As global regulatory focus intensifies on climate risks, Hong Kong Securities and Futures Commission (SFC) is proposing specific regulatory requirements on Hong Kong licensed fund managers to take into account climate-related risks in investment and risk management processes, and make appropriate disclosures to investors on climate-related risks, combat greenwashing.

Under the “Consultation Paper on the Management and Disclosure of Climate-related Risks by Fund Managers”, the Fund Manager Code of Conduct is proposed to be amended and a circular to be issued, to introduce baseline requirements that shall apply to managers of collective investment schemes, with enhanced standards expected of large fund managers of assets under management (AUM) of HK$4 billion or above, for fund-level disclosure on weighted average carbon intensity (WACI) of Scope 1 and Scope 2 GHG emissions associated with the funds’ underlying investments, on top of entity-level disclosures expected of all fund managers.

Proposed requirements involve four key elements, covering (a) governance, (b) investment management, (c) risk management and (d) disclosure.  For each key element, the Consultation Paper provides examples on how these key elements may be applied in practice.

Further background and details are outlined in our legal update:

The full Consultation Paper is available on the website of the SFC:

Consultation Paper on the Management and Disclosure of Climate-related Risks by Fund Managers

Market participants and interested parties are invited to submit comments to the SFC by 15 January 2021.

On 20 December 2019, Hong Kong’s Securities and Futures Commission (SFC) issued a consultation paper on proposed enhancements to the open-ended fund company (OFC) regime (Consultation Paper). On 2 September 2020, the SFC released its consultation conclusions with proposed amendments to the Code on Open-ended Fund Companies (OFC Code) to implement the enhancements to the OFC regime (Consultation Conclusions). The revised OFC Code were gazetted on 11 September 2020 and become immediately effective upon gazettal (Revised OFC Code), while a six-month transition period is given to existing private OFC custodians to comply with certain new safekeeping requirements by 10 March 2021. The proposed enhancements to the OFC regime are discussed below.

To implement the enhanced OFC regime, the SFC has also updated the Information Checklists, Template of Instrument of Incorporation for Umbrella Private OFC and the Frequently Asked Questions relating to OFCs, all of which are available on SFC’s website.

Expansion of custodian eligibility requirements for private OFCs

In the Consultation Conclusions, the SFC confirms to expand the custodian eligibility requirements for private OFCs such that the custodian of a private OFC is now not required to meet the same eligibility requirements as set out in the Code on Unit Trusts and Mutual Funds (UT Code) for SFC-authorised funds, but rather intermediaries licensed or registered for Type 1 regulated activity of dealing in securities (RA1) are also eligible to act as custodians for private OFCs. However, while the custodian eligibility requirements for private OFCs now include RA1 intermediaries, the SFC will not further expand them to intermediaries licensed for the regulated activity of dealing in futures contracts (RA2) or for the regulated activity of dealing in OTC derivative products or advising on OTC derivative products (RA11), as it considers that RA2 and RA11 intermediaries do not normally perform an incidental securities custodial function as RA1 intermediaries when carrying on their respective regulated activities and also that these regulated activities are very different in nature from RA1.

The SFC noted in the Consultation Conclusions that a custodian must be appointed for safekeeping of assets of a private OFC regardless of the types of the assets and even where a private OFC invests in private equity and venture capital. While allowing RA1 intermediaries to act as custodian for private OFCs, the SFC imposes certain eligibility criteria on them which include: (i)an RA1 custodian’s license or registration is not subject to the condition that it shall not hold client assets; (ii) for a custodian which is a licensed corporation, at all times maintains paid-up share capital of not less than HK$10 million and liquid capital of not less than HK$3 million; (iii) the private OFC is, and remains at all times, a client of the RA1 custodian in respect of its RA1 business (though a grace period of six months will be allowed for the RA1 custodian to continue to act as custodian of the private OFC and to transfer the OFC scheme assets to a new custodian); (iv) an RA1 custodian must have at least one responsible officer or executive officer responsible for the overall management and supervision of its custodial function; and (v) the RA1 custodian must be independent of the investment manager (and where asset management and securities affiliates share responsible officers and directors, internal controls must be in place to ensure functional independence). Private OFC custodians are also required to comply with the requirements as set out in Appendix A to be newly added to the OFC Code regarding the safekeeping of private OFC assets. In this regard, the SFC noted that those requirements in Appendix A are minimum requirements which all custodians should comply with and confirms that while the OFC assets must be segregated from assets of the custodian, they may be held in omnibus accounts, provided adequate safeguards in line with international standards and best practices are in place to ensure proper recording and frequent reconciliations of the OFC assets.

For both public and private OFCs, the Revised OFC Code requires that the custodian must (i) have sufficient experience, expertise and competence in safekeeping the asset types in which the OFC invests; and (ii) maintain adequate internal controls and systems commensurate with the custodial risks specific to the type and nature of the assets invested.

Regarding appointment of custodian and/or sub-custodian, the SFC has clarified that more than one custodian can be appointed by an OFC, and custodians can delegate their custody functions to one or more sub-custodians as necessary.

Removal of investment restrictions on private OFCs

The SFC has now removed all investment restrictions on private OFCs under the OFC Code, including the “10% limit” originally imposed on private OFCs such that private OFCs are allowed to invest in all asset classes without limit on management of assets which may not amount to regulated activity. As noted by the SFC in the Consultation Conclusions, this is intended to place private OFCs on a level playing field with other overseas corporate fund structures as well as the recently enacted Hong Kong limited partnership fund (LPF) structure and enhance the competitiveness of the OFC structure. This will allow OFC to be adopted for investments other than securities or futures, such as investments in private companies, real estate, credit or other assets not previously eligible.

While confirming to remove the investment restrictions on private OFCs, the SFC, on the other hand, pointed out that new provisions will be included in the OFC Code to require that investment managers and custodians have sufficient expertise and experience in managing and safekeeping asset classes in which an OFC invests, with enhanced risk disclosure in the offering documents and proper record keeping required.

However, as SFC also noted, profits tax liability may arise if a private OFC makes investments in certain situations under which the profits tax exemption under the new unified profits tax regime for funds does not apply.

Re-domiciliation of overseas corporate funds

The SFC has proposed re-domiciliation mechanism that will allow overseas corporate funds to be re-domiciled to Hong Kong as an OFC, provided key requirements for the registration of an OFC applicable to newly formed OFCs are satisfied. The SFC noted that these are basic requirements such as the appointment of investment managers, custodians and directors who fulfil the eligibility requirements. According to the SFC, any changes to the overseas corporate fund structure which would not affect its ability to meet the key requirements can be effected after re-domiciliation.

The SFC has also considered and indicated there is no restriction on the restructuring of Hong Kong unit trusts into OFCs provided that relevant requirements for establishing an OFC are met and that such restructuring could be done in accordance with the constitutive documents of the unit trust. For SFC-authorised funds that are in unit trust form, their past performance and track records could be preserved if they were to restructure to OFCs.

Upon re-domiciliation, an OFC will be able to enjoy profits tax exemption subject to meeting certain conditions. The SFC’s proposal to introduce a re-domiciliation mechanism will take immediate effect upon completion of the legislative process.

Exemption from significant controllers register requirements

Given the open-ended nature of OFCs (though a “closed-ended” fund may use an OFC structure through imposing redemption restrictions), the SFC noted the difficulties of requiring OFCs to keep an significant controllers register (SCR) and considered that OFCs are very different from closed-ended conventional companies on which the SCR requirements are imposed. The SFC has proposed to align the AML/CFT requirements applicable to OFCs with those recently implemented for LPFs, requiring OFCs to appoint a responsible person to carry out AML/CFT functions. The SFC is also conducting a further consultation on the customer due diligence (CDD) requirements to be imposed on OFCs.

With the enhanced Hong Kong OFC regime, we believe that this alternative fund structure will become more appealing to fund managers seeking to establish or offer an investment fund in Hong Kong.

For further information regarding the set up of a Hong Kong open-ended fund company structure, the enhanced features or potential re-domiciliation from an existing fund structure, please contact Vivien Teu, Managing Partner (Email: vivien.teu@vteu.co), Sarah He, Associate (Email: sarah.he@vteu.co) or any lawyer who is your usual contact at our firm.

For our previous publication on Hong Kong open-ended fund company structure: http://www.vteu.co/2018/07/30/hong-kong-open-ended-fund-company-comes-into-effect/

香港立法会于2020年7月9日通过了新的法例，引入了香港有限合伙基金（LPF）制架构，为另类投资基金提供了一种新的香港基金类型，特别是针对私募股权基金，因其典型的架构为有限合伙制。

由2020年8月31日起，LPF架构可按《有限合伙基金条例》(LPFO)建立，申请人可根据LPFO的适用要求向香港公司注册处申请设立LPF，确定拟议的地址、营业地点和投资范围、拟议的普通合伙人和拟议的投资经理以及拟议的“负责人”，负责人必须是认可机构、持牌法团、会计或法律专业人士，来履行LPF的反洗黑钱/反恐融资职能。注册LPF的申请必须由已注册的香港律师事务所或可在香港执业的香港律师提交。如果公司注册处接受申请书已包含必要的文件和信息及申请人已支付有关申请费，便可成功注册LPF。

由于LPF本身不是独立的法人，因此LPF的普通合伙人将代表LPF行事和行使职权。普通合伙人最终负责LPF的管理和控制，并对LPF的所有债项和义务承担无限法律责任，但假如普通合伙人任命了授权代表，则普通合伙人和授权代表共同承担连带责任，并共同对LPF承担最终义务。有限合伙人则只须承担有限责任，对LPF的债项及义务所承担的法律责任，并不超过该合伙人所协议注资的款额，前提是有限责任合伙人并不涉及参与该基金的管理。LPFO特别列出若干活动或行为，有限合伙人进行该等活动或行为不会被视为参与该基金的管理，例如参与涉及实际或潜在的利益冲突的决策，尽管所列出的活动或行为并非详尽无遗地列出所有有限合伙人参与而不被视为参与基金管理的活动或行为。

