The Securities and Futures Commission (‘SFC‘) on 18 December 2017 launched a consultation on its proposed amendments to the Code on Unit Trusts and Mutual Funds (‘Code‘) (‘Consultation Paper‘). The amendments aim (i) to update the regulatory regime for SFC-authorised funds and (ii) to address risk posed by financial innovation and fast-moving market developments.
The consultation mainly includes proposals to:-
a) increase the minimum capital requirement for management companies from HK$1 million to HK$10 million; provide flexibility to allow management companies with multinational presence to leverage group resources in meeting the five-year public fund investment management experience; and enhance the requirements for trustees and custodians and for audit review.
b) expand the types of derivatives which plain vanilla funds may invest in, and introduce an overall limit of 50 percent on the use of derivatives for a plain vanilla public fund; enhance safeguards on the use of derivatives and securities lending, repo and reverse repo transactions.
c) introduce new chapters in the Code for listed open-ended funds and closed-ended funds, and enhance existing requirements on money market funds to align with the standards issued by the International Organization of Securities Commissions.
SFC proposes to also codify various existing requirements and practices, including, among others, requirements for the general obligations of management companies, eligibility of trustees and custodians, valuation of fund assets, liquidity risk management and streamlined measures for handling scheme changes. Furthermore, under the proposal, there will be a 12-month transition period from the date when the amendments become effective upon its gazettal (‘Effective Date’) in order to allow for compliance with amendments to the Code (unless otherwise indicated as being immediately effective from the Effective Date).
With the assistance of the Investment Products & Financial Services Committee, the Law Society has provided its views on those consultation questions. The details of the submissions are available at: