Hong Kong SFC consults on new rules and code for open-ended fund company structure

On 28 June 2017, the Securities and Futures Commission (SFC) launched a two-month consultation (Consultation) on the detailed legal and regulatory requirements applicable to the new open-ended fund company (OFC) structure.

Currently, investment funds in Hong Kong are established only in unit trust form. The OFC structure will allow investment funds to be established in corporate form.  The Securities and Futures (Amendment) Ordinance 2016, which is yet to take effect, provides the basic legal framework of the OFC structure and also empowers the SFC to make subsidiary legislation and issue codes and guidelines for the regulation of OFCs.

On this basis, the SFC launched the Consultation, which sets out the SFC’s proposed Securities and Futures (Open-ended Fund Companies) Rules (OFC Rules) and Code on Open-ended Fund Companies (OFC Code).  Drafts of the OFC Rules and the OFC Code are attached to the Consultation paper as Appendices A and B respectively.

All OFCs (whether publicly or privately offered) will be subject to the OFC Rules and the OFC Code. OFCs which are intended to be offered to the public will also have to obtain the SFC’s authorisation under Part IV of the Securities and Futures Ordinance unless an exemption applies (public OFCs).  These public OFCs will also be subject to the authorisation and ongoing post-authorisation requirements set out in the SFC Handbook for Unit Trusts and Mutual Funds, Investment-Linked Assurance Schemes and Unlisted Structured Investment Products.

Our recent bulletin sets out the key proposals for the OFC Rules and the OFC Code in the Consultation paper.  Further background regarding the proposed OFC structure and the previous round of consultation can be found in our e-bulletin of March 2016.  If you wish to discuss this further, please do not hesitate to contact Will Hallatt, Hannah Cassidy or your usual Herbert Smith Freehills contact.