The Securities and Futures Commission (SFC) today issued a circular flagging various deficiencies and substandard conduct identified during its supervision of licensed corporations engaged in managing private funds and discretionary accounts (referred to as asset managers in the circular). The severity of misconduct in many of these cases has seriously jeopardised investor interests, thereby undermining confidence in Hong Kong’s market integrity and status as an international asset management centre.
These instances also reflected a lack of integrity on the part of the asset managers or their senior management who were involved, as well as failure of the senior management to provide effective supervision.
The circular highlighted cases involving breaches of regulatory requirements in areas ranging from conflicts of interest, risk management and investment within mandate, information for investors, to valuation methodologies. It also sets out the existing obligations applicable to asset managers in these circumstances. Asset managers should review the areas of concern set out in the circular and take measures to rectify any deficiencies identified accordingly. The SFC will commence a thematic inspection on asset managers managing private funds to review their compliance with applicable regulatory requirements.
“The egregious misconduct of these asset managers is unacceptable and has eroded investor confidence in our markets. In the coming year, the SFC will give high priority to combating such misconduct in the asset management industry. Where serious breaches or misconduct are identified from our inspection, we will not hesitate to hold the senior management of asset managers accountable,” Dr Eric Yip, the SFC’s Executive Director of Intermediaries said.
“While the SFC is committed to protecting the interests of the investing public, investors should also exercise prudence when making investment decisions. They should seek relevant and up-to-date information from asset managers regarding their investments into private funds. At the same time, they should exercise caution to understand whether the private fund or the discretionary mandate is suitable for them in terms of their investment objectives and risk profiles,” Dr Yip added.
The SFC also stressed in the circular that the board of directors and senior management of asset managers, including the managers-in-charge of core functions and responsible officers, bear primary responsibility for ensuring appropriate standards of conduct. To this end, they should strengthen their supervisory and compliance functions, where necessary, to ensure compliance with all applicable regulatory requirements.
