Circular to Management Companies of SFC-authorized unit trusts and mutual funds - Launch of pilot revamped process to enhance the processing of post authorization applications

30 Jun 2017



  1. The purpose of this circular is to describe the revamped process (the “Revamped Post Authorization Process”) which will be adopted by the SFC under a pilot arrangement with effect from 1 August 2017 (“Effective Date”) with an aim to enhance the processing of applications for the approval of post authorization changes (including scheme changes, termination, merger and withdrawal of authorization) and authorization of revised offering documents for SFC-authorized funds1 (collectively, referred to as “Applications”).

  2. The Revamped Post Authorization Process will be adopted for a 6-month pilot period ending 31 January 2018 (“Pilot Period”).  We may extend the Pilot Period and/or make changes to the Revamped Post Authorization Process where appropriate before formal adoption at the end of the Pilot Period.

    Background

  3. We regularly review and seek to improve our approval process wherever practicable without compromising investor interests and protection.

  4. In light of the successful launch of the revamped fund authorization process in May 2016 which has substantially reduced the overall processing time for new fund applications, the SFC believes that a similar streamlining process may be extended to the post authorization application process.  As such, the SFC proposes to adopt a similar two-stream approach and lapse policy when processing Applications under the Revamped Post Authorization Process.  This proposed approach aims to increase the transparency of the process, enable investors to be informed of post authorization changes in a timely manner and make more efficient use of our resources in performing our regulatory functions.

  5. To achieve this, applicants must provide proper and quality submissions at the time of application and throughout the application process in a timely manner.   Applicants must also ensure that their applications are in good order and are accompanied by relevant documents that meet all applicable regulatory requirements.

  6. To ensure that the industry is adequately consulted on the process, the SFC has met with representatives from the relevant industry associations before finalising the revamped procedures.

    The Revamped Post Authorization Process

    Overview

  7. Under the Revamped Post Authorization Process, a “two-stream” approach will be adopted by the SFC in processing the Applications with the support of revised application forms and filing forms for scheme changes and revised offering documents and applicable confirmations of compliance (see paragraph 18 below).

    A two-stream approach

  8. Under the two-stream approach, Applications will either be classified into a “Simple Applications” stream or a “Complex Applications” stream.  The SFC reserves its right to return and not to process an Application which is deemed to be an incomplete application and/or an application that fails to meet the applicable regulatory requirements2.

  9. If an Application is in good order and accompanied with all the necessary supporting documents that meet the applicable regulatory requirements, SFC authorization or approval may be granted without issuing any first requisition.  Otherwise, processing of Simple Applications and Complex Applications will be subject to a maximum period of 2-month and 6-month processing times respectively from the issue of the first requisition by the SFC.   Applications will lapse if no approval or authorization is granted within the applicable processing time period as indicated in the first requisition issued by the SFC (“Lapse Policy”).

  10. In general, Applications will be processed as a Complex Application if the following criteria are met:

    - new and/or change of appointment of key operators, namely (i) management company or delegated investment manager(s); (ii) trustee / custodian; and/or (iii) Hong Kong representative, each of which is not currently acting in the relevant capacity for any SFC-authorized funds;

    - change of place of domicile of SFC-authorized funds;

    - merger3 of SFC-authorized funds;

    - termination of SFC-authorized funds involving specific issues, considerations and/or circumstances (e.g. fund to be terminated is subject to unresolved tax issues or pending tax clearance or the underlying investments cannot be liquidated due to trading suspension)3;

    - there are material issues and/or policy implications (e.g. change of investment policy from investing non-extensively to extensively in financial derivative instruments, a change to an index which is not currently adopted by any existing SFC-authorized unlisted index fund or exchange traded fund) relating to the Applications.

  11. All Applications other than those which are deemed to be Complex Applications will be processed as Simple Applications, where applicants are required to provide proper, complete, and substantive response(s) to SFC requisition(s) within 2 months from the date of the first requisition issued by the SFC. Failing this applications may be refused subject to the SFC’s right to grant an extension at its sole discretion under exceptional circumstances.

  12. For Complex Applications, applicants are required to provide proper, complete, and substantive response(s) to SFC requisition(s) in a timely manner within 6 months from the date of the first requisition issued by the SFC in accordance with the time limit(s) referred to in the Revamped Post Authorization Process FAQ (see paragraph 19 below), failing which the applications may be refused subject to the SFC’s right to grant an extension at its sole discretion under exceptional circumstances. This aims to shorten the turnaround time of the applications.

  13. Approval of Simple Applications and Complex Applications may be granted subject to conditions which are required to be fulfilled before the approval and/or authorization may become effective.

    Processing time and Lapse Policy

  14. All Applications processed under the Revamped Post Authorization Process will be subject to the applicable Lapse Policy. Further details of processing procedures are set out in the Revamped Post Authorization Process FAQ (see paragraph 19).

    Approved pooled investment funds offered to retail investors

  15. Approved pooled investment funds offered to retail investors will also be subject to the two-stream approach to the processing procedures as set out in the Revamped Post Authorization Process FAQ and the applicable Lapse Policy1.

  16. For these approved pooled investment funds, approval-in-principle will be granted by the SFC (“AIP”) when the SFC is satisfied that the Applications are in compliance with the applicable requirements under the Code on Unit Trusts and Mutual Funds (“UT Code”) and the SFC Code on MPF Products (“MPF Code”)(collectively the “Codes”).

  17. The SFC will be minded to grant final approval and/or authorization in respect of these approved pooled investment funds upon receipt of the (i) final approval from the Mandatory Provident Fund Schemes Authority; and (ii) the applicant’s confirmation that there are no subsequent changes pursuant to the AIP that are subject to the SFC’s prior approval.

    New Application Forms and Filing Forms and the Revamped Post Authorization Process FAQ on Applications

  18. In connection with the Revamped Post Authorization Process, New Application Forms4 and New Filing Forms5 have been posted on the SFC’s website which will take effect from the Effective Date. Standardized templates for confirmations on compliance required to be submitted by the applicants are also posted on the SFC’s website.

  19. A set of Frequently Asked Questions (“FAQ”) in respect of the Revamped Post Authorization Process under the Frequently Asked Questions on (i) Post Authorization Compliance Issues of SFC-authorized Unit Trusts and Mutual Funds; and (ii) Mainland-Hong Kong Mutual Recognition of Funds has been posted on the SFC’s website to provide guidance to the industry (“Revamped Post Authorization Process FAQ”).

  20. In addition, the Application Forms and Filing Forms related to Mandatory Provident Fund Products (“MPF Products”)6 have been updated and posted on the SFC’s website and will also take effect from the Effective Date.

    Expansion of the scope of Immaterial Changes

  21. As set out in the Circular issued by the SFC in June 20137, we introduced some streamlined measures pursuant to which SFC’s prior approval will not be required in respect of certain immaterial changes proposed to be made to the relevant SFC-authorized funds and consequential amendments to their offering documents (“Immaterial Changes”).

  22. We have further expanded the type of scheme changes eligible to be classified as Immaterial Changes.  The FAQs on Streamlined Measures to Enhance the Processing of Application for Scheme Changes and Revision of Offering Documents of SFC-authorized Funds have been updated accordingly.

    Post-vetting after authorization / approval

  23. Applicants must duly discharge their compliance responsibility and ensure that their SFC-authorized funds are in compliance with all applicable requirements at all times including all applicable overarching principles and the eligibility, structural and disclosure requirements under the SFC Handbook for Unit Trusts and Mutual Funds, Investment-Linked Assurance Schemes and Unlisted Structured Investment Products and the relevant Codes.  In the case of Recognised Mainland Funds, applicants must also ensure compliance with the Circular entitled “Mutual Recognition of Funds between the Mainland and Hong Kong” issued by the SFC on 22 May 2015 as may be amended from time to time and related guidance.

  24. Investor protection is a fundamental regulatory principle.  To safeguard investor interests, the SFC will continue to conduct post-vetting of scheme changes (including scheme changes approved by the SFC and scheme changes not subject to SFC’s prior approval) and related revised documents filed.  The SFC may make follow-up enquiries and/or take other regulatory actions in case of non-compliance as considered appropriate.  Management companies are expected to respond to any enquiries made by the SFC promptly and in an open and co-operative manner.

  25. The SFC retains its power to require management companies to submit any additional information and/or documents pertaining to the proposed scheme changes and/or revised offering documents for review where the SFC considers it appropriate with respect to particular cases.

    General

  26. The Revamped Post Authorization Process mentioned above shall take effect on the Effective Date and will apply to all Applications submitted on or after the Effective Date.  Existing Applications that were received by the SFC before the Effective Date in respect of which no approval or authorization has been granted will be processed by the SFC in accordance with the existing approval or authorization process.

  27. Applications submitted during the period from the date of this circular but before the Effective Date will be processed under the existing approval or authorization process and applicants should use the existing application forms and filing forms in support of their applications.

  28. The SFC will review the operation of the Revamped Post Authorization Process during the Pilot Period.  Further changes may be introduced by the SFC with a view to further enhancing the Revamped Post Authorization Process where appropriate.

  29. Should you wish to clarify any aspects of the Revamped Post Authorization Process, please contact the relevant case officers in charge.

Investment Products Division
Securities and Futures Commission

1 The Revamped Post Authorization Process will not apply to any MPF products authorized only pursuant to the SFC Code on MPF Products.

2 The SFC reserves the right to return forthwith, without processing, an incomplete or non-compliant application to the extent the relevant application forms and/or the accompanying documents are not properly or fully completed, and/or where negative responses in the relevant application forms are not properly explained, and/or the application is accompanied by documents that do not meet the applicable requirements, not in good order or otherwise not suitable for clearance.

3 Also applicable to merger and termination of the relevant share class and share classes (as the case may be).  Upon submission of the application for termination of SFC-authorized fund(s), applicants should also confirm to the SFC if there are any specific issues, considerations and/or circumstances.

4 New Application Forms refer to the new (i) “Application Form for Scheme Change(s)”; (ii) “Application Form for Revised Offering Documents that Incorporate Changes Falling within 11.1 of the Code on Unit Trusts and Mutual Funds (UT Code) that Require SFC’s Prior Approval”; (iii) “Form for Scheme Change Application(s) or Filing of Notice of Scheme Change(s) in relation to Recognised Mainland Funds”; and (iv) “Application Form for Revised Offering Documents that Require SFC’s Prior Approval in relation to Recognised Mainland Funds”.

5 New Filing Forms refer to the new (i) “Filing Form for Notice of Scheme Change(s) falling within 11.1B of the Code on Unit Trusts and Mutual Funds (UT Code) and Do Not Require SFC’s Prior Approval”; (ii) “Filing Form for Revised Offering Documents that Incorporate Changes Falling within 11.1B of the Code on Unit Trusts and Mutual Funds (UT Code) and Do Not Require SFC’s Prior Approval”; (iii) “Form for Scheme Change Application(s) or Filing of Notice of Scheme Change(s) in relation to Recognised Mainland Funds”; and (iv) “Filing Form for Revised Offering Documents that Do Not Require SFC’s Prior Approval in relation to Recognised Mainland Funds”.

6 Application Forms and Filing Forms related to MPF Products refer to (i) “Application Form for Scheme Change(s) in respect of MPF Products”; (ii) “Application Form for Revised Offering Documents that Incorporate Changes Falling within 8.2 of the SFC Code on MPF Products (MPF Code) that Require SFC’s Prior Approval”; (iii) “Filing Form for Notice of Scheme Change(s) falling within 8.2B of the SFC Code on MPF Products (MPF Code) and Do Not Require SFC’s Prior Approval”; and (iv) “Filing Form for Revised Offering Documents that Incorporate Changes Falling within 8.2B of the SFC Code on MPF Products (MPF Code) and Do Not Require SFC’s Prior Approval”.

7 This Circular refers to the Circular to Management Companies of SFC-authorised Funds entitled “Streamlined Measures to Enhance the Processing of Application for Scheme Changes and Revision of Offering Documents of SFC-authorised Funds".


Click here to download the document


Page last updated : 30 Jun 2017