Briefing on the new open-ended fund company (OFC) structure in Hong Kong 20 May 2016

Transcription

1 Briefing on the new open-ended fund company (OFC) structure in Hong Kong 20 May

2 Hong Kong s Strengths as a Premier Asset Management Centre Continuous wealth creation in Asia + Increase in portfolio allocation within the Asian markets + Deepening financial market liberalization in the Mainland 2

3 Continued Growth of Hong Kong s Fund Industry Growth in authorized unit trusts and mutual funds 2,500 2,000 1,500 1, No. of authorized unit trusts and mutual funds No. of HK-domiciled authorized funds Total Net Asset Value: US$1,264 billion (as at end-2015) - March 2012 March 2013 March 2014 March 2015 March 2016 Note: Due to re-categorization in the study method, the number of HK-domiciled authorized funds at March 2012 and 2013 exclude MPF pooled investment funds. Source: Securities and Futures Commission 3

4 Policy Objectives Strengthen Hong Kong s position as a premier international asset management centre Attract more funds to base in Hong Kong to broaden the variety and scope of our fund business Expand the distribution network for Hong Kong s fund industry Promote product origination of funds Increase opportunities for fund administration and servicing work 4

5 Key Benefits of OFCs Corporate form with legal personality Shareholder liability will be limited to their shares in the OFC Streamlined procedures for termination Familiar structure in other fund jurisdictions, particularly those not familiar with trust law 5

6 Key Benefits of OFCs More flexibility than conventional companies - OFCs will have the flexibility to vary its share capital in order to meet shareholder redemption requests OFCs may distribute out of share capital, subject to solvency and disclosure requirements certain corporate filings requirements may not be applicable or may be simplified in view of the nature of OFCs as investment funds 6

7 Securities and Futures (Amendment) Bill 2016 Due to its nature as an investment fund, the OFC structure will be introduced under the Securities and Futures Ordinance (SFO) (Cap. 571). Key contents of Bill - provides for a framework of the OFC structure; details to be set out in the OFC Rules and the OFC Code a new part added to the SFO; provides for matters such as - incorporation and registration of OFCs; - basic requirements of key operators; and - investor protection measures, e.g. segregated liability of sub-funds related amendments, e.g. amendments to Inland Revenue Ordinance (Cap. 112) and Stamp Duty Ordinance (Cap. 117) 7

8 OFC Structure Mandatory delegation of investment management functions Investment Manager SFC licensed/ registered for Type 9 Regulated Activity 8

9 Key Operators Directors Basic requirements at least 2 natural-person directors on the OFC board of good repute experienced for the purpose of carrying out the business of the OFC not an undischarged bankrupt not required to be licensed with the Securities and Futures Commission (SFC) 9

10 Key Operators Directors Overarching duties fiduciary duties under the common law duty to exercise reasonable care, skill and diligence (same as that imposed under section 465 of the Companies Ordinance (Cap. 622)), including oversight of the investment manager Other duties operational requirements to be set out in the OFC Rules and the OFC Code 10

11 Custodians Key Operators Duty to take reasonable care, skill and diligence to ensure safe keeping of scheme property Sub-custodial arrangements allowed, in line with the existing market practice custodian to have oversight over the selection, appointment and ongoing monitoring of sub-custodians custodian to be ultimately responsible for all regulatory responsibilities Overseas custodians allowed, provided that SFC Handbook requirements are met and the custodian has a place of business or a process agent in Hong Kong 11

12 Investment Managers Basic requirements Key Operators licensed by or registered with SFC to carry out Type 9 (asset management) regulated activity Sub-delegation investment manager will remain responsible 12

13 Publicly vs Privately Offered OFCs Regulatory regime Investment scope Publicly offered OFCs Privately offered OFCs All OFCs are subject to the amended SFO, OFC Rules and OFC Code Also subject to SFC s authorization, and requirements under the SFC Handbook May invest in asset classes in accordance with SFC s product code requirements and authorization conditions Investment scope on par with the existing regime for publicly offered SFC-authorized funds Not subject to further requirements Investment scope to align with Type 9 regulated (asset management) activity 10% de minimis exemption for other asset classes (cash and currencies not subject to this limit) Accommodate substantial part of the asset classes that privately offered OFCs normally invest in 13

14 Regulatory Framework SFC will be the primary regulator under the Securities and Futures Ordinance. SFC will be empowered to make subsidiary legislation (i.e. the OFC Rules) to provide for detailed registration, incorporation requirements, etc., and publish codes and guidelines (i.e. the OFC Code) to provide guidance. 14

15 Regulatory Framework All OFCs subject to the regulatory framework under SFO Investor protection measures put in place for both publicly and privately offered OFCs, e.g. pre-sale registration: all OFCs required to be registered with SFC; investment managers must be licensed Point-of sale obligations on intermediaries e.g. suitability requirement post-sale supervision/investigation by SFC enforcement: SFC empowered to take enforcement action against any OFC key operators, intermediaries or other persons involved in a breach of legislative/regulatory requirements 15

16 Incorporation and Registration One-stop service: SFC to be the sole recipient of all application documents; enhance efficiency and save costs Detailed procedures - SFC will review applications and issue notice of registration to CR (if registration requirements are met). CR will incorporate an OFC. Registration of the OFC will take effect on the same day of issue of the certificate of incorporation by CR. CR will also issue first business registration certificate on behalf of the Commissioner of Inland Revenue simultaneously with the certificate of incorporation. 16

17 Corporate filing After incorporation, corporate filings are expected to be made solely with CR. Certain filings will not be applicable to OFCs. Examples share allotment, redemption, transfer, and increase in share capital information on company secretary and list of members information on mortgages and charges Requirement for OFCs to file an annual return removed 17

18 Termination of Solvent OFCs Streamlined procedures to facilitate termination of solvent OFCs for commercial reasons Examples of commercial reasons changes in the market conditions or investment trends fund size falling below a particular threshold the fund is a fixed term fund upon effluxion of time imminent change in law 18

19 Termination of Solvent OFCs OFCs may apply to SFC for cancellation of registration voluntarily without compromising investor protection, provided that the OFC is to be terminated in accordance with the Instrument of Incorporation; the OFC is solvent as certified by the OFC board and an independent and qualified auditor; and reasonable prior notice has been given to shareholders. SFC may refuse application if it considers the cancellation not in the interest of the investing public 19

20 Winding up In accordance with the requirements and procedures in the Companies (Winding up and Miscellaneous Provisions) Ordinance (Cap. 32) Requirements to be incorporated into the OFC Rules with appropriate modifications 20

21 Good Governance & Investor Protection Mandatory delegation of investment management functions to investment managers Subject to oversight by the OFC board Basic eligibility criteria applicable to directors, investment manager and custodian Assets of OFCs to be entrusted to a separate, independent custodian for safe keeping Publicly offered OFCs required to seek SFC authorization, comply with the applicable requirements under the SFC Handbook, including disclosure requirements Major regulatory responsibilities vested with SFC; more extensive investigatory and enforcement powers under the SFO 21

22 Way Forward Upon the passage of the relevant Bill, to formulate the OFC Rules and the OFC Code SFC will conduct market consultation on the draft OFC Rules and OFC Code 22

23 Thank You 23