Marketing funds and managed accounts in Hong Kong and Singapore

Transcription

1 Marketing funds and managed accounts in Hong Kong and Singapore Rolfe Hayden Jek-Aun Long, JWS Asia Law Corporation Wern-Sern Bin, JWS Asia Law Corporation

2 Introduction Overview of the Hong Kong and Singapore markets Regulatory framework - Hong Kong Regulatory framework - Singapore Selling restrictions - Hong Kong Selling restrictions - Singapore Recent cases of interest: Hong Kong - SFC vs Pacific Sun Advisers Ltd. Singapore Future developments: Hong Kong and Singapore

3 Overview - Hong Kong Hong Kong s open architecture authorised funds - UCITS (78%) unauthorised funds Retail or non retail? public offers private placement/exemption Licensing of intermediaries

4 Overview - Hong Kong Recovery in the number of SFC authorised funds (as at December) * * Source: SFC Annual Report * Includes APIFs

5 Overview - Hong Kong Origin/domicile of SFC authorised funds top 5 jurisdictions 31/12/14 (31/12/13) Luxembourg 1,000 49% (50%) Hong Kong % (24%) Ireland % (15%) Cayman Islands 95 5% (8%) United Kingdom 64 3% (3%) Source: SFC Annual Report 2014/15 Mutual Recognition of Funds effective 1 July 2015

6 Overview - Hong Kong PRC influence grows: as at 31/12/14 there were 34 Mainland-related managers of SFC authorised funds (up from 28 in the previous year) as at 31/12/14 these managed 253 funds as at 31/5/15 93 Mainland-related groups had established 293 licensed corporations/registered institutions in Hong Kong of these, 21 were fund managers as at 31/5/14 the SFC had authorised 91 unlisted RQFII/Stock Connect funds including 21 RQFII/Stock Connect ETFs Source: SFC Fund Management Activities Survey 2014 (July 2015)

7 Overview - Hong Kong Hedge funds: as at 30/9/14, 778 (from 676 in previous year) SFC licensed hedge fund managers 64% of AUM was in respect of Asia Pacific, 32% PRC/Hong Kong US/EU investors accounted for 61% AUM (Hong Kong investors only 8%) strategies 41% long/short 28% multi-strat 9% global macro 8% FoHFs 56% of hedge fund managers at US$100 million or less, 28% at between US$101 million and US$500 million and 8% at US$501 million to US$1 billion and 8% over US$1 billion Source: SFC Survey on Hedge Fund Activities (March 2015)

8 A Pan-Asian Asset Management Hub > 600 players in Asset Management (traditional & alternative) in Singapore AUM by SG-based fund managers > US$1.3 trillion > 80% of AUM by SG-based fund managers are sourced from outside Singapore Best US$ liquidity in Asia Largest FX centre in Asia World s 3rd largest FX market Largest OTC interest rate derivatives trading centre in Asia (ex Japan) Source: MAS Report 8

9 Singapore World 2 nd in Attracting New Assets Singapore ranked 6 th globally in wealth management. Ranked 2 nd (after Hong Kong) in attracting new clients assets. * Extracts from article in The Straits Times, Tuesday February 10,

10 Total AUM by SG-Based Asset Managers - Increased by 30% in 2014 (S$ Billions) Total AUM by SGbased asset managers grew by 30% to S$2.4 trillion in 2014, compared to S$1.82 trillion as at end-2013 Over last 5 years, AUM expanded at 14% CAGR In 2014, net increase of 38 registered & licence fund managers. Total end of 2014 is 591 * Extracts from MAS 2014 Singapore Asset Management Industry Survey 10

11 AUM in Alternative Sector - Increased by 17% in 2014 (S$ Billions) In 2014: Traditional AUM grew by 38% Alternative AUM grew by 17% SG-based PE AUM grew by 24%. 8 of top 10 global PE firms have an office in SG; used as a base to scout for opportunities in APAC * Extracts from MAS 2014 Singapore Asset Management Industry Survey 11

12 AUM in Retail Investment Funds - Recognised CIS increased by 37% in 2014 (S$ Billions) 5-year Total CIS AUM CAGR is 13% * Extracts from MAS 2014 Singapore Asset Management Industry Survey 12

