Hong Kong Facilitates Market Development by Introducing Open-Ended Fund Structure

To further develop Hong Kong into a full-service asset management hub, the open-ended fund company (OFC) structure was introduced on 30 July 2018. The OFC regime aims to compete with other asset management jurisdictions by facilitating market development, while affording a high level of market integrity and investor protection.

Key Features

The OFC is a corporate fund structure that is not restricted on capital reduction or distributions from capital under the Companies Ordinance.  Publicly or privately offered sub-funds may be formed under an umbrella OFC, each of which does not have a separate legal personality, but may segregate assets and liabilities from each other in certain context.

Comparable structures are currently available in major international fund centers, but the OFC offers an efficient entry by licensed asset managers in Hong Kong. Formation and changes to the OFC are relatively easy to implement under the "one-stop" approach (discussed below).

Key Operators

At a minimum, an OFC must have:

at least two directors (including one independent director), who must be eligible to carry out the OFC's business;

a fund manager licensed or registered for asset management, which remains fit and proper and complies with the applicable laws and regulations; and

a custodian that meets the same eligibility requirements set out in the amended Code on Unit Trusts and Mutual Funds (effective on 1 January 2019).

While each appointment (including changes of key operators) requires SFC's approval, sub-delegation arrangements do not but must comply with the relevant codes issued by the SFC.

"One Stop" Approach

Under the “one-stop process” adopted by the SFC, a fund manager wishing to register an OFC deals directly with the SFC only. While privately offered OFC formation is governed only by the OFC regime, publicly offered OFC formation will also be required to comply with the SFC's authorization requirements.

Step One - Application for registration submitted to the SFC

Publicly and Privately Offered OFCs: The application involves the submission of: (i) SFC application form and information checklists; (ii) incorporation form; (iii) notice to the Business Registration Office ("BRO"); (iv) proposed instrument of incorporation signed by all proposed directors; (v) profile of each key operator; (vi) consent letters of appointment for each key operator; (vii) profile of process agent; (viii) statement of compliance by the proposed directors; and (ix) applicable fees.

Step Two - SFC approval and registration of the OFC

Publicly Offered OFC: Applications for registration and authorization for public offering take place simultaneously. The timeline for approval and registration depends on the type of application (i.e., "standard" or "non-standard"), ranging from 1-3 months after the SFC formally accepts the application.

Privately Offered OFC: The registration will be granted as soon as possible where all required documents are in order (expected to take less than 1 month after the SFC formally accepts the application).

Step Three - SFC notification to the CR in relation to registration

Publicly and Privately Offered OFCs: If the registration requirements are met, the SFC will deliver the relevant documents to the CR as soon as reasonably practicable for CR's registration. Fund managers will not have to deal with the CR directly for the purpose of registering the OFC.

Step Four - CR issues certificate of incorporation within three business days

Publicly and Privately Offered OFCs: The CR generally expects the certificate of incorporation and the business registration certificate to be issued within 3 business days after receiving the SFC’s notification of the OFC registration (excluding the date of receipt).

Way Forward

The OFC aims to provide an easy and efficient way for Hong Kong fund managers to set up onshore funds, and become less reliant on offshore structures. In this regard, the OFC would be attractive to Hong Kong fund managers whose investors demand a protected and regulated structure.


Partner, Dechert