Hong Kong’s Securities and Futures Commission Outlines Regulation Of Collective Investment Schemes

In view of recent enquiries concerning the regulation of collective investment schemes (CIS), the Securities and Futures Commission (SFC) today outlines the relevant provisions in the Securities and Futures Ordinance (SFO) governing the offer and promotion of CIS, and reminds those intending to market a CIS that breaching the provisions may constitute a criminal offence.

Under the SFO (Note 1), generally a CIS has four relevant elements:

it must involve an arrangement in respect of property;
participants do not have day-to-day control over the management of the property even if they have the right to be consulted or to give directions about the management of the property;
the property is managed as a whole by or on behalf of the person operating the arrangements, and/or the contributions of the participants and the profits or income from which payments are made to them are pooled; and
the purpose of the arrangement is for participants to participate in or receive profits, income or other returns from the acquisition or management of the property.

A CIS may cover any property, including real estate, whether located in Hong Kong or overseas.

It is an offence under the SFO to issue any marketing material which contains an offer to the Hong Kong public to acquire an interest or participate in a CIS unless it has been authorized by the SFC or an exemption applies (Note 2).

Promoting a CIS may, in addition, constitute a business in a regulated activity which requires a licence from the SFC, failing which may lead to an offence under the SFO (Note 3).

Any person who wishes to offer or promote any investment arrangement to the Hong Kong public should be aware of the restrictions under the SFO, and seek professional advice if in doubt to ensure compliance with the law.

Investors in doubt about the nature and regulatory status of any investment arrangement are also advised to seek professional advice prior to making an investment.

End

Notes:

Schedule 1 to the SFO
Section 103 of the SFO
Section 114 of the SFO