SFC concludes consultation on asset management regulation and point-of-sale transparency and further consults on disclosure requirements for discretionary accounts

16 Nov 2017



The Securities and Futures Commission (SFC) today released consultation conclusions on proposals to enhance asset management regulation and point-of-sale transparency (Note 1).  The SFC also launched a further consultation on disclosure requirements applicable to discretionary accounts.

The SFC will implement the enhancements to the Fund Manager Code of Conduct (FMCC) (Note 2) with certain modifications and clarifications.

To address conflicts of interest in the sale of investment products, the SFC will also implement the proposed approach to govern the use of the term "independent" by intermediaries and to enhance disclosure of trailer fees, commissions and other monetary benefits (Note 3).

"These enhancements ensure our regulations are properly benchmarked to evolving international standards and strengthen Hong Kong’s position as a major asset management centre," said Mr Ashley Alder, the SFC’s Chief Executive Officer. “The approach we have adopted to address conflicts of interests and incentives is calibrated to Hong Kong’s current market conditions.

"We will however actively consider the merits of pay-for-advice models in light of local and international market and regulatory developments," he added.

The revised FMCC will become effective 12 months after it is gazetted and the amendments to the Code of Conduct will become effective nine months following gazettal (Note 4). The SFC will publish frequently asked questions to provide further guidance to the industry on the implementation of the proposals.

Further, the SFC has commenced a two-month consultation on the proposed requirements for disclosure of monetary and non-monetary benefits by licensed or registered persons to discretionary account clients (Note 5).

The public is invited to submit their comments on or before 15 January 2018 on the proposed disclosure requirements. Written comments may be sent via the SFC website (www.sfc.hk), by email to Discretionaryaccounts_Disclosure@sfc.hk, by post or by fax to 2284 4660.

End

Notes:

  1. On 23 November 2016, the SFC issued the Consultation Paper on Proposals to Enhance Asset Management Regulation and Point-of-sale Transparency. The consultation period ended on 22 February 2017. Thirty-eight written submissions were received from asset management firms, various industry associations, asset management service providers, law firms and individuals.
  2. The key areas of enhancements under the FMCC are in respect of securities lending and repurchase agreements, custody of fund assets, liquidity risk management, and disclosure of leverage by fund managers.
  3. The enhancements to the Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission (Code of Conduct) aim to address conflicts of interest in the sale of investment products and enhance disclosure at the point-of-sale by:
    (i) restricting an intermediary from representing itself as "independent" or using any term(s) with a similar inference when distributing an investment product if the intermediary receives commission or other monetary benefits in relation to distributing such investment product; or it receives any non-monetary benefits from any party or has close links or other legal or economic relationships with product issuers which are likely to impair its independence; and
    (ii) requiring an intermediary to disclose the maximum percentage of any monetary benefits received or receivable that are not quantifiable prior to or at the point of sale.
  4. The revised FMCC and the amendments to the Code of Conduct will be gazetted on 17 November 2017 and are set out in Appendices A and B to the conclusions paper respectively.
  5. The draft amendments to the Code of Conduct to give effect to the proposals are set out in Appendix C to the conclusions paper.


Page last updated : 16 Nov 2017