13 Key Regions for Source of Funds in % from APAC, 19% from Europe 81% AIM sourced from outside SG. Demonstrates SG s role in serving regional & international investors. * Extracts from MAS 2014 Singapore Asset Management Industry Survey 13

14 Regulatory framework Hong Kong

15 Regulatory framework Legislation Securities and Futures Ordinance (SFO) Securities and Futures (Professional Investors) Rules (PI Rules) 1 April 2003 Companies (Winding Up and Miscellaneous Provisions) Ordinance (C(WUMP)O) Companies (Amendment) Ordinance (CAO) 3 December 2004 Companies Ordinance (CO) 3 March 2014 Regulator Securities and Futures Commission (SFC)

16 Regulatory framework Section 114: Licensing Requirement no person shall carry on a business in a regulated activity or hold himself out as such unless licensed by the SFC (licensed corporations only) registered by the SFC (authorised institutions only) SEHK (Section 95(2)) Schedule 5: Definitions lists all 10 regulated activities Types 11 (advising on OTC transactions) and Type 12 (clearing and settlement of OTC transactions) Type 1 and Type 9 regulated activities

17 Regulatory framework Section 115: Services where: (a) a person actively markets, whether by himself or another person on his behalf and whether in Hong Kong or from a place outside Hong Kong, to the public any services he provides; and (b) such services, if provided in Hong Kong, would constitute a regulated activity regarded as carrying on a business in Hong Kong within Section 114 issues meaning of active marketing? public includes professional investors introductions

18 Regulatory framework - Singapore

19 Regulatory framework - Singapore Regulator Monetary Authority of Singapore (MAS) Legislation Securities & Futures Act (SFA) Securities & Futures (Licensing & Conduct of Business) Regulations (SFR) Financial Advisers Act (FAA) Financial Advisers Regulations (FAR) MAS Notices MAS Guidelines Code of Collective Investment Schemes 19

20 Licensing framework - Singapore Licensing Requirement: Section 82 SFA: no person shall carry on business in any regulated activity or hold himself out as such unless: holder of capital markets services licence (CMSL) issued by MAS; or exempt from holding CMSL Definitions: 2 nd Schedule lists all the regulated activities Fund management: means undertaking on behalf of a customer (whether on a discretionary authority granted by the customer or otherwise) Management of portfolio of securities or futures contracts Foreign exchange trading or leverage FX trading for purposes of managing customer s funds Fund management generally involve portfolio construction & allocation, research & advisory, business development and marketing and/or client servicing ; discretionary or not 20

21 Fund Management Services Generally, FMCs to be: Registered FMC; or Accredited/Institutional Investors Licensed-FMC; or Retail Licensed-FMC Extra-territorial Effect of Licensing Requirements Managed Accounts Where overseas fund management company (FMC) markets fund management services (not CIS) to persons in SG Triggers FMC licensing requirements under SFA Overseas-FMC to seek exemption under Paragraph 9, 3 rd Schedule of SFA for approved arrangements with Singapore licensed related corporation ( Para 9 Exemption ) 21

22 Marketing of CIS in Singapore CIS definition includes closed-end & open-end funds Prior to 1 Jul 2013: Closed-end funds not CIS Marketing of closed-end funds required CMSL for dealing in securities under SFA With effect from 1 Jul 2013: Closed-end funds established on or after 1 Jul 2013 are CIS ; regulated in same way as marketing open-end funds Manager/distributor marketing closed & open-end funds must hold FA licence under FAA or be exempt FA (e.g. CMSL holder for FM or RFMC invoking available licensing exemption under FAA/FAR, licensed banks) 22

23 Marketing of CIS in Singapore Marketing of CIS to Institutional Investors in Singapore Manager/distributor exempt from FA license if marketing to institutional investors Institutional investors as defined under the SFA Marketing of CIS to Accredited Investors or Retail Investors in Singapore FA licence required under Financial Advisers Act Manager/distributor to hold FA licence or be Exempt FA (e.g. CMS licence holder for FM invoking available licensing exemption under FAA/FAR) 23

24 Selling Restrictions - Hong Kong

25 Exemptions - SFO Section 103(1) prohibits issuance or possession for the purpose of issue whether in Hong Kong or elsewhere advertisement, invitation or document which invites the public : (b) to acquire an interest in or participate in, or offer to acquire an interest in or participate in, a collective investment scheme unless SFC has authorised the issue or unless exemptions apply collective investment scheme includes both closed end and open ended funds

