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The SFC's Streamlined Approach to Private OFCs 

by Fiona Fong, Garvin Ko

Published: May, 2021

Submission: May, 2021

 



Private open-ended fund companies (OFCs) in Hong Kong are subject to regulation by the Securities and Futures Commission (SFC). The SFC has taken a streamlined approach to regulating private OFCs.


  1. High degree of flexibility


    No investment restrictions: Pursuant to the SFC’s revised Code on Open-Ended Fund Companies (OFC Code) all investment restrictions for private OFCs have been removed. A private OFC can invest in any asset classes at the discretion of its investment manager.


    Flexible terms: Investment management companies enjoy a high degree of flexibility in determining the terms of a private OFC such as setting subscription arrangements, redemption terms and restrictions. Despite its name, an OFC can be structured as open-ended as well as closed-ended – an arrangement commonly seen in private equity funds where investors are not given the right to request for redemptions.


    Different custodial arrangements: The appointment of multiple custodians is permitted and a custodian may delegate its custody functions to one or more sub-custodians. Eligible custodians include (a) banks, (b) securities brokers licensed for type 1 regulated activities); and (c) overseas prime brokers meeting eligibility requirements.


  2. Straightforward registration process and low maintenance


    Regulatory focus on key areas: Key operators namely directors, custodian and investment manager need to meet basic eligibility requirements.


    Minimal pre-vetting: There is no pre-vetting by the SFC of (i) the offering documents upon establishment; (ii) changes to the instrument of incorporation, offering documents, investment objective, strategy and restrictions, and fee structures. Only post-filings are required for scheme changes. Revised offering documents are required to be filed with the SFC within seven days of issuance.


    Minimal SFC pre-approval: The SFC’s approval is only required in limited instances:


    (i)         change of name (of an OFC or a sub-fund)


    (ii)        appointment of key operators


    (iii)       establishment of sub-funds


    (iv)       termination of an OFC or a sub-fund


    Speedy processing time: Registration normally takes 7-14 days after an application is taken up by the SFC.


    One-stop approach: Establishment documents are required to be submitted only to the SFC. The SFC will coordinate with the Companies Registry (CR) which will issue the Certificate of Incorporation and Business Registration Certificate (on behalf of the Commissioner of the Inland Revenue (IRD)) in one go after SFC’s approval is granted. Separate submissions to the CR or IRD are not needed.


    Minimal filings: Other than a filing of the annual report to the SFC, there is (i) no mandatory annual general meetings; (ii) no annual returns; and (iii) no annual fees. 


 



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