Hong Kong SFC clarifies competence requirements for existing licensed persons intending to provide asset management services

On 23 June 2017, the Securities and Futures Commission of Hong Kong (the “SFC”) issued the “Circular to clarify competence requirements for existing licensed persons intending to provide asset management services” (the “Circular”), with an aim to provide further guidance on how the SFC assesses the competence of a corporation or a responsible officer (“RO”) to carry on asset management activities.

The Circular focuses on the eligibility criteria for licensed persons to be approved to carry out Type 9 regulated activity of asset management with respect to industry experience that may be relevant and acceptable, and also on the conditions for seeking exemptions from passing the required local regulatory papers.

As the title of the Circular suggests, it is directed to existing licensed persons that may consider expanding their scope of business into asset management.  In a press release on the Circular, the SFC’s expresses that it welcomes existing licensees to broaden their business scope in light of the growth in Hong Kong’s asset management industry.

The Circular also emphasizes that the SFC will consider each application for exemption based on the specific circumstances of each case and that interested firms are encourage to approach the SFC to discuss their proposed business plans.

The Circular can be seen as the SFC’s effort to inform the industry that the SFC will continue to take a pragmatic approach in considering licensing applications, and spells the SFC’s intention to encourage existing licensed entities to apply to engage in Type 9 regulated activity of asset management as a stand-alone business, to spur further growth of Hong Kong’s asset management industry.

Considering the mention of the broader industry experience that the SFC would take into account including investment research, private equity and proprietary trading, as well as industry experience in other recognized local or overseas markets, the Circular also suggests the SFC’s welcome attitude for qualified and experienced investment professionals around the globe to seek to be licensed in Hong Kong to engage in asset management.

For details, please refer to our firm’s publication: SFC Clarifies Competence Requirements for Asset Management Services











SFC Consultation Paper on Online Distribution and Advisory Platforms

On 5 May 2017 the Securities and Futures Commission (“SFC”) issued the ‘Consultation Paper on the Proposed Guidelines on Online Distribution and Advisory Platforms’ (“Proposed Guidelines”).

In view of the increasing use of electronic distribution channels, the use of algorithms to construct investment portfolios and to provide investment advice(e.g. automated portfolio construction or model portfolios based on a client’s personal circumstances) (commonly referred to as “robo-advice”), SFC issued the Proposed Guidelines to (1) provide guidance and control on the design and operation of online platforms; (2) clarify how suitability requirements would be triggered in terms of online trading; and (3) provide additional safeguard proposed for the sale of complex products on online platforms on an unsolicited basis.

The Proposed Guidelines will be applicable to all SFC licensed or registered persons when conducting their regulated activities in providing order execution, distribution and advisory (including discretionary and automated) services in respect of investment products via online platforms (“Platform Operators”).

We would urge asset management companies to take a closer look to the Proposed Guidelines and provide necessary feedback before the end of the consultation period (4 August 2017) since there is a growing trend for fund houses to develop their own trading platform, and provision of robo-advice. These activities will be caught under the Proposed Guidelines. It would also be helpful to be aware of these requirements when fund houses select distributors and assess whether they are compliant with such requirements.  Lastly, fund houses may wish to take a closer look at the proposed definition of ‘Complex Products’ as set out in the Proposed Guidelines as this will likely impact fund distribution and product design.

Here’s our Legal Update on the Proposed Guidelines under consultation: SFC Consultation Paper on Online Distribution and Advisory Platforms (May 2017)

SFC Further Guidance on Suitability Obligation

Following the regulatory changes in 2016 that increased suitability requirements on licensed persons when soliciting or recommending investment products to clients, the Hong Kong Securities and Futures Commission (SFC) has on 23 December 2016 issued two sets of Frequently-Asked-Questions (FAQs) to clarify and provide further guidance to the industry on meeting the suitability obligation.

The first set of FAQs on Triggering of Suitability Obligations clarifies the circumstances under which the suitability obligation would apply.  The second set of FAQs on Compliance with Suitability Obligations by Licensed or Registered Persons provides further guidance on the SFC’s expectations on satisfying the suitability obligation.

Please refer to our legal update for further information: SFC Further Guidance on Suitability Obligation

Hong Kong Securities & Futures Commission introduces Managers-in-Charge Regime

The Hong Kong Securities and Futures Commission (SFC) has issued its “Circular to Licensed Corporations Regarding Measures for Augmenting the Accountability of Senior Management” which introduces additional specific requirements and expectations of the SFC regarding senior management personnel of licensed corporations (referred to below as “the Managers-in-Charge Circular”).

The Managers-in-Charge Circular was published on 16 December 2016 and shall be effective from 18 April 2017 (“Commencement Date”).  It is intended to enhance accountability and transparency of senior management of licensed corporations in the conduct of business operations. Existing licensed corporations will need to submit to the SFC additional information on and particulars of their senior management personnel who are responsible over 8 core functions (the “Managers-in-Charge”) within 3 months of the Commencement Date, latest by 17 July 2017.  With effect from the Commencement Date, applicants for license with the SFC to engage in regulated activities in securities and futures businesses will need to submit such additional information on their proposed Managers-in-Charge together with the intended human resources and organizational structure when applying to the SFC for license.   Any change in the appointment or particulars of the Managers-in-Charge of a licensed entity should be notified to the SFC within 7 business days.

Core Functions

The new Managers-in-Charge framework would impact senior management persons over the following 8 categories of functions within a licensed corporation:

  1. Overall Management Oversight (eg. Chief Executive Officer, President);
  2. Key Business Line (of the regulated activities – eg. Chief Investment Officer, Head of Equity, Head of Corporate Finance, Chief Rating Analyst, Head of Fund Marketing);
  3. Operational Control and Review (eg. Chief Operating Officer, Head of Operations, Head of Internal Audit);
  4. Risk Management (eg. Chief Risk Officer, Head of Risk Management);
  5. Finance and Accounting (eg. Chief Finance Officer, Financial Controller, Finance Director);
  6. Information Technology (eg. Chief Information Officer, Head of Information Technology);
  7. Compliance (eg. Chief Compliance Officer, Head of Legal and Compliance);
  8. Anti-Money Laundering and Counter-Terrorist Financing (eg. Head of Financial Crime Prevention, Head of Compliance).

Information regarding the job position and reporting lines of the Managers-in-Charge will need to be submitted, together with details on the identity and residence of the Managers-in-Charge.

Read our full publication here:  Managers-in-Charge Regime

Investing via the Shenzhen–Hong Kong Stock Connect – Disclosure and Approval Requirements for SFC authorized funds

Further to the Shanghai-Hong Kong Stock Connect announced in 2014, in August 2016, a good two years later, it was jointly announced by the China Securities Regulatory Commission (CSRC) and the Hong Kong Securities and Futures Commission (SFC) that the Shenzhen–Hong Kong Stock Connect will soon be implemented.  It is anticipated that the Shenzhen-Hong Kong Stock Connect will be launched in November 2016.

Expanded universe of stocks for cross-market access

Stock Connect refers to the program that allows mutual stock market access between Mainland China and Hong Kong, whereby Mainland investors may access eligible Hong Kong stocks within scope through their domestic Mainland securities firms, while Hong Kong investors may access eligible Mainland stocks within scope through Hong Kong brokers. Hong Kong investors already able to access selected stocks listed on the Shanghai Stock Exchange under the Shanghai-Hong Kong Stock Connect will now also have access to selected stock lists on the Shenzhen Stock Exchange (SZSE) through the Shenzhen-Hong Kong Stock Connect.

The Shenzhen-Hong Kong Stock Connect will expand the universe of Mainland stocks that may be accessed by Hong Kong and international investors through the Hong Kong Stock Exchange, in particular eligible constituent stocks of the SZSE Component Index and SZSE Small/Mid Cap Innovation Index.  To be eligible, relevant constituent stock should have a market capitalization of RMB6 billion or above.  All SZSE-listed shares of companies which also has H-shares listed in Hong Kong would also be within scope.   On the other hand, Mainland investors will be able to access constituent stocks of the Hang Seng Composite LargeCap Index and Hang Seng Composite MidCap Index, any constituent stock of Hang Seng Composite SmallCap Index with market capitalization of HK$5 billion or above, and shares of all companies with both listed H shares and A shares.

ChiNext access restricted

However, while the range of accessible stocks have broadened for investors’ cross-market access, the regulators have stipulated that, for the Northbound link, at the initial stage, only institutional professional investors as defined under Hong Kong law and regulations will be able to invest in shares listed on the ChiNext Board of SZSE.

The restriction that only institutional professional investors may access ChiNext stocks may be considered to be in line with the SFC enhanced investor protection measures including around increased regulatory requirements around suitability of investments and financial products for investors, which may now be exempted only for institutional professional investors or corporate professional investors that satisfy relevant conditions under a designated assessment of investment decision-making process and investment personnel.[1]  The definition of “institutional professional investors” as defined in the Securities and Futures Ordinance (Cap 571) (SFO) covers mostly regulated financial institutions such as licensed investment intermediaries, banks, insurance companies, central banks.  Collective investment schemes authorized by the SFC under Section 104 of the SFO (SFC Authorised Funds), registered schemes or constituent funds under the Mandatory Provident Fund Schemes Ordinance (Cap 485) (MPF Schemes) and registered schemes under the Occupational Retirement Schemes Ordinance (Cap 426) (ORSO Schemes).

