Consultation on the Securities and Futures (Open-ended Fund Companies) Rules and Code on Open-ended Fund Companies

The Securities and Futures Commission (“SFC”) on 28 June 2017 launched a consultation on the Securities and Futures (Open-ended Fund Companies) Rules and Code on Open-ended Fund Companies (“Consultation Paper”). In the Consultation Paper, the SFC proposed rules and codes to regulate the open-ended fund company (“OFC”) structure in Hong Kong. These rules and codes were introduced following the promulgation of the Securities and Futures (Amendment) Ordinance in June 2016, which inter alia, empowers the SFC to make subsidiary legislation and to issue codes and guidelines in relation to the regulation of OFCs.

The draft Securities and Futures (Open-ended Fund) Companies Rules 2017 (“OFC Rules”) was set out in the Consultation Paper. The OFC Rules provide for statutory requirements on matters such as company formation and maintenance, the key operations of the OFC, the functions of the Companies Registry (“CR”), the segregated liability feature for umbrella and sub-funds structures and cross-investments of sub-funds of OFCs, arrangements and compromises as well as offences applicable to OFCs and their key operators. Also included in the Consultation Paper was a set of proposed Code on OFC Companies (“OFC Code”). The OFC Code contains a set of general principles with which all OFCs and their key operators will be expected to comply in the management and operation of their OFCs.

One of the main features in the OFC Rules and OFC Code is the proposal of a one-stop approach in the OFC application. Under this proposal, the applicant for an OFC only needs to submit all the documents and fees required by the SFC and the CR to the SFC. The SFC’s registration would take effect upon the issuance of a certificate of incorporation by the CR. In short, the applicant would only have to deal with the SFC for all registration processes.

The above consultation was considered by the Council with the assistance of the Investment Products & Financial Services Committee of the Law Society. The Council reviewed and endorsed the draft submission prepared by the Committee to respond to the Consultation Paper. In the submission, the Law Society expressed support for the introduction of OFC to the Hong Kong regime. Subject to proper implementation of rules and regulations, the OFC structure in Hong Kong should be a welcome development to position Hong Kong as a full-service international asset management centre and preferred fund domicile.

The full submission on the above can be found on the Law Society’s website: