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Pursuant to the Gazette published on 27 July 2018, the Securities and Futures (Amendment) Ordinance 2016 enacted to amend the Securities and Futures Ordinance (SFO) comes into effect on 30 July 2018, along with subsidiary legislations[1] issued in May 2018 including the Securities and Futures (Open-ended Fund Companies) Rules (OFC Rules), and also the non-statutory Code on Open-ended Fund Companies (OFC Code) promulgated by the Securities and Futures Commission (SFC) along with its consultation conclusions on the OFC Rules.

The legal framework has now been finally and fully put in place to offer the open-ended fund company (OFC) as an alternative fund vehicle for Hong Kong domiciled funds, with the policy objective to bolster Hong Kong as a full-service asset management hub.

In this legal update, we set out our take on the new available fund vehicle and its likely impact on the funds market, together with an overview of the key requirements:

[1] (i) the Securities and Futures (Amendment) Ordinance 2016 (Commencement) Notice (the Commencement Notice); (ii) the Securities and Futures (Open-ended Fund Companies) Rules (the OFC Rules); and (iii) the Securities and Futures (Open-ended Fund Companies) (Fees) Regulation (the Fees Regulation).

Since China became a member of the World Trade Organisation in December 2001 and began developing links to the world economy, the liberalisation of the China financial sectors has been key, as well as the orderly relaxation of foreign exchange and capital controls.  While the opening up of banking industry, securities companies, fund management company and insurance sectors have been carefully paced over the past decade, recent announcements of China’s commitment on further opening up are bringing about the most rapid and widest opportunities for foreign participation.

For banking sector:

• From 30 June 2018, the limit on foreign ownership in commercial banks is removed, and equal treatment shall be given for foreign-invested banks and domestic banks. In addition, foreign banks shall be permitted to open both subsidiary and branches in China. The limit on foreign ownership in asset management companies is removed, and equal treatment shall be given for foreign-invested and domestic entities (this refers to the institutions for the management of non-performing loans and distressed assets in China banking sector).
• From 31 December 2018, the business scope of foreign-invested banks shall be substantially expanded, and there shall be no foreign ownership limit in financial assets investment companies or wealth management companies newly established by commercial banks.  Foreign investments shall be encouraged in other banking & finance institutions, including trust companies, financial leasing companies, auto-finance, currency brokerage and consumer finance.

For securities, futures and fund management industries:

• Targeted to be in place by 30 June 2018, the limit on foreign ownership in securities companies, futures companies as well as fund management companies shall be raised to 51%, and shall be completely removed after 3 years. Sino-foreign joint venture securities companies shall no longer be subject to the requirement of having at least one Chinese securities firm as a domestic shareholder.
• Targeted to be in place by 31 December 2018, the restrictions on the scope of business of sion-foreign joint venture securities firms shall be removed, and there shall be level-playing field for foreign-invested and domestic institutions.  This is a significant development long waited by foreign investment banks and securities brokerage firms for the potential prospects of full participation in China securities and capital markets.

For insurance sectors:

• Targeted to be in place by 30 June 2018, the foreign investment limit on investment in life insurance companies shall be raised to 51%.  The restrictions on the business scope of foreign-invested insurance brokerage firms shall be removed, to create level-playing field for foreign-invested and domestic firms.  Eligible foreign investors shall be permitted to operate insurance appraisal business or insurance agency business in Mainland China.
• Targeted to be in place by 31 December 2018, foreign insurance companies shall no longer be required to establish a representative office in China before setting up foreign-invested insurance companies.

Cross-border markets access is also significantly expanded, with the permitted daily quota of the Mainland-Hong Kong Stock Connect quadrupled from 1 May 2018. London-Shanghai Connect is to be established within 2018.   In addition, the macro-prudential management of the “qualified domestic institutional investors” (QDII) framework for outbound investment in international markets shall be further developed. While details on this are still not available, this carries the potential that QDII and quota restrictions would be relaxed and more quota available soon.

With the wealth of experience of our lawyers on Mainland China financial sectors and cross-markets investments, we look forward to advising on the opportunities on offer, together with our network of China law firm partners.

For print version of this update:

《2018 年公司（修订）条例》（以下称《修订条例》） 将于 2018 年 3 月 1 日起生效。在新规定下所有香港公司须以中文或英文备存重要控制人登记册，以供执法人员在提出要求后查阅。公司注册处为此发出《公司备存重要控制人登记册指引》（以下称《指引》），就重要控制人登记册新规定(以下称《新规定》) 提供其运作的详细指引。

所有在香港成立及注册之公司(除在香港交易所上市的公司外) 均须备存重要控制人登记册, 而该登记册须包含以下资料：(i) 公司重要控制人的所需详情，及(ii)公司指定代表的名字及联系方式。并非在香港成立的公司（包括根据香港法例第622章 《公司条例》在香港注册的非香港公司）无需备存重要控制人登记册。

本最新法律资料旨在介绍一些关键新规定及列出香港公司需采取的一些关键行动(指引刊载了更详尽的运作细节)：

The Companies (Amendments) Ordinance 2018 will enter into force as of 1 March 2018, under which companies in Hong Kong are required to keep and maintain a significant controllers register (“SCR”), either in English or Chinese, for inspection by competent authorities upon demand. The Companies Registry has published a “Guideline on the Keeping of Significant Controllers Registers by Companies” (the “Guideline”) with detailed guidance on the new requirements in relation to the SCR (the “SCR requirements”).

All companies incorporated and registered in Hong Kong (except companies listed on the Stock Exchange of Hong Kong) should maintain a SCR, containing (i) the required particulars of a company’s significant controller(s) and (ii) name and contact details of a designated representative. Companies not incorporated in Hong Kong (including ‘registered non-Hong Kong companies’ as defined under the Companies Ordinance, Cap.622) are not required to maintain a SCR.

Our legal update highlights certain key SCR requirements and lists out certain key actions to be taken by Hong Kong companies (more operational details are set out in the Guideline):

The conclusions of the consultation (the “Consultation Conclusions”) on review of the position of the Growth Enterprise Market (“GEM”) and changes to the GEM and Main Board Listing Rules (collectively, the “Listing Rules”) was published on 15 December 2017. Having considered the views of respondents, The Stock Exchange of Hong Kong decided to adopt substantially all the proposed amendments to the Listing Rules.

The revised rules took effect from 15 February 2018.  In this legal update, we provide a summary of the changes and revised rules made under the Consultation Conclusions:

Hong Kong Exchanges and Clearing Limited (HKEX) and The Stock Exchange of Hong Kong Limited (the Exchange) on Friday, 15 December 2017, announced the conclusions to the New Board Concept Paper (Concept Paper) published on 16 June 2017.

On the same day,  the consultation conclusions on the Consultation Paper on the Review of the Growth Enterprise Market (GEM) and Changes to the GEM and Main Board Listing Rules (GEM Consultation Paper) were also published.

Together, these would bring new important changes to Hong Kong’s listing regime, especially including measures to facilitate listings of companies from emerging and innovative sectors, and aimed to enhance Hong Kong’s competitiveness as a global financial centre.

As announced by the Exchange on its official website:

The Exchange has determined to proceed to expand the existing listing regime by introducing two new chapters to the Main Board Listing Rules to allow the listing of (i) Biotech issuers which are pre-profit / pre-revenue; and (ii) issuers from emerging and innovative sectors that have weighted voting rights (WVR) structures, subject to additional disclosure and safeguards.

Companies with WVR structures would be required to have a minimum expected market capitalisation of $10 billion and, if below $40 billion of market capitalisation, would need to meet a higher revenue test of $1 billion in the full financial year before listing. Pre-revenue companies listing under the new Biotech chapter would be required to have a minimum expected market capitalisation of $1.5 billion.

Detailed proposed amendments to the existing Listing Rules for the implementation of the changes are expected to be available for consultation in the first quarter of 2018, with anticipation to have the market ready by second half of 2018 for more innovative companies choose Hong Kong as listing destination.

HKEX’s official news release contains further information on the proposals and way forward.

On 30 November 2017 the Hong Kong Securities and Futures Commission (“SFC”) announced that an agreement has been reached with China Securities Regulatory Commission (“CSRC”) on proposals to introduce an investor identification model for Northbound trading under the Mainland – Hong Kong Stock Connect[1] (“Investor ID Model”).  Hong Kong Exchange and Clearing Limited (“HKEX”) also published an Information Paper, a circular, a FAQ and had arranged a Briefing to Participants on Northbound Investor ID Model.

In the SFC announcement, it was expressed that the Investor ID Model is critical to safeguard market integrity and to strengthen the protection of investors in both markets, and that the SFC also aims to implement an investor identification regime to cover all trading on the SEHK in the longer term.

This Legal Update is intended to shed some light on the key features of Investor ID Model with a particular focus on its implications on asset management companies:

For more operational details of the Investor ID Model please refer to HKEX’s Information Paper and FAQ. [1] Shanghai-Hong Kong Stock Connect and Shenzhen-Hong Kong Stock Connect, both provide for mutual stock market access between Hong Kong and the Mainland.

 [1] Shanghai-Hong Kong Stock Connect and Shenzhen-Hong Kong Stock Connect, both provide for mutual stock market access between Hong Kong and the Mainland.