HONG KONG: Securities and Futures Commission Circular to Management Companies of SFC Authorized Unit Trusts and Mutual Funds

Wednesday October 14 2015

On 9^th October 2015, the Securities and Futures Commission (SFC) announced the launch of new initiatives to further enhance the authorization process for new fund applications and for new Mandatory Provident Funds (MPF) and Pooled Retirement Fund (PRF) products.

Both initiatives will be implemented on 9th November 2015 for a six-month pilot period after which refinements may be made before the initiatives will be adopted as policy.

Under the Revamped Process, new fund applications will be bifurcated into two streams, namely “Standard Applications” and “Non-standard Applications”, with a view to promoting fund providers’ self-compliance and reducing the overall processing time without compromising investor protection. Standard Applications will be fast-tracked with an aim that SFC authorization (if granted) will be given on average between 1 to 2 months from the take-up date of the applications.  Non-standard Applications will be processed under an enhanced process with an aim that SFC authorization (if granted) will be given on average within 2 to 3 months from the take-up date of the applications.

In general, a new fund application will be processed as a Standard Application if the following criteria are met:

• the fund(s) under application is/are sub-funds(s) under an existing SFC-authorized umbrella fund;
• the relevant new sub-fund is (i) a fund which complies with Chapter 7 of the UT Code or a UCITS fund which does not use financial derivative instruments extensively for investment purposes; or (ii) a physical ETF or unlisted index fund tracking an index which is adopted by other existing SFC-authorized Fund(s) or is a plain vanilla index;
• the new sub-fund(s) is/are not seeking authorization as approved pooled investment fund(s) under the SFC Code on MPF Products;
• the new sub-funds(s) is/are managed by existing approved management company/delegated investment managers managing other existing SFC-authorized Fund(s) with good regulatory records;
• the trustee/custodian of the new sub-fund(s) is acting as trustee/custodian of other existing SFC-authorized Fund(s) which has confirmed its continuous compliance of the requirements applicable to trustee/custodian of SFC-authorized Funds;
• the application documentation is complete and in good order and quality; and
• there are no material issues and/or policy implications relating to the application as considered by the SFC.

In formulating the Revamped Process, advice from a technical working group comprising industry stakeholders had been taken into account in devising a set of minimum disclosure requirements for offering documents and compiling a streamlined New Information Checklist.

Separately, a six-month application lapse policy will be applied to applications for new MPF and PRF products seeking SFC authorization following consultations with the Mandatory Provident Fund Schemes Authority (MPFA) and key industry stakeholders. This will bring the authorization process of these products in line with the six-month application lapse period currently applied to other SFC-authorized investment products in order to enhance the overall efficiency of the authorization process.

Additionally, under the Revamped Process, the SFC have pledged to take up or refuse to take up a new fund application within 5 business days upon receipt of the application.

Click on the link above for further details.