26 Exemptions - SFO Section 103(2): (a) advertisements by intermediary holding Type 1, 4 or 6 license: Section 103(11) excludes unauthorised collective investment schemes (ga) - consequential amendment caused by the CAO: to the extent that the advertisement, invitation or document relates to an offer falling within paragraph (b)(ii) of the definition of prospectus in Section 2(1) of the Companies (Winding Up and Miscellaneous Provisions) Ordinance shares or debentures only

27 Exemptions - SFO Section 103(3): (j) advertisement made in respect of securities or interests in collective investment schemes or regulated investment agreements which are, or are intended to be, disposed of outside Hong Kong (k) to professional investors Schedule 1 Pl Rules Relevant SFO exemptions Parts IV and VII of SFO exemptions: Section 103(3)(k) prohibition on marketing Section 174(2)(a) prohibition on cold calling Section 175(5)(d)(i) written offers Seventeenth Schedule, C(WUMP)O Section 1, Part 1

28 Exemptions - SFO Schedule 1 Professional Investors (b) any intermediary, or any other person carrying on the business of the provision of investment services and regulated under the law of any place outside Hong Kong; SFC licensed corporation authorised institution (c) any authorized financial institution, or any bank which is not an authorized financial institution but is regulated under the law of any place outside Hong Kong; banks any insurer authorized under the Insurance Companies Ordinance, or any other person carrying on insurance business and regulated under the law of any place outside Hong Kong; insurance companies

29 Exemptions - SFO Schedule 1 Professional Investors (cont d) (e) any scheme which - (i) is a collective investment scheme authorized by the SFC under Section 104 of the SFO; or (ii) is similarly constituted under the law of any place outside Hong Kong and, if it is regulated under the law of such place, is permitted to be operated under the law of such place, or any person by whom any such scheme is operated; funds fund managers

30 Exemptions - SFO Schedule 1 Professional Investors (cont d) (f) MPF schemes and their managers/trustees; (g) ORSO schemes and ORSO scheme managers/administrators; (j) new categories as prescribed by SFC - to date only the PI Rules high net worth individuals corporations

31 Exemptions - SFO PI Rules Professional Investors (cont d) any individual, either alone or with any of his associates (the spouse or any child) on a joint account, having a portfolio of not less than HK$8 million or its equivalent in any foreign currency at the relevant date or - (i) as stated in a certificate issued by an auditor or a professional accountant of the individual within 12 months before the relevant date; or (ii) as ascertained by referring to one or more custodian statements issued to the individual (either alone or with the associate) within 12 months before the relevant date;

32 Exemptions - SFO PI Rules Professional Investors (cont d) any corporation or partnership having - (i) a portfolio of not less than HK$8 million or its equivalent in any foreign currency; or (ii) total assets of not less than HK$40 million or its equivalent in any foreign currency, at the relevant date or as ascertained by referring to - (iii) the most recent audited financial statement prepared - (A) in respect of the corporation or partnership (as the case may be); (B) within 16 months before the relevant date; or

33 Exemptions - SFO PI Rules Professional Investors (cont d) (iv) one or more custodian statements issued to the corporation or partnership (as the case may be) within 12 months before the relevant date; and any corporation the sole business of which is to hold investments and which is wholly owned by professional investors

34 Exemptions - SFO PI Rules Professional Investors (cont d) relevant date means the date of the advertisement, invitation or document; custodian means (i) a corporation whose principal business is to act as a securities custodian, or (ii) an authorised financial institution under the Banking Ordinance; an overseas bank; a corporation licensed under the SFO; or an overseas financial intermediary, whose business includes acting as a custodian; and portfolio means a portfolio comprising (i) securities; (ii) CDs issued by an authorised financial institution under the Banking Ordinance or an overseas bank; and (iii) except for trust corporations, cash held by a custodian.

