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The Securities and Futures Commission (SFC) today launched a consultation on a proposal to regulate depositaries (Note 1) of SFC-authorized collective investment schemes (CIS) (Note 2). Depositaries operating in Hong Kong would be licensed by or registered with the SFC for a new type of regulated activity, RA 13, and be subject to the ongoing supervision of the SFC or the Hong Kong Monetary Authority (HKMA) (Note 3).
Depositaries are trustees for CIS in unit trust form, and custodians for CIS in other forms, who are at the top of the custodial chain. They have the responsibility to safeguard scheme assets and perform independent oversight of scheme operations (Note 4).
"It is vital that depositaries of public funds which operate in Hong Kong are subject to the SFC’s direct regulation," said Mr Ashley Alder, the SFC's Chief Executive Officer. "The proposed regime will provide better protection for scheme assets and help safeguard the interests of retail investors."
After the last financial crisis, most major overseas markets strengthened their custody regimes and the International Organization of Securities Commissions updated its standards for the custody of CIS assets (Note 5).
The public is invited to submit their comments to the SFC on or before 31 December 2019 via the SFC website (www.sfc.hk), by email to ra13-consultation@sfc.hk, by post or by fax to 2877 0318.
Notes:
- The proposed regime covers depositaries for SFC-authorized unit trusts, mutual funds, open-ended fund companies, real estate investment trusts and pooled retirement funds, but excludes mandatory provident fund products. Amendments to SFC codes and guidelines are also proposed.
- Authorized under section 104 of the Securities and Futures Ordinance and offered to the public in Hong Kong.
- A depositary which is an authorized institution will have to be registered with the SFC for RA 13 as a registered institution and will be subject to the ongoing supervision of the HKMA as the frontline regulator.
- Under the current regulatory framework, when a CIS applies for authorization, the SFC requires the appointment of a depositary acceptable to the SFC. Depositaries are not licensed by or registered with the SFC and the SFC does not have direct powers to supervise or take disciplinary action against them.
- See the Final Report on Standards for the Custody of Collective Investment Schemes’ Assets issued by the International Organization of Securities Commissions in November 2015.