Accordingly, investors who are not “institutional professional investors” under Hong Kong law and regulations and initially unable to access ChiNext stocks under the Shenzhen-Hong Kong Connect may only have exposure through SFC-Authorized Funds.  Investment by MPF Schemes in Mainland securities are limited to 10% of the scheme’s net asset value.

SFC Updated FAQ re Shenzhen-Hong Kong Connect

On 25 October 2016, the SFC updated question No. 19 under its “Frequently Asked Questions on Post Authorization Compliance Issues of SFC-authorized Unit Trusts and Mutual Funds” (SFC’s FAQ) regarding disclosure and approval requirements for participation in Stock Connect, to include Shenzhen–Hong Kong Stock Connect within scope.  Details are set out in our latest publication: shenzhen-hong-kong-stock-connect-requirement-for-sfc-authorized-funds.

[1] Please refer to our firm’s publication dated 20 July 2016 “New Changes to Hong Kong Professional Investors regime” regarding the enhanced investor protection and suitability requirements.


自内地与香港基金互认安排(“基金互认”)于2015年7月1日起正式实施至今,已有多达40余只内地基金成功南下获得香港证监会认可于香港市场公开销售。按照基金互认的相关规定,内地基金在获得香港证监会认可后(“内地互认基金”),除须符合相关内地法律法规及基金合同的要求外,还须遵守香港证监会不时颁布的有关内地互认基金获认可后的持续合规要求以及基金于香港销售方面的要求。下文就内地互认基金获香港证监会认可后的持续合规问题,从持续信息披露、基金销售文件更改以及基金广告/推广材料等多方面进行分析和阐释:  内地互认基金香港认可后持续合规解析








[1] 经合组织已建立一个门户网站,提供有关已承诺实施自动信息交换之司法辖区税务居住地规则的信息: http://www.oecd.org/tax/automatic-exchange/crs-implementation-and-assistance/tax-residency/#d.en.347760


Hong Kong Implementation of Common Reporting Standard and Automatic Exchange of Information

The Common Reporting Standard (CRS) introduced by the Organization of Economic Cooperation and Development (OECD) for inter-governmental automatic exchange of information (AEOI) is a significant initiative that could be a paradigm shift in the financial industry.

CRS will soon be implemented in Hong Kong, following the Inland Revenue (Amendment) (No.3) Ordinance 2016, published in the Gazette and became effective on 30 June 2016. Financial institutions and intermediaries in Hong Kong will be under legal obligation to report to the Inland Revenue Department (IRD) on financial accounts for reportable persons, starting 2017, with first reporting to be made to IRD by 31 May the following year, ie. 31 May 2018. Hong Kong IRD will conduct the first automatic information exchange with relevant jurisdictions on a reciprocal basis by the end of 2018.

According to the IRD: Under the AEOI standard, a financial institution (FI) is required to identify financial accounts held by tax residents of reportable jurisdictions in accordance with due diligence procedures.  FIs are required to collect the reportable information of these accounts and furnish such information to the Department.  The Department will exchange the information with the tax authorities of the AEOI partner jurisdictions on an annual basis.

The AEOI requirement will cover individuals who are tax residents of “reportable jurisdictions”, being jurisdictions with which Hong Kong has entered into an AEOI arrangement.  Financial institutions are not required to report information on accounts where the account holder is not tax resident in a jurisdiction with AEOI agreement with Hong Kong.

As stated, in general, whether or not an individual is a tax resident of a jurisdiction is determined by having regard to the person’s physical presence or stay in a place (e.g. whether over 183 days within a tax year) or, in the case of a company, the place of incorporation or where the central management and control of the entity lies.[1] FIs may request account holders to provide self-certifications on tax residency in order to determine whether the accounts fall within scope of reporting under AEOI.

On 9 September 2016, the IRD issued the “Guidance for Financial Institutions” (Guidance), with further detailed guidelines on the relevant reporting requirements and due diligence procedures, and includes clarifications with respect to collective investment schemes, and the treatment of trusts. A summary of the Guidance is set out in this update: crs-legal-update.