35 Exemptions C(WUMP)O Definition of a prospectus : (a) subject to paragraph (b), means any prospectus, notice, circular, brochure, advertisement, or other document - (i) offering any shares in or debentures of a company (including a company incorporated outside Hong Kong, and whether or not it has established a place of business in Hong Kong) to the public for subscription or purchase for cash or other consideration; or (ii) calculated to invite offers by the public to subscribe for or purchase for cash or other consideration any shares in or debentures of a company (including a company incorporated outside Hong Kong, and whether or not it has established a place of business in Hong Kong); (b) does not include any prospectus, notice, circular, brochure, advertisement, or other document - (i) to the extent that it is a publication falling within section 38B(2); or (ii) to the extent that it contains or relates to an offer specified in Part 1 of the Seventeenth Schedule as read with the other Parts of that Schedule;

36 Exemptions C(WUMP)O Seventeenth Schedule 1. an offer to professional investors under the SFO, including under part (j) of the definition of professional investor (i.e. PI Rules professional investors) 2. an offer to not more than 50 persons (i.e. up to 50 offerees). 3. an offer where the minimum subscription/purchase price is not less than HK$500,000.

37 Exemptions C(WUMP)O Seventeenth Schedule (cont d) 12. An offer in connection with a SFC authorised collective investment scheme approved by the SFC under Section 104 of the SFO. Any combination, excluding the minimum amount, will also not constitute an offer to the public. Regarding the offer to less than 50 offerees, any offer by the same person made within 12 months of an offer by that person under is treated as a single offer continuous offering same class of shares or debentures

38 Exemptions C(WUMP)O Seventeenth Schedule (cont d) Other than an offer to only professional investors, an offer document must also include a statement in English (or Chinese, if appropriate) in the relevant offer document as follows: WARNING The contents of this document have not been reviewed by any regulatory authority in Hong Kong. You are advised to exercise caution in relation to the offer. If you are in any doubt about any of the contents of this document, you should obtain independent professional advice.

39 Private Placement What is a public offer? Meaning of the public statutes SFC interpretation case law

40 Selling Restrictions - Singapore

41 Offers of CIS in Singapore General rule: all offers of collective investment schemes (CIS) subject to prospectus registration requirements unless exemption available Most common exemptions: Institutional investors Accredited investors (i.e. restricted schemes) Private placements (offers to not more than 50 persons within any 12 month period) 41

42 Offers of CIS in Singapore Retail Schemes Offer to retail in Singapore Must be authorised/recognised by MAS Register prospectus & PHS with MAS Annual updates required Restricted Schemes (s 305) Offer to unlimited accredited investors in Singapore Notify MAS through CISNet (online notification system) Notification to include information memorandum (with prescribed disclosure requirements) & marketing materials Annual updates required 42

43 Offers of CIS in Singapore Institutional Investor (s 304) Offer only to institutional investors (II) in Singapore No registration/notification requirements Proposed expansion of definition of II Private Placement (s 302C) Offer to not more than 50 persons within last 12 months No registration/notification requirements Strict aggregation rules (e.g. includes offers by manager & distributors) 43

44 Recent cases of interest

45 Hong Kong: Pacific Sun Section 103(1)(b) of SFO offence to issue an advertisement to the public to offer/invite an offer to invest in a fund unless SFC authorised or within an exemption Section 103(10)(a) of SFO an advertisement containing information likely to lead to the public to invest in a fund is deemed an offer Section 103(3)(k) Exemption where any advertisement is made in respect of interests in a fund that are intended to be disposed of only to professional investors

46 Hong Kong: Pacific Sun Facts: November to December 2011, Hong Kong SFC licensed manager issued advertisements regarding its hedge fund: unsolicited s to potential investors and brokers (with whom the manager had dealings) announcing new fund a fact sheet and PowerPoint presentation re the fund was attached to s also uploaded to manager s website all included disclaimers not intended as an offer or solicitation information purposes only referred to contact details of manager did not mention for professional investors only SFC subsequently prosecuted the manager and its principal for breach of Section 103(1)(b) probibition without SFC authorisation

47 Hong Kong: Pacific Sun Magistrates Court acquitted manager it was accepted that the advertisements were not offers but an invitation to seek further information Section 103(10)(a) was ignored it was accepted that actual investment in the fund was limited to professional investors by a screening process Court of First Instance overturned the Magistrate s ruling: Section 103(10(a) deemed the advertisements to be offers disclaimers cannot be accorded more weight than is consistent with the facts SFC s argument accepted that Section 103(3)(k) must be interpreted to mean that, except possibly in wholly exceptional circumstances, an advertisement must state on its face that an offer is limited to professional investors to rely on this exemption whether or not non-professional investors cannot invest in the fund is irrelevant Manager and principal convicted in June 2014 (HK$20,000 fine and 4 weeks in prison suspended for 12 months)

