By Yusra Barmaz
A flood of investors from mainland China buying into Hong Kong’s established fund industry has spurred the implementation of an updated code of conduct by Hong Kong’s financial regulator.
Last year, Hong Kong’s Securities and Futures Commission (SFC) started a consultation process after concerns were expressed about the number of mainland Chinese investors and professionals buying into the industry. Figures from the SFC state that around 13% of Hong Kong brokerages, fund houses and financial advisers are owned by mainland shareholders. The worry is that many of the mainland Chinese now involved might lack experience in fund management outside their homeland.
As a result of the consultation, there will be a new amended Fund Manager Code of Conduct taking effect from November 17, 2018 which helps address these concerns and brings Hong Kong’s regulatory regime into line with international standards too. Under the amended code, management companies will have to have minimum capital requirements of HK$10 million. They will also have to comply with stricter financial reporting rules and will need to ensure that all trustees, custodians and other key personnel involved with fund management have sufficient expertise.
A fund management company will also have to make sure they have rigorous risk management systems to monitor their funds – and must not rely on external ratings. There are also new rules on the holding and disclosure of derivatives as well as a proposed new class of funds, the active exchange-traded fund (ETFs) which it is believed a number of fund managers would like to offer.
Alexander de Haseth, ZEDRA Senior Manager, Hong Kong: “The rule changes will help reduce risk and will strengthen the regulation of the Hong Kong fund industry – which can only be good news for businesses and investors. Modernising the code means that both investor protection and market development are enhanced. It is also hoped that the amended code will create new opportunities and ventures for the Hong Kong market – ones which will make it even more of a major player on the international fund management scene.”