[1] OECD has established a portal which provides information on tax residency rules in jurisdictions which have committed to implementing AEOI:


Access to China Interbank Bond Market for Hong Kong Retail Funds

Up until mid-February 2016, foreign institutional investors accessing China onshore bonds through the China Interbank Bond Market (CIBM) would do so via the RQFII/ QFII regime, which is subject to specific restrictions and compliance requirements specifically on investment quota and repatriation.  Access to CIBM was otherwise limited to foreign central banks or monetary authorities, RMB settlement banks and settlement participating banks.

On 24 February 2016, Announcement No. 3 issued by the People’s Bank of China (PBoC) liberalized the CIBM, allowing foreign institutional investors, including commercial banks, insurance companies, fund management companies/asset management institutions, investment products and funds, to directly access the CIBM and trade in onshore RMB bonds upon successful application to their settlement agents.

Subsequently on 27 May 2016 both PBoC and SAFE issued implementing rules setting out the details to put Announcement No.3 into effect. Settlement Agents are delegated with the responsibility to determine the eligibility of foreign institutional investors, which should be ‘medium and long term’ investors.

Both corporate entities and fund/ managed accounts can apply for access. In applying, potential investors will need to fill out information regarding investment period and investment quota, and would also need to indicate whether they are existing RQFII or QFII holders. Existing RQFII or QFII holders will still be subject to the relevant restrictions on capital repatriation and investment quota, whereas a first time CIMB investor will be subject to the specific Announcement No.3 requirements and compliance with a currency ratio on repatriation. It is recommended that investors should enter the CIBM in one capacity only, ie. either through RQFII/QFII or directly under Announcement No.3.

For Hong Kong retail funds authorized by the Securities and Futures Commission (SFC), on 11 July 2016, the SFC issued a FAQ No. 20 under its “Frequently Asked Questions on Post Authorization Compliance Issues of SFC-authorized Unit Trusts and Mutual Funds” (SFC’s FAQ) regarding disclosure and approval requirements for participation in the CIBM. Fund issuers should note the following points reflecting SFC’s disclosure requirements before making such investments.

If a fund shall make a substantial investment in RMB denominated debt/ money market instruments (RMB Bonds) (i.e. 30% or more of the fund’s NAV):

  • When the existing investment objectives and strategy do not cover substantial investment in the RMB Bonds, e.g. a US bond fund, prior SFC approval will need to be sought to amend the investment objectives to include RMB Bonds and at least 1 month’s prior notice to investors are required before such investments can be made.
  • When the existing disclosures allow investments in RMB Bonds to be made (whether via CIBM or RQFII/QFII regime), generally no further prior approval from SFC is required for accessing the CIBM directly if the fund issuer considers such changes as immaterial (as per definition under SFC’s FAQ).  The fund issuer will still need to notify the shareholders of this change as soon as reasonably practicable.
  • The offering documents (including the product key facts statement for Hong Kong investors) should be updated to include further details, e.g. the intended proportion of investments via direct access under Announcement No.3, and additional key risks. While direct access under Announcement No.3 is not subject to quota risks, fund issuers should consider whether other applicable key risks are already set out in the offering documents, e.g. China investment risks including capital control, custody risk. Issuers should also consider inclusion of other specific risks such as uncertainty or lack of clarity on the withholding tax arrangement for investment via CIBM.
  • In particular, fund issuers should ensure that proper Mainland custodian arrangements are in place regarding safe custody and segregation of assets for the investment under CIBM, and if the fund is one that primarily invests in the Mainland market (ie. investing more than 70% for Hong Kong funds or more than two-thirds for UCITS funds), the offering documents should include an extract of a Mainland legal opinion (or a confirmation, as applicable) relating to such.
  • The updated offering documents should be filed with SFC as soon as practicable.

If a fund shall make an ancillary investment in RMB Bonds (i.e. more than 10% but less than 30% of the fund’s NAV):

  • Generally no SFC prior approval is required but fund issuers should ensure that the offering documents should be updated to include further details and risks as outlined above. The updated offering documents should be filed with SFC as soon as practicable and will be subject to post vesting by the SFC.
  • The fund issuer should notify the shareholders of this change as soon as reasonably practicable.

If a fund shall make minimal investment in RMB Bonds (ie. less than 10% of the fund’s NAV)

  • No SFC prior approval required. Fund issuers should exercise discretion/ judgement and consider if any updates are necessary.

This update is provided for general information only and is not intended as legal advice in any specific case. Please contact Vivien Teu (vivien.teu@vteu.co) or Christina Suen (christina.suen@vteu.co) for any enquiry or assistance on the subject matter.