牌照要求

值得注意的是，LPF与香港开放式基金型公司架构不同，LPF并不受香港主要的证券和期货市场监管机构，即证券及期货事务监察委员会（SFC）的（直接）监管，亦无需其事先批准。LPF必须具有合乎要求的普通合伙人和投资经理，以及上述“负责人”。投资经理必须是年满18岁的香港居民、在香港注册成立的香港公司或在香港注册的非香港成立公司。普通合伙人可以属其中任何一种类别，甚或是香港或非香港有限合伙。如果普通合伙人是香港或非香港有限合伙，该LPF必须拥有一位授权代表，该授权代表可以是18岁以上的香港居民，香港公司或香港注册的非香港成立公司。另外，LPF必须任命一名独立审计师对LPF的财务报表进行年度审计。

根据《香港证券及期货条例》（SFO），从事与证券及期货市场有关的受规管活动的业务须符合SFC的牌照要求。于2020年1月，SFC发出通函就本地受规管活动牌照要求该如何适用于私募股权基金经理提供指引及释疑，并指出其将考虑投资组合的组成，若私募股权基金经理所管理的私募股权基金所成立的特定目的公司或所持有的投资属于“证券”的定义，则可能触发牌照要求。

任何人士或实体从事“私募股权”或“风险投资”投资组合的交易、提供意见或管理，视乎投资组合是否涉及证券，可能有潜在的牌照要求（注：“证券”的定义不包括《公司条例》第 11 条所指的私人公司的股票或债权证）。如果LPF的普通合伙人，投资经理或顾问在香港开展业务及从事有关不属于《公司条例》所指的“私人公司”定义的离岸私人公司的股份或债券的交易、提供意见或管理，则很有可能须持有相关牌照，除非有特定豁免。

同时，在香港从事LPF募集业务的人士可能需获得SFC发牌以进行第1类受规管活动（证券交易），除非有特定豁免。获SFC发牌从事第9类受规管活动（提供资产管理）的香港管理人可依赖一项附带豁免以销售其基金，即其销售基金的活动完全附带于其资产管理业务而获得豁免。

税务优惠框架

本地规定并没有限制香港管理人只能设立香港投资基金，SFO 也没有在持牌人士从事受规管活动或证券销售方面对本地基金和离岸基金进行区分。对于香港管理人来说，以有限合伙基金形式在开曼群岛等离岸司法管辖区设立私募股权基金是很常见的，从税收角度来看亦是较为有利及具灵活性。

自2019年4月1日起，香港实行新的利得税豁免政策，所有投资基金无论其中央管理和控制的地点、架构、基金规模或投资目标如何，就特定资产的交易只要满足一定条件均可享有税务豁免。基金对海外和本地私人公司的投资均可享受免税优惠。上述利得税豁免要求合格的免税交易是通过“指定人士”进行的或由“指定人士”安排的，指定人士是指根据SFO已获发牌或注册以进行指定受规管活动的法团，包括香港持牌基金经理。因此，自2019年4月起，新的利得税豁免政策为私募股权基金在香港设立或管理提供了更有利和更具吸引力的税务框架。

另一个关键问题是关于可能须缴香港利得税或薪俸税的LPF的业绩表现费或附带权益以及基金管理层报酬的税收待遇。香港税务局（IRD）过去曾多次重申，在香港运营的基金应确保就香港基金经理和/或顾问所承担的风险和履行的职能向其支付真实公平的费用。此外，税务局指出，如果在考虑了归属于基金在香港的运营的职能、资产和风险后认为香港投资经理或顾问所提供的服务没有得到足够的报酬，税务局会仔细审视任何业绩表现费或附带利益的安排，并且如果所收到的分配并非真实的投资收益的话，可能会引用一般反避税规定。

但是，随着LPF制度将从2020年8月31日起生效，香港计划为在本港运营的私募股权基金所分发的附带权益提供税务宽免优惠政策，并于稍后公布有关细节。业界预计将会有针对私募股权基金经理的附带权益提供的税务宽免，以鼓励私募股权基金管理人选择在香港设立LPF，并在香港开展业务。

我们乐见香港推出LPF，为私募股权基金的发起人和管理人提供额外的架构选择，这将巩固香港作为资产管理中心在私募股权基金和投资领域的地位，并将进一步发展香港的基金管理行业。

与拟设立香港有限合伙基金的相关询问，请联系：

张慧雯律师（邮箱：vivien.teu@vteu.co）/ 何琄律师 （邮箱：sarah.he@vteu.co）