On 19 January 2018, the Securities and Futures Commission (SFC) updated FAQ27B within the FAQs on the Code on Unit Trusts and Mutual Funds in relation to the offering of Renminbi (RMB) denominated share class(es) of SFC-authorised UCITS funds to the public in Hong Kong.
Before the issuance of this updated FAQ, the industry had relied on the speech given by Ms. Alexa Lam, the former Deputy Chief Executive Officer of the SFC, on 10 February 2015, as guidelines for overseas managers wishing to offer the RMB share classes of their offshore funds (e.g. UCITS) in Hong Kong. The SFC required such offerings to satisfy two conditions: (i) their offering in RMB should be made in Hong Kong through a Hong Kong-domiciled fund structure with a Hong Kong manager, in order to provide the SFC with the means for appropriate regulatory control; and (ii) the fund must have substantive operations in Hong Kong (which could include activities such as actual portfolio management, foreign exchange management, currency hedging, and so on) and cannot simply use Hong Kong as a mail box. To achieve this, a number of fund houses have set up a Hong Kong unit trust platform with sub-funds feeding into the relevant UCITS sub-funds. RMB classes are offered, and the RMB related operations are conducted, at the feeder funds level.
With the updated FAQ27B, while the SFC still expects substantive management of the RMB related operations (e.g. RMB foreign exchange transactions and related currency hedging) to be carried out by an SFC-licensed manager in Hong Kong, the SFC has relaxed its policy such that a Hong Kong domiciled feeder fund structure is no longer required. An SFC-authorised UCITS fund may offer RMB share classes to the public in Hong Kong provided that it has appointed an SFC-licensed manager as its investment manager with discretionary investment management power to manage the RMB foreign exchange transactions and the related currency hedging (where applicable).
A manager should still consult the SFC in advance before adding the disclosure of such share class in the offering documents and offering it to the public in Hong Kong.
Fund houses may wish to re-visit the arrangement and strategy for offering RMB share classes in Hong Kong in view of the SFC’s relaxation in its policy.