With combined fund management business of HK$18,293 billion and HK$7,027 billion of assets managed in Hong Kong as of 31 December 2016, Hong Kong is Asia’s premier asset and wealth management centre. Asset management is conducted in Hong Kong by corporations licensed by, and banks registered with, Hong Kong’s Securities and Futures Commission (SFC). 1,348 corporations were licensed to conduct asset management as at 31 March 2017.
Asset management business conducted in Hong Kong includes retail, institutional, pension, private and other funds and mandates. Growth in Asian wealth has resulted in the growth of private wealth management business, which amounted to HK$5,203 billion in 2016. Overseas investors are the major source of funds, accounting for 66.3% of funds in 2016. Hong Kong is a leading equity funding centre; 54.3% of the assets managed in Hong Kong are invested in equities. Increased demand for bonds internationally and the depreciation of the renminbi (RMB) in 2016 led to greater allocation of assets into bonds and derivatives and to markets outside Hong Kong and Mainland China.
Hong Kong is also developing as a preferred domicile for the incorporation of funds, rather than just for the marketing and sales of funds. As at 31 March 2017, there were 735 SFC-authorised retail funds domiciled in Hong Kong with a total net asset value of US$132 billion. The establishment of the Mainland-Hong Kong Mutual Recognition of Funds (MRF) scheme in July 2015 was a significant milestone which allowed retail funds authorised by the SFC and Mainland authorities to be offered to investors in the other jurisdiction under a streamlined approval procedure. Similar arrangements were put in place with Switzerland in December 2016 and France in July 2017 which allow Hong Kong SFC-authorised funds to be distributed in Switzerland and France and Swiss and French public funds to be distributed in Hong Kong under streamlined vetting procedures. This is the first time Hong Kong funds have enjoyed direct access to European markets.
Asset management is a growth sector in Hong Kong as demonstrated by the continued increase in the number of SFC-licensed corporations and staff over recent years. 9,746 individuals were licensed for asset management as at 31 March 2017. While Hong Kong and the Mainland continue to account for the majority of asset investment, 2016 saw an increase in assets invested outside Asia Pacific to HK$2,073 billion. North America accounted for 14.3% of asset investment while the UK and Europe accounted for 7.8%.
Hong Kong also benefits from its role as the pre-eminent offshore RMB centre and its continued role in the transformation of the RMB to an internationally accepted and widely-used currency. The launch of Stock Connect broadened stock market access between the Mainland and Hong Kong markets, while Bond Connect consolidated Hong Kong’s pre-eminent position as an offshore RMB hub. This has had a significant effect on Hong Kong’s asset management business. As at 31 March 2017, there were 57 SFC-authorised RMB investment products totaling RMB 262 billion. Another significant trend has been the increase in the number of Mainland-related groups (313 as at 31 March 2017) which are licensed or registered by the SFC to conduct asset management. These managed 333 SFC-authorised funds with an aggregate net asset value of HK$300 billion as at 31 December 2016.
A further key development was the establishment of a legal framework for open-ended fund companies (OFCs) which allows investment funds to be established in corporate form as an alternative to establishment as a unit trust.
In terms of product development, the first batch of leveraged and inverse (L&I) products and exchange traded funds (ETFs) tracking foreign stock indices were authorized by the SFC in June 2016, and the first batch of 17 L&I products tracking Hong Kong stock indices obtained SFC authorization in March 2017. The SFC has also endeavoured to improve the efficiency of its fund authorization and approval process and a revamped process for unit trusts and mutual trusts resulted in a reduction in fund application processing times from 4.5 months to 2.2 months as of the end of March 2017.
In terms of the regulation of asset management, in addition to a requirement for entities conducting asset management to be licensed by the SFC (or registered if they are a bank), the SFO requires that funds which are to be offered to the public must be authorized by the SFC and comply with relevant provisions of its Handbook for Unit Trusts and Mutual Funds, Investment-Linked Assurance Schemes and Unlisted Structured Investment Products (SFC Handbook). However, the overwhelming majority of funds offered in Hong Kong are structured so as not to require SFC authorisation – either through offers restricted to professional investors (as defined in Securities and Futures Ordinance (SFO)) or in private placements offered to less than 50 potential investors.
The following considers Hong Kong regulation of funds in terms of: (i) permitted fund vehicles; (ii) the requirement for SFC authorisation of retail funds to be offered in Hong Kong; (iii) the requirements for the marketing of non-retail funds in Hong Kong; (iv) the requirements for Hong Kong fund managers to be licensed in Hong Kong; (v) licensing requirements for Hong Kong distributors of funds; (vi) the Hong Kong tax treatment of funds; (vii) the Hong Kong China Stock Connect scheme; and (viii) the Hong Kong China Mutual Recognition of Funds scheme.
1. Fund vehicles and structures
Historically, the majority of funds offered in Hong Kong have been established offshore in tax neutral jurisdictions such as the Cayman Islands or the British Virgin Islands. The most common types of vehicles used are companies (including segregated portfolio companies) and limited partnerships.
Corporate hedge funds can exist as stand-alone funds or may be organised into a master-feeder structure, under which multiple feeder funds catering for different investors feed their assets into a master fund which act as their single investment vehicle.
The advantage of this structure is that it is a more familiar structure to target investors and easier to establish. When used for a master-feeder structure, the fund can comply with or benefit from the regulatory environment (especially the tax position) applicable to different target investors in the fund.
The disadvantage of the structure is that the constitutional documents of the fund will not normally be negotiated by the investors.
1.2 Segregated Portfolio Companies
A segregated portfolio company (SPC) established under Cayman Islands law in currently the most popular method of establishing an umbrella structure. Multiple segregated portfolios (SP) can be created under the SPC “umbrella”, with each SP functioning like a subsidiary of the SPC and having a separate pool of assets and separate liabilities. Each sub-fund may have its own manager, follow its own investment strategy and have its own separate pool of assets. Significantly, the liabilities generated from the trading activities of each sub-fund can be ring-fenced and contained to the assets only of that sub-fund.
This structure dispenses with the need to incorporate a new company for every new fund and makes the setting up process much cheaper and more efficient.
The effectiveness in asset segregating among the SPs is untested in other jurisdictions. Even under Cayman Island bankruptcy laws, the risk of cross-contamination is not definitely alleviated.
1.3 Limited partnerships
Investors hold interests as limited partners in proportion to their investment, and share in the profits or loss of the fund in that proportion. As limited partners, their exposure is limited to the amount they invest. The general partner has unlimited liability but would typically itself be a company incorporated with limited liability.
This structure is popular with US investors for reasons of tax efficiency. It also provides greater flexibility in negotiating terms.
However, investors cannot benefit from the profits tax exclusion available specifically to corporate funds. It may also be costly where the limited partnership agreement is heavily negotiated by the core investors.
1.4 New Hong Kong Open Ended Funds company law
The Securities and Futures (Amendment) Ordinance 2016 was passed in June 2016 to allow an open-ended investment fund to be established in corporate form under the SFO. Previously open-ended funds could only be established in Hong Kong as unit trusts. The introduction of the new open ended fund company (OFC) structure is aimed at encouraging more funds to domicile in Hong Kong and to further boost Hong Kong’s position as an international fund centre.
An OFC is an open-ended collective investment scheme set up in the form of a company, but with the flexibility to create and cancel shares in order to meet shareholder subscription and redemption requests, which is not currently possible for conventional companies. Also, OFCs will not be bound by restrictions on distribution out of share capital applicable to companies formed under the Companies Ordinance, and instead may distribute out of share capital subject to solvency and disclosure requirements. An OFC could be a publicly or privately offered fund. OFCs will also be able to adopt an umbrella fund structure, allowing for sub-funds, where the assets of each sub-fund are managed in accordance with the investment objectives and policies specific to that sub-fund.
The profits tax exemption under section 26A of the Inland Revenue Ordinance (Cap. 112) (discussed below) will apply to publicly offered OFCs and to privately offered OFCs whose central management and control is located outside Hong Kong. Onshore privately offered OFCs will remain subject to profits tax.
The Stamp Duty Ordinance (Cap. 117) will be amended so that the stamp duty treatment of OFCs will be the same as for unit trusts. That is to say that:
- Transfers of OFC shares will be subject to stamp duty. However allotments and redemptions of OFC shares will be exempt from stamp duty and thus transfers of OFC shares which are affected by way of allotment and redemption will also be exempt.
- Where an OFC is authorised by the SFC for public offering, in-kind allotments and redemptions of shares will not be subject to stamp duty.
The Amendment Ordinance sets out the broad framework for OFCs in Hong Kong. The detailed operational and procedural requirements will be set out in subsidiary legislation (the OFC Rules) and a new OFC Code which are the subject of a public. The Amendment Ordinance will take effect on a date to be set by the government once the detailed rules and procedures have been settled.
2. Authorisation of Retail funds
Retail funds must be authorised by the SFC under section 104 of the SFO and must comply with the subsidiary legislation and the relevant codes and guidelines issued by the SFC. In particular, in order to be authorized for retail distribution, a fund must comply with the requirements of the Code on Unit Trusts and Mutual Funds (the Code) set out at Section II of the SFC Handbook.
Set out below are some of the key requirements for SFC authorisation of retail funds as set out in Chapter 7 of the Code.
2.1 Appointment of Trustee/Custodian
Funds established under a trust must appoint a trustee while funds established as a mutual fund corporation must appoint a custodian, which in either case must be acceptable to the SFC. Entities eligible to act as a fund trustee or custodian are:
- Banks licensed under Hong Kong’s Banking Ordinance and trust companies which are subsidiaries of such banks;
- A trust company which is registered under Part VIII of the Trustee Ordinance; and
- Banks and trust companies incorporated outside Hong Kong which are acceptable to the SFC.
A trustee/custodian must have minimum issued and paid-up capital and non-distributable capital reserves of HK$10 million (or its foreign currency equivalent). Where the trustee/custodian is a wholly-owned subsidiary of a substantial financial institution (the holding company) it may have issued and paid-up capital and non-distributable capital reserves of less than HK$10 million provided that:
- The holding company issues a standing commitment to subscribe sufficient additional capital up to the required amount, if so required by the SFC; or
- The holding company undertakes that it will not let its wholly-owned subsidiary default and would not, with the SFC’s prior approval, voluntarily dispose of, or permit the disposal or issue of any share capital of the trustee/custodian such that it ceases to be a wholly-owned subsidiary of the holding company.
2.2 Appointment of a management company
The fund must appoint a management company whose primary business is fund management and has a minimum issued and paid-up capital and capital reserves of HK$1 million (or its foreign currency equivalent). The management company must not lend to a material extent and must maintain a positive net asset position at all times.
The directors of a management company must be of good repute and possess the necessary experience to perform their duties.
If the management company conducts fund management activities in Hong Kong, it must be licensed by the SFC for regulated activity Type 9 (asset management).
2.3 Appointment of an auditor
The management company or the directors of a mutual fund corporation must appoint an auditor of the fund which must be independent of the management company, the trustee/custodian and, in the case of a mutual fund corporation, its directors. The fund’s annual report must be audited by the auditor and contain the information required by Appendix E to the Code.
2.4 Investment: Core Requirements
- Spread of Investments
- The value of a scheme’s holding of securities issued by a single issuer cannot exceed 10% of its total net asset value. A waiver of this provision may be granted for a fund whose sole objective is to track an index with constituent stocks exceeding 10%.
- A fund cannot hold more than 10% of any ordinary shares issued by any single issuer.
- The value of a scheme’s holding of securities that are neither listed, quoted nor dealt in on a market cannot exceed 15% of its total asset value.
- Notwithstanding (a) and (b) above, up to 30% of a fund’s total net asset value can be invested in Government and other public securities of the same issue.
- Prohibition on Real Estate Investments
- Warrants and Options
- Funds can invest in options and warrants for hedging purposes.
- In addition to (a) above, the value of a fund’s investment in warrants and options not held for hedging purposes in terms of the total amount of premium paid must not exceed 15% of the fund’s total net asset value.
- The writing of uncovered options is prohibited.
- The writing of call options on portfolio investments cannot exceed 25% of a fund’s total net asset value in terms of exercise price.
- Future and Commodities
- A fund can enter into financial futures contracts for hedging purposes.
- A fund can additionally enter into futures contracts on an unhedged basis provided that the net total aggregate value of contract prices payable to or by the fund under all outstanding futures contracts, together with the aggregate value of holdings of physical commodities and commodity-based investments must not exceed 20% of the fund’s total net asset value.
- Investment in Other Funds
- The value of a fund’s holding of units or shares in other funds (underlying funds) which are non-recognised jurisdiction schemes and are not authorised by the SFC must not in aggregate exceed 10% of its total net asset value.
- The objective of an underlying fund must not be to invest primarily in any investment prohibited by Chapter 7 of the Code, and where an underlying fund’s objective is to invest primarily in restricted investments, such holdings must not exceed any relevant limitation.
- Limitation on Charges
- If a fund invests in an underlying fund managed by the same management company or its connected persons, all initial charges on the underlying fund must be waived.
- The management company of a fund cannot obtain a rebate on any fees or charges levied by an underlying fund or its management company.
- Notwithstanding the above, a fund may invest all its assets in a single fund and be authorised as a feeder fund. In this case:
A fund cannot invest in any type of real estate (including buildings) or interests in real estate (including options or rights but excluding shares in real estate companies and interests in real estate investment trusts (REITS).
- the underlying fund must be authorised by the SFC;
- the offering document must state that the fund is a feeder fund into the underlying fund and that the fund and its underlying fund will be deemed a single entity for the purpose of complying with the investment restrictions;
- the feeder fund’s borrowing cannot exceed 10% of its total net asset value and should be restricted to facilitating redemptions or defraying operating expenses; and
- no increase in the overall total of initial charges, management company’s annual fee, or other costs and charges payable to the management company or its connected persons borne by the holders may result, if the funds in which a fund invests are managed by the same management company or its connected persons.
No short sale may be made which will result in the fund’s liability to deliver securities exceeding 10% of its total net asset value. The security which is to be sold short must be actively traded on a market where short selling activity is permitted.
A fund cannot lend, assume, guarantee, endorse or otherwise become liable for any obligation or indebtedness of any person without the prior written consent of the trustee or custodian.
A fund must not acquire any asset which involves its assumption of unlimited liability.
Funds cannot invest in any security in any company or body if a director or officer of the management company individually owns more than 0.5% of the total nominal amount of all the issued securities of that class, or, collectively the directors and officers of the management company own more than 5% of those securities.
A fund’s portfolio cannot include any security where a call is to be made for any sum unpaid on that security unless that call could be met in full out of cash or near cash by the fund’s portfolio.
A fund’s maximum borrowing cannot exceed 25% of its total net asset value (however back-to-back loans do not count as borrowing).
The above provisions apply to each sub-fund of an umbrella fund as if each sub-fund were a separate fund, except for (i)(b) above where the total collective investment by the sub-funds in any ordinary shares issued by any single issuer must not exceed 10%.
Where the investment limits of Chapters 7 and 8 of the Code are breached, the management company must take all steps necessary to remedy the situation within a reasonable period of time, taking due account of the interests of holders.
2.5 Additional Requirements for Authorisation of Retail Hedge Funds
Chapter 8 of the Code sets out the following requirements for hedge funds seeking SFC authorisation:
- A minimum subscription amount per investor of:
- US$50,000 for a single hedge fund;
- US$10,000 for a fund of hedge funds (FoHF), where a fund invests all its non-cash assets in other hedge funds.
There is no minimum subscription level for a fund providing a 100% capital guarantee.
- a fund may not invest in any type of real estate;
- a fund may not lend, guarantee, endorse or otherwise become directly or contingently liable for any obligation or indebtedness of any person without the prior written consent of the trustee/custodian;
- a fund may not acquire any asset which involves the assumption of any liability which is unlimited;
- An FoHF:
- must invest in at least 5 underlying funds, and not more than 30% of its total net asset value may be invested in any one underlying fund; and
- may not invest in another FoHF.
2.6 Authorisation Procedure
The SFC has adopted a “two-stream” approach for new fund applications: the “standard” and “non-standard” application streams.
- The Standard Applications stream
The standard applications stream fast-tracks applications and grants SFC authorisation within an average of 1 to 2 months from the acceptance date of the application. The criteria for the standard applications stream are that:
- the fund(s) under application is/are sub-fund(s) under an existing SFC-authorised umbrella fund;
- the relevant new sub-fund is: (i) a fund which complies with Chapter 7 of the Code or a UCITS fund which does not use financial derivative instruments extensively for investment purposes; or (ii) a physical exchange-traded fund (ETF) or unlisted index fund tracking an index which is adopted by other existing SFC-authorised fund(s) or is a plain vanilla index;
- the new sub-fund(s) is/are not seeking authorisation as approved pooled investment fund(s) under the SFC Code on MPF Products;
- the new sub-fund(s) is/are managed by existing approved management company/delegated investment managers managing other existing SFC-authorised fund(s) with good regulatory records;
- the trustee/custodian of the new sub-fund(s) is acting as trustee/custodian of other existing SFC-authorised fund(s) which has confirmed its continuous compliance with the requirements applicable to the trustee/custodian of SFC-authorised funds;
- the application documentation is complete and in good order and quality; and
- there are no material issues and/or policy implications relating to the application as considered by the SFC.
This stream aims to process applications under an enhanced process by granting SFC authorisation within an average of 2 to 3 months from the acceptance date of an application. After taking up an application, the applicant will be given 14 business days to provide ‘proper, complete and substantive response(s)’ to the SFC’s first requisition and 10 business days to respond to any subsequent requisitions; failure to comply within the time limit might result in the refusal of the application subject to the SFC’s right to grant an extension at its sole discretion.
Additionally, if an application is deemed to be incomplete and/or does not comply with the regulatory requirements, the SFC reserves its right not to process and to return the application to the applicant.
3. Non-retail Funds
The vast majority of funds offered in Hong Kong are structured so that they do not need to be authorised by the SFC. These funds are primarily regulated through the regulation of their Hong Kong-based fund managers. These fund managers must generally be licensed under Part V of the SFO in order to engage in the relevant types of regulated activities, such as asset management and dealing in securities. The fund managers must comply with the approval criteria for licensing as well as on-going obligations imposed on licensed corporations relating to, among others, its financial resources and fitness and properness of the fund, its substantial shareholders and officers, in order to be and remain licensed by the SFC.
4. Marketing of Funds
The requirements for marketing Hong Kong-established funds and overseas-established funds in Hong Kong are the same.
4.1 Requirement to be licensed
The marketing of funds generally falls within the scope of Type 1 (dealing in securities) regulated activity. Any person carrying on a business in a regulated activity needs to be licensed by the SFC for the relevant regulated activity.
A fund manager licensed for Type 9 (asset management) regulated activity is permitted to market the hedge fund(s) under its management without being separately licensed for Type 1 as the SFO allows a Type 9 licensee to carry on Type 1 (dealing in securities) regulated activity solely for the purpose of carrying on its asset management business. However, the SFC interprets this exemption narrowly. The SFC has said that where a fund manager who is already licensed for Type 9 regulated activity engages in marketing activities relating to funds under its management, it may rely on this incidental exemption.
However, this exemption will not apply if a fund manager markets other funds which are not under its management. Such marketing activities will not be regarded as incidental to the fund manager’s Type 9 business, and the fund manager will need to be additionally licensed/registered for Type 1.
4.2 Marketing Retail Funds in Hong Kong
- The Offering Document and Product Key Facts Statement
In order to be authorised by the SFC, the fund must issue an offering document containing the information necessary for investors to be able to make an informed judgement of the investment proposed to them, and including the information listed in Appendix C to the Code which must be provided in English and Chinese, except where the SFC grants a waiver on the basis that the fund will only be offered to persons who are fully conversant in the language in it is intended to publish the information. The offering document must be accompanied by the fund’s most recent audited annual report and accounts and its semi-annual report if published after the annual report. The offering document may not include a forecast of the fund’s performance, although publication of a prospective yield does not constitute a performance forecast.
The fund must also issue a Product Key Facts Statement (KFS) setting out the key features and risks of the fund. The Product KFS is deemed to form part of the offering document.
The level or basis of calculation of all costs and charges payable from a fund’s property must be clearly stated, with percentages expressed on a per annum basis. The aggregate level of fees for investment management or advisory functions should also be disclosed. If a performance fee is payable, it can only be payable once annually and if the net asset value per unit/share exceeds the net asset value per unit/share on which the performance fee was last calculated and paid
4.3 Marketing Non-retail Funds
Funds cannot be marketed to the Hong Kong public if they have not been authorized by the SFC for retail distribution. It is however possible to rely on a number of exemptions from the requirement to be authorised by the SFC. Key exemptions include those for funds offered only to professional investors or those offered in a private placement to a limited number of investors.
Professional investors are defined in the SFO and in the Securities and Futures (Professional Investor) Rules (the PI Rules). They include:
- institutional professional investors (e.g. SFC licensed corporations and investment intermediaries regulated offshore, Hong Kong authorised banks and overseas regulated banks and SFC authorised funds and their operators and overseas regulated funds and their operators);
- corporate professional investors including companies and partnerships having a portfolio of at least HK$8 million or total assets of at least HK$40 million and trust companies that have total assets under trust of at least HK$40 million; and
- individual professional investors with a portfolio of at least HK$8 million.
The exemptions available for the marketing of funds which will not obtain SFC authorization depend upon whether the fund is established as a corporate fund or as a unit trust or limited partnership. Essentially, corporate funds benefit from a broader range of exemptions.
- Exemptions available to corporate funds
For unauthorised corporate funds, the Seventeenth Schedule to the Companies (Winding Up and Miscellaneous Provisions) Ordinance provides exemptions which allow:
- An unauthorized fund to be marketed to an unlimited number of professional investors and up to a maximum of 50 non-professional investors;
- A fund for which the total consideration payable is no more than HK$5 million to be offered without SFC authorisation; or
- A fund for which the minimum amount to be subscribed by investors is at least HK$500,000 to be offered without SFC authorisation.
There are two exemptions from the SFC authorisation requirement which are available to funds established as unit trusts or limited partnerships. These are for funds offered only to professional investors (as defined in the SFO and the PI Rules) and for funds which are offered in private placements to no more than 50 potential investors.
5. Hong Kong Licensing Requirements
For a corporation to be licensed to carry out regulated activities in Hong Kong, section 116 (2) of the SFO requires that it has to be either a company incorporated in Hong Kong or an overseas company registered under Part XI of the CWUMPO having a principal place of business in Hong Kong (i.e. branch company). While it may be possible to set up an overseas incorporated parent and subsequently register a branch in Hong Kong, the Hong Kong SFC prefers the use of Hong Kong incorporated companies and has expressed a strong preference against the use of a branch. This is because, inter alia:
- the SFC feels more comfortable from an enforcement perspective with the use of a locally incorporated entity;
- from the perspective of record keeping, it is impracticable for the records of an overseas parent company to be kept in Hong Kong;
- from the financial reporting perspective, there are higher compliance costs associated with periodic reporting of consolidated financial statements that satisfy Hong Kong requirements;
- the SFC has a preference for statutory required capital of the licensed corporation to be kept in Hong Kong; and
- there is almost no precedent in Hong Kong for the use of a branch as a licensed corporation.
A corporation which will conduct fund management activities in Hong Kong must be licensed for regulated activity Type 9. A corporation which will market funds in Hong Kong will require a regulated activity Type 1 (dealing in securities) licence, unless it will only distribute funds managed by it in Hong Kong and it holds a Type 9 licence. A corporation which plans to sell funds in Hong Kong (of which it is not the fund manager) may additionally apply for a licence for regulated activity Type 4 (advising on securities).
Set out below are the minimum capital requirements for types 1 and 9 regulated activities as required under the SFO. Please note that the highest capital requirement as set out below will be applicable depending on which regulated activities will be carried out.
Minimum paid-up share capital
Minimum liquid capital
in any other case
Responsible officer (RO)
A licensed corporation is required to appoint two ROs who have been approved by the SFC as ROs in relation to each of its regulated activities (however, the same individual may be appointed to be a responsible officer for more than one regulated activity). At least one of the ROs must be an executive director (defined as a director who actively participates in, or is responsible for directly supervising, the business of a regulated activity for which a corporation is licensed). In addition, every executive director of the licensed corporation must be approved by the SFC as an RO in relation to the regulated activity in which he participates or supervises.
At the same time, at least one RO has to be available at all times to supervise the business of the regulated activity. It is not strictly necessary for an RO to reside in Hong Kong provided he is able to satisfactorily discharge his responsibility to supervise the business. Relevant factors will include the frequency of the RO’s visits to attend to regulated activities in Hong Kong and the internal control systems.
The SFC published a circular in June 2007 (the Circular) setting out initiatives for simplifying and streamlining its licensing process for fund managers. The initiatives are directed primarily at overseas hedge fund managers, although the Circular states that the SFC will apply similar principles to the licensing of fund managers generally where they will only be serving professional investors and it is warranted by the circumstances of the particular case.
Streamlined Licensing Process For UK Or US Licensed/Registered Hedge Fund Managers
An expedited licensing process applies to firms that are already licensed or registered by the US SEC or the UK FSA as investment managers or advisers if they have a good compliance track record and serve only professional investors (or have parent companies that satisfy the first two of these requirements). On submission to the SFC of a set of completed licence application forms relevant to a firm’s intended business activities in Hong Kong, the SFC will commence a streamlined review process focusing on key areas of operations such as risk management, valuation, internal controls and management of conflicts of interest. Firms that are not licensed or registered in the US or UK as investment managers or advisers, but which have proven track records (or have parent companies with proven track records), may also benefit from the streamlined review process. All licensing applications are considered by the SFC on a case-by-case basis.
Competence Requirements for Responsible Officers
The SFO requires every licensed company to have at least two Responsible Officers (ROs) approved by the SFC for each of the regulated activities for which it is licensed. In addition, every executive director of a licensed corporation must be approved by the SFC as a RO and every licensed corporation must have at least one RO who is an executive director. An “executive director” is a director who actively participates in, or who is responsible for directly supervising, the business of a regulated activity for which a corporation is licensed (Section 113 SFO). The SFC’s Guidelines on Competence further require that a RO must have at least 3 years’ relevant industry experience over the 6 years immediately preceding the date of his/her application to the SFC for approval as an RO. To cater for an increasing number of overseas hedge fund managers applying for a licence for Type 9 Regulated Activity (asset management) the SFC has clarified its requirements for ROs of an overseas hedge fund manager applying for a Type 9 licence which are:
- Physical presence of ROs in Hong Kong
- “Relevant industry experience”
- Exemption from the local regulatory examination
At least one of the ROs must be based in Hong Kong and immediately contactable at all times by the SFC and the hedge fund manager’s staff working from its Hong Kong office. If only one RO is based in Hong Kong, he/she must not be subject to the “non-sole” condition, which means that the individual must have industry experience that the SFC considers to be directly relevant to hedge fund management (see further at paragraph (b) below).
The SFC will recognise a broader range of industry experience as satisfying the relevant industry experience requirement for ROs of hedge fund managers. Experience acquired from asset management, proprietary trading, research, private equity, special situations, and experience in dealing with other alternative investments will be considered as industry experience directly relevant to hedge fund management. Experience acquired by individuals in sales, marketing or risk management of hedge funds will however be considered as experience indirectly relevant to hedge fund management business. The SFC will therefore only accept individuals with indirectly relevant experience as ROs if a licensing condition known as the “non-sole” condition is imposed at the time of their approval. The imposition of a non-sole condition means that where an RO (without directly relevant industry experience) actively participates in or directly supervises the business for which the firm is licensed, he must do so under the advice of another RO who is not subject to the “non-sole” condition.
An individual may be exempted from meeting the local regulatory examination requirement for ROs if the following conditions are met:
- the person has over 8 years of industry experience in recognised markets (i.e. Specified Futures and Stock Exchanges identified in Parts 2 and 3 of Schedule 1 of the SFO). Alternatively, the person must already be registered or licensed in the UK or US for investment management or advisory business;
- the firm serves only professional investors (see above);
- the firm is able to confirm that regulatory and compliance support will be provided to the person; and
- the person takes a post-licensing refresher course on local regulations.
Exemption from Licensing Requirement for Providing Intra-Group Investment Advice
The SFO exempts Hong Kong based firms from being licensed where they merely provide research to their group companies outside Hong Kong. Some overseas hedge fund managers only wish to set up an investment research operation in Hong Kong, to provide research on securities in Asia to their group companies outside Hong Kong. A firm may be exempt (under the SFO) from the obligation to be licensed to carry on business in Type 4 (advising on securities) and/or Type 5 Regulated Activity (advising on futures contracts) if it is only advising on securities and/or futures contracts to any of its wholly owned subsidiaries, its holding company that wholly owns the firm or other wholly owned subsidiaries of that holding company (“group companies”). The SFC will normally regard an overseas hedge fund manager as being able to rely on this exemption if its Hong Kong office only provides investment advice/research reports to its group companies outside Hong Kong. However, the group companies must assess the advice or reports before issuing any of the material to clients in their own name. Where a hedge fund manager sends out research analysis and/or provides investment advice to external clients, it may be required to obtain a licence to carry on business in Type 4 or 5 Regulated Activity. Hedge fund managers that carry on the business of portfolio management of securities and/or futures contracts in Hong Kong must obtain a licence to carry on business in Type 9 Regulated Activity.
The SFC does not specifically prescribe the type of office space that hedge fund managers may occupy and they make no distinction between business centres or serviced offices and other types of business accommodation. Licensed firms may choose their preferred business premises and should ensure that their business premises are, at all times, suitable for the purposes for which they are being used. In particular, firms must satisfy themselves that the business premises occupied by them are appropriately secure and that confidential/non-public information (such as price sensitive information) and client privacy will be sufficiently safeguarded against unauthorised