48 Hong Kong: Pacific Sun Court of Final Appeal judgment 20 March 2015 Section 103(3)(k) on a proper construction the exemption applies where the relevant fund, as a matter of fact, can only be disposed of to professional investors Section 103(2)(ga) evidences that where an advertisement must state something, the relevant exemption in the SFO will say that prosecutorial ease and convenience of the SFC cannot be a good reason for supporting the SFC s interpretation SFC says it will change the law!

49 Singapore MAS has taken the following actions in past few years: Issue a cease and desist letter for false representations (e.g. representations re regulatory status and attributing statements to MAS that are false and misleading in nature) Public reprimand for contravention of Section 82(1) of the SFA (e.g. holding oneself out to be a FM in SG when not licensed or exempt) Public reprimand for contravention of Section 6(1) of FAA (e.g. acting as financial adviser in SG or holding oneself out as such without license or exemption) Imposition of composition amount for contravention of Section 82(1) of SFA (e.g. holding oneself out to be FM in SG when not licensed or exempt) Breaches of licensing requirements or prospectus registration requirements Punishable by fines and/or imprisonment upon conviction

50 Future developments: Hong Kong and Singapore

51 Hong Kong: Streamlined SFC application Fund Management Activities Survey 2014 (issued July 2015) the SFC is formulating enhancement measures with an aim to further shortening the overall processing time for new fund applications. New measures being considered include the introduction of a two-stream approach for processing applications whereby standard applications will be fast-tracked. Under the new process, the SFC aims to authorize standard applications between one and two months, and the target processing time for non-standard applications could be shortened to about two to three months from the date of application submission. The SFC is working with the industry to facilitate the smooth launch of this initiative, tentatively under a pilot arrangement in the fourth quarter of October 2015 announcement 9 November 2015 effective date

52 Singapore Refinements to Non-Retail Investor Classes Accredited Investors Introduction of opt-in regime for investors who meet certain prescribed wealth thresholds to be treated as an accredited investor ( AI ) Applies to all AI-eligible investors, opt-in approach for all new Al-eligible clients and opt-out approach for existing AI clients Possible to opt-in as AI with one FI but remain as non-ai with another Possible to also change investor classification Modification to AI-eligibility criteria Previously: An individual qualifies as an AI if his net personal assets exceeds S$2 million ( net personal assets test ), or his income in the preceding 12 months is not less than S$300,000 ( income test ) Proposal: To modify it such that net equity of an individual s primary residence (Singapore or overseas) can only contribute up to S$1 million ( S$1 million cap ) of the S$2 million threshold

53 Singapore (continued) Proposal to allow for any individual, who holds a joint account at an FI with an individual who is an AI, to be AI-eligible, but only in respect of transactions entered into with or through the FI using the joint account ( joint account limb ). Extension of look-through approach to all corporations All shareholders are required to be AIs Extending AI-eligibility to trustees of a trust where all beneficiaries are AIs. Institutional Investors Extending institutional investor ( II ) definition to include: foreign financial services firms foreign central governments, supranational organisations sovereign wealth funds, government-owned entities MAS targets to table the proposed SFA amendments in Parliament in 2016

54 Speakers Rolfe Hayden Partner (Hong Kong) T E rolfe.hayden@simmons-simmons.com Wern-Sern Bin Director, JWS Asia Law Corporation T E wernsern.bin@jwsasialaw.com.sg Jek-Aun Long Director, JWS Asia Law Corporation T E jekaun.long@jwsasialaw.com.sg JWS Asia Law Corporation, Singapore JWS Asia is a boutique Singapore law practice that provides a one-stop service to the asset management and investment funds sector in Singapore, offering a full range of legal services to clients across all stages of development - from fund structuring formation and marketing, to advisory services such as licensing, corporate structuring, transactional and dispute resolution services. JWS Asia offers clients deep local knowledge combined with access through our best friends referral relationship to the wide network and global expertise of Simmons & Simmons, a leading international law firm.

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