Mutual Recognition of Funds (MRF) between the Netherlands and Hong Kong

15 May 2019



  1. The Securities and Futures Commission (SFC) and the Autoriteit Financiële Markten (AFM) signed a Memorandum of Understanding concerning Mutual Recognition of Covered Funds and Management Companies and related cooperation (Memorandum) on 15 May 2019. The Memorandum provides a recognition of asset managers as well as a framework for mutual recognition of recognised funds to be offered to the public in both markets.

  2. In this circular, the Dutch funds that are eligible for SFC authorization and/or have received  SFC authorization under the MRF are denoted as “Recognised Dutch Funds”.

    General principles

  3. MRF operates on the principles that, in respect of a Recognised Dutch Fund  that has been approved by the AFM and is seeking approval or has received approval for offering to the public in Hong Kong:

    a. the Recognised Dutch Fund shall meet the eligibility requirements in accordance with this Circular and comply with all of the applicable requirements set out in this Circular (see below);

    b. the Recognised Dutch Fund shall remain approved by the AFM in the Netherlands and is allowed for public offering within the Netherlands;

    c. the Recognised Dutch Fund shall operate and be managed in accordance with the relevant laws and regulations in the Netherlands and its constitutive documents;

    d. the sale and distribution of units or shares of the Recognised Dutch Fund in Hong Kong shall comply with the applicable laws and regulations in Hong Kong;

    e. the Recognised Dutch Fund and the management company of a Recognised Dutch Fund (Dutch Management Company) shall comply with the additional rules released by the SFC in Hong Kong governing the authorization or approval, post-authorization and ongoing compliance, and the sale and distribution of the Recognised Dutch Fund in Hong Kong;

    f. the Dutch Management Company of the Recognised Dutch Fund shall ensure holders in both the Netherlands and Hong Kong receive fair treatment, including in respect of investor protection, exercise of rights, compensation and disclosure of information; and there must be no arrangements which provide an advantage for investors in Hong Kong and/or the Netherlands that would result in prejudice to investors in the other jurisdiction, and vice versa; and

    g. the ongoing disclosure of information on the Recognised Dutch Fund shall be made available to the investors in the Netherlands and Hong Kong at the same time (so far as is reasonably practicable given the different time zones and public holidays of the jurisdictions).

  4. In general, the Recognised Dutch Funds that are seeking SFC authorization or have received SFC authorization for offering units or shares to the public in Hong Kong pursuant to Section 104 of the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong) (SFO) have to comply with the SFC Handbook for Unit Trusts and Mutual Funds, Investment-Linked Assurance Schemes and Unlisted Structured Investment Products (SFC Handbook) and the circulars, guidelines and other requirements as may be issued by the SFC from time to time (together with the SFO, the Hong Kong Laws and Regulations).

    On the basis of the principles set out above, if an eligible Recognised Dutch Fund complies with the relevant Dutch laws and regulations and the conditions as set out in this Circular, it is generally deemed to have complied in substance with the relevant SFC requirements and will enjoy a streamlined process of authorization for offering units or shares to the public in Hong Kong.

  5. In view of the differences between the Hong Kong and the Dutch regulatory regimes, and to ensure adequate investor protection and consistency with the existing Hong Kong regime for authorized retail funds, this Circular sets out the additional requirements with which an eligible Recognised Dutch Fund has to comply when applying for SFC authorization pursuant to Section 104 of the SFO for offering units or shares to the public in Hong Kong under the MRF, as well as other requirements which a Recognised Dutch Fund and a Dutch Management Company have to observe after obtaining SFC authorization. The AFM will issue separate rules regarding the approval of eligible Hong Kong funds for public offering in the Netherlands.

    Eligibility requirements and types of eligible funds

  6. The eligibility requirements (Eligibility Requirements) are set out in Annex B to this Circular.

  7. Recognised Dutch Funds applying for SFC authorization must fall within one or more than one of the following eligible fund types1:

    a. general equity funds, bond funds and mixed funds; and

    b. index funds (other than exchange-traded funds)

    The SFC and the AFM may consider extending the MRF to include other types of funds in the future in accordance with the MoU.

  8. The Dutch Management Company of a Recognised Dutch Fund that is seeking SFC authorization must indicate to the SFC the fund type within which the Recognised Dutch Fund belongs pursuant to paragraph 7 above. All Recognised Dutch Funds must comply with the requirements set out under the “Requirements applicable to all Recognised Dutch Funds” section below, as well as the relevant requirements set out under the “Requirements applicable to each specific type of Recognised Dutch Funds” section below.

    Requirements applicable to all Recognised Dutch Funds

  9. To ensure adequate investor protection and consistency with the existing Hong Kong regime for authorized retail funds, Recognised Dutch Funds are required to comply with the requirements set out in paragraphs 10 - 37 below, as well as the relevant requirements as set out in Annex A to this Circular.

    Representatives in Hong Kong

  10. Each Recognised Dutch Fund must appoint a firm in Hong Kong as its representative, in compliance with Chapter 9 and 11.1(b) of the UT Code.

    Operational and ongoing requirements

    AFM supervision

  11. The Recognised Dutch Fund must, on an ongoing basis, remain approved by AFM for offering to the public in the Netherlands. The Dutch Management Company must also remain authorized by AFM to manage UCITS pursuant to Dutch laws and regulations and in accordance with paragraph 2.2.7.1a (article 2:69b and onwards) of the Dutch Act on Financial Supervision (Wet op het financieel toezicht).  Both the Recognised Dutch Fund and the Dutch Management Company must be subject to ongoing regulation and supervision by the AFM.

    Jurisdiction

  12. The Dutch Management Company shall ensure and procure its distributors to ensure that Hong Kong investors are able to bring actions concerning the Recognised Dutch Fund and the Dutch Management Company in the courts of Hong Kong.

    Changes to Recognised Dutch Funds

  13. Changes to a Recognised Dutch Fund shall be made in accordance with the applicable Dutch and Hong Kong laws and regulations; the provisions of its constitutive documents and the requirements set out in this Circular.

  14. Any proposed changes to a Recognised Dutch Fund that fall within 11.1 of the UT Code and revisions made to its offering documents relating to such changes shall be submitted for approval to the SFC by the relevant Recognised Dutch Fund (or its Management Company) in accordance with the relevant requirements set out in Annex A. These changes may only take effect upon approval by the SFC and compliance with any relevant notice requirement.

  15. Any proposed changes to a Recognised Dutch Fund that do not require SFC’s prior approval pursuant to 11.1 of the UT Code and revisions made to its offering documents relating to such changes must be filed with the SFC and comply with the relevant requirements set out in Annex A.

  16. Investors in the Netherlands and Hong Kong must be notified at the same time (so far as is reasonably practicable given the different time zones and public holidays of the jurisdictions) about any changes to the Recognised Dutch Fund by the Dutch Management Company. Equal treatment should be given to investors in both jurisdictions in terms of the form which that notice takes2.

  17. For the avoidance of doubt, changes that render the Recognised Dutch Fund ineligible to be considered as a Recognised Dutch Fund under this Circular (for example – the fund changes strategy and this fund no longer meets the eligible recognised fund type definition) and revisions made to its offering documents relating to such changes must require SFC’s prior approval.

    Breach

  18. In the event of a breach of Dutch laws and regulations or the requirements set out or referred to in this Circular, the Dutch Management Company shall endeavour to notify AFM and the SFC at the same time and rectify the breach promptly. The Dutch Management Company shall also notify the SFC once the breach has been rectified.

  19. Following SFC authorization of a Recognised Dutch Fund under section 104 of the SFO, if a Recognised Dutch Fund ceases to meet the requirements as set out in this Circular, its Dutch Management Company shall notify the SFC as soon as reasonably practicable. In case of such breach, units or shares of the Recognised Dutch Fund shall not continue to be offered to the public in Hong Kong and shall not accept subscriptions from investors in Hong Kong, without SFC’s prior approval.

    Withdrawal of authorization

  20. Following SFC authorization of a Recognised Dutch Fund, if its Dutch Management Company does not wish to maintain such authorization, it should apply for withdrawal of authorization from the SFC and provide notice to Hong Kong investors of its intention not to maintain such authorization in accordance with the relevant Hong Kong Laws and Regulations.

  21. The SFC may at any time review its authorization and may modify, add to or withdraw any of the conditions of such authorization, or withdraw the authorization, as it considers appropriate.

    Termination

  22. Termination of a Recognised Dutch Fund shall require the approval of the AFM with immediate notice from the AFM to the SFC. A termination notice should be submitted to the SFC for approval.

    Sale/distribution, offering documents, ongoing disclosure and advertisements

    Sale/distribution

  23. The sale and distribution of a Recognised Dutch Fund in Hong Kong must be conducted by intermediaries properly licensed by or registered with the SFC (which may include the Management Company so properly licensed) and  shall comply with the relevant Hong Kong Laws and Regulations relating to the sale and distribution of funds.

    Offering documents

  24. The disclosure of information relating to a Recognised Dutch Fund shall be complete, accurate, fair, clear, effective, and shall be capable of being easily understood by investors.

  25. The offering documents of a Recognised Dutch Fund must be up-to-date and contain information necessary for investors to be able to make an informed judgement of the investment proposed to them.

  26. A Recognised Dutch Fund may use the prospectus registered by AFM. Unless otherwise provided for in this Circular, matters such as the type of documents, content, format, frequency of update and the updating procedures shall comply with the applicable Dutch laws and regulations and the provisions of its constitutive documents. In addition, the AFM-registered prospectus must be supplemented by a Hong Kong covering document to comply with the disclosure requirements set out in Annex A3 and to disclose any other information which may have a material impact on the investors in Hong Kong. The offering documents and the Hong Kong covering document shall not contain any information that would be inconsistent with the offering documents authorized by the AFM and/or inaccurate/misleading regarding the Recognised Dutch Fund.

  27. The Dutch Management Company shall take reasonable steps and measures to ensure that the offering documents of a Recognised Dutch Fund and their changes are made available to the investors in the Netherlands and Hong Kong at the same time (so far as is reasonably practicable given the different time zones and public holidays of the jurisdictions).

    Ongoing disclosure

  28. The Dutch Management Company shall take reasonable steps and measures to ensure that the ongoing disclosure of information of a Recognised Dutch Fund (including periodic financial reports, notices and announcements) is dispatched and made available to the investors in the Netherlands and Hong Kong at the same time (so far as is reasonably practicable given the different time zones and public holidays of the jurisdictions) and, in the case of suspension of dealings, immediately notify the SFC. A Recognised Dutch Fund shall comply with the requirements set out in Annex A and, on an ongoing basis, disclose any other information which may have a material impact on the investors in Hong Kong.

  29. Subject to paragraph 30, a Recognised Dutch Fund may use its Dutch financial reports as the basis for distribution in Hong Kong, provided that the reports are supplemented by the additional information and meet the other requirements set out in Annex A.

    Language

  30. The offering documents and notices to investors in Hong Kong of a Recognised Dutch Fund must be provided in both English and Chinese.

  31. The constitutive documents and financial reports of a Recognised Dutch Fund must be made available to investors in Hong Kong in either English or Chinese. The language in which these documents are made available to investors in Hong Kong should be clearly disclosed in the offering documents.

    Advertisement

  32. All advertisements in relation to the Recognised Dutch Fund issued in Hong Kong shall comply with the relevant Hong Kong Laws and Regulations, in particular, the Advertising Guidelines Applicable to Collective Investment Schemes Authorized under the Product Codes.

    Fees

  33. For offering to the public in Hong Kong, the Recognised Dutch Fund/Dutch Management Company will be subject to the applicable (i) application, (ii) authorization and (iii) annual fees. The Recognised Dutch Fund/Dutch Management Company must ensure that any SFC invoiced fees in respect of the Recognised Dutch Fund are paid.

    Requirements applicable to each specific type of Recognised Dutch Funds

  34. In general, the SFC will deem a Recognised Dutch Fund to have complied substantially with the requirements of the UT Code. There are, however, requirements with which each specific type of Recognised Dutch Funds must comply. Please refer to Annex A for details.

    Application process

  35. The SFC understands that this marks the first time Recognised Dutch Funds may seek authorization from the SFC. The SFC therefore encourages applicants to consult the Investment Products Division early for any clarification or guidance as to how the relevant requirements may apply and be complied with in light of their specific circumstances.

  36. The SFC may issue other circulars, frequently asked questions and other documents from time to time to provide practical guidance to the industry. Please refer to the SFC’s website or contact the Investment Products Division.

  37. Applicants shall request the AFM to provide directly to the SFC a certificate confirming that the Eligibility Requirements listed in Annex B to this Circular are met. The SFC will not be able to take up an application if no such certificate is received from the AFM. Further details of the MRF application process for a Recognised Dutch Fund seeking authorization from the SFC are set out in the Information Checklist, which is available at the SFC’s website http://www.sfc.hk/web/EN/forms/products/forms.html starting from today.

Investment Products Division
Securities and Futures Commission

1 Please note that these are not legally defined categories. They have no statutory legal meaning, but are merely indications. Recognised Dutch Funds shall need confirmation by the AFM that they fall within one or more than one of the eligible fund types during the application process.

2 To the extent there are requirements on minimum notice period and content of or template for the notice to Hong Kong investors under the relevant Hong Kong Laws and Regulations, the Recognised Dutch Fund shall comply with these requirements and ensure that investors in the Netherlands and Hong Kong receive equal treatment in terms of the notice period and information disclosure.

3 A disclosure requirement in Annex A would be considered met if the relevant disclosure is already included in the prospectus registered by AFM. The Recognised Dutch Fund does not need to duplicate the disclosure in the Hong Kong covering document.


Click here to download the document

Supplementary document:
Annex A - B


Page last updated : 15 May 2019