Hong Kong SFC proposes amendments to OFC regime
04 September 2020 Hong Kong
Image: Dmitry Rukhlenko - stock.adobe.com
The Hong Kong Securities and Futures Commission (SFC) has proposed amendments to the open-ended fund companies (OFC) regime.
Proposals in the consultation papers include the removal of investment restrictions for private OFCs, to allow them to match the same investment opportunities explored by overseas corporate fund structures.
However, the OFC code will also be amended to require that custodians hold “sufficient expertise and experience” in safekeeping the asset classes in which they invest, as well as requiring disclosures of material risks in OFC investments.
In addition, the SFC proposed to expand the scope of entities eligible to act as custodians of OFCs to cover intermediaries licensed or registered for type 1 regulated activity to deal in securities.
The SFC also recognised that the current regulatory framework does not specifically prohibit the appointment of multiple custodians to a private OFC, allowing for separate cash custodians and prime brokers.
Finally, the SFC proposed the provision for a mechanism to re-domicile overseas corporate funds to Hong Kong as OFCs, which would first have to meet key requirements under the OFC regime, such as the appointment of eligible operators.
The specific workings of such a mechanism will be set out in new provisions to be introduced to the Securities and Futures Ordinance.
The SFC will also carry out further consultation on the client due diligence requirements applied to OFCs.
Proposals in the consultation papers include the removal of investment restrictions for private OFCs, to allow them to match the same investment opportunities explored by overseas corporate fund structures.
However, the OFC code will also be amended to require that custodians hold “sufficient expertise and experience” in safekeeping the asset classes in which they invest, as well as requiring disclosures of material risks in OFC investments.
In addition, the SFC proposed to expand the scope of entities eligible to act as custodians of OFCs to cover intermediaries licensed or registered for type 1 regulated activity to deal in securities.
The SFC also recognised that the current regulatory framework does not specifically prohibit the appointment of multiple custodians to a private OFC, allowing for separate cash custodians and prime brokers.
Finally, the SFC proposed the provision for a mechanism to re-domicile overseas corporate funds to Hong Kong as OFCs, which would first have to meet key requirements under the OFC regime, such as the appointment of eligible operators.
The specific workings of such a mechanism will be set out in new provisions to be introduced to the Securities and Futures Ordinance.
The SFC will also carry out further consultation on the client due diligence requirements applied to OFCs.
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