Fund Distribution Alert 2022-12

On 1 April 2022, the Hong Kong Securities and Futures Commission (SFC) updated its Guide on Practices and Procedures for Application for Authorization of Unit Trusts and Mutual Funds, Frequently Asked Questions and illustrative templates of product key facts statements (KFS) of investment products.

The following changes were made:

Guide on Practices and Procedures for Application for Authorization of Unit Trusts and Mutual Funds

The updates reflect clarifications for Listed Open Funds (active ETFs). Active ETFs should now consider paragraphs 34, 35, 37 and 38 of Chapter 5 of the Guide, as summarized below:

• The ETF applicant has to assess the impact of Volcker Rule in the US and confirm this to SFC by the time of the application.
• SFC requires iNAV, latest NAV, full holdings and exchange rate to be made available to investors via an “accepted channel”.
• When securities financing transactions exceed 50% of the total net asset value, more information must be made available to investors on an ongoing basis.
• Information regarding securities financing transactions and more particularly collateral management should be marked to market on a daily basis.

The update further clarifies minimum disclosure requirements for Hong Kong offering documents (including KFS) and/or constitutive documents under Chapter 6 of the Guide, as follows:

• Disclosures to be integrated in HKOD (Hong Kong Offering Documents) for China and/or RMB related funds when exposure to A shares and B shares (directly or indirectly) amounts to 30% or more of the NAV.
• Disclosures to be integrated in HKOD (Hong Kong Offering Documents) for QI Funds* regarding PCR taxation.
• Disclosures to be integrated in HKOD (Hong Kong Offering Documents) for Funds with investments in the Mainland debt securities market through the CIBM** and/or Bond Connect*** depending on the exposure to the said debt securities.

* QI funds are funds which invest 70% or more of their NAV through its QI status

**China’s Interbank Bond Market

*** Arrangement that establishes mutual bond market access between Hong Kong and mainland China

Examples of minimum disclosure requirements are also provided in Annex 2.2.11 regarding risk disclosures for ETFs.

The following Frequently Asked Questions have been updated:

• Frequently Asked Questions on Advertising Materials of Collective Investment Schemes Authorized under the Product Codes – Question 27, the SFC clarifies the use of interest rate as benchmark and its permissibility.
• Frequently Asked Questions on the Code on Unit Trusts and Mutual Funds – Question 27B, the SFC clarifies that the offering of new share classes of SFC-authorized fund requires SFC prior approval.
• Frequently Asked Questions on "Offers of Investments" under the Securities and Futures Ordinance – Questions 14 and 15 (PDF, 200KB), the SFC clarifies that the promotion/offering of CIS involving real property must be authorized by SFC unless it is intended to professional investors only.
• Frequently Asked Questions on SFC Authorization of UCITS Funds – Question 6 has been updated, the SFC has prepared a (“UCITS III Q&A”) to clarify general information regarding UCITS III.

The SFC has also issued updated KFS template for ETFs:

• Passive ETFs or ETF class of Index Funds, and;
• Active ETFs or ETF class of General Funds.

The updated guide is available on the SFC website here.

Templates for KFS are available here.

Please feel free to contact us if you require any additional information.

Partner
+352 22 51 51 7892
said.fihri@kpmg.lu

Director
+352 22 51 51 7271
stephanie.zedda@kpmg.lu