirements contained in the Code.

With the increasing amount of European regulation impacting UCITS funds authorised by the SFC, the ability of fund promoters to coordinate multijurisdictional regulatory approval in connection with updates to UCITS funds' documentation has become increasingly challenging. Going forward, some of these challenges should be alleviated in Hong Kong following the recent issuance of a circular by the SFC entitled "Streamlined Measures to Enhance the Processing of Application for Scheme Changes and Revision of Offering Documents of SFC-authorised Funds" (Circular).

Effective from 24 June 2013, the aim of the Circular is to streamline the SFC regulatory process to permit certain changes previously falling within 11.1(c) of the Code to be implemented without prior SFC approval and/or prior notice requirements to investors subject only to a post-filing obligation with the SFC and subsequent notification to affected investors (as soon as reasonably practicable).

Chapter 11.1 of the Code provides that the following changes to a fund must be submitted to the SFC for prior approval:

The Circular provides that prior SFC approval is no longer required in respect of changes which would otherwise fall within 11.1(c) of the Code provided such changes can be classified as "Immaterial Changes" and the following "Overriding Requirements" can be satisfied:

To provide some guidance to management companies as to what may be considered as "Immaterial Changes", the SFC has provided some illustrative examples in its updated FAQs (discussed below).

Illustrative examples of Immaterial Changes which do not require SFC prior approval

The illustrative examples in the SFC's FAQs provide helpful guidance but are not intended to be exhaustive and will still require management companies to exercise their professional judgment in deciding whether or not the particular change qualifies as immaterial having regard to the "Overriding Requirements" mentioned above.

Changes to investment objectives, policies and restrictions which may be considered as Immaterial Changes include:

1. the addition, removal or amendment of specified investment thresholds contained in the principal and/or ancillary investment objective, strategy or policy of the fund;
2. variation of examples of underlying assets and investment scope;
3. enhancement to any internal stock selection process;
4. enhancement of the investment objective, strategy, policy or restrictions as required by other regulators and/or in order to ensure compliance with applicable legal and/or regulatory requirements.

Changes to fee structures and dealing and pricing arrangements which may be considered as Immaterial Changes include:

With the exception of a change in the frequency and/or rate of dividend payments which will require one month prior notice to be given to investors, other changes which can be classified as Immaterial Changes simply require to be notified to investors as soon as reasonably practicable.

Changes to constitutive documents

The FAQs also clarify that the SFC is prepared to extend the streamlined processing measures to certain immaterial amendments to the constitutive documents of UCITS funds provided the following criteria are satisfied:

Unless the constitutive documents require prior notification to be issued to investors, the management company is simply required to notify investors of such changes to the constitutive documents as soon as reasonably practicable.

Maximizing the potential benefit of the streamlined measures

The key benefit of the streamlined measures (where applicable) is to enable promoters to introduce changes without having to go through a pre-filing and approval process with the SFC. This offers complete flexibility (from a Hong Kong perspective) in determining the effective date of such changes and the timetable surrounding the issuance of updated offering documentation.

When planning future prospectus updates, it is important to determine which changes (if any) can be processed under the streamlined measures and those which will trigger prior SFC approval. If any change requires SFC approval, this will impact the issue date of the revised prospectus as such document must be filed with the SFC for review and approval in relation to the material changes. Hence updating projects which comprise both material and immaterial updates will result in the fund's revised prospectus having to be pre-approved by the SFC in accordance with the normal regulatory review process. The ability to structure fund updates which isolate Immaterial Changes (i.e. by the issue of an addendum to the prospectus) rather than combining these with material changes in the same updating project will enable promoters to maximize on the potential benefit of the streamlined measures.

SFC's post vetting approach

The SFC has indicated in the Circular that it will adopt a post vetting approach in monitoring the Immaterial Changes and updated offering and/or constitutive documentation filed in reliance upon the streamlined measures. When necessary, the SFC will make follow up enquiries and/or take other regulatory action as considered appropriate depending on the circumstances of a particular filing.

Accordingly, if you wish to take advantage of the streamlined measures, we recommend you maintain appropriate internal records justifying the basis upon which you have concluded that the revisions are Immaterial Changes and comply with the Overriding Requirements. If subsequently challenged by the SFC, the ability to demonstrate the basis upon which your professional judgment has been exercised in such circumstances should help in addressing any follow up queries you may receive from the SFC.

主要负责人

Jeremy Lam (林俊明)

合伙人 | 金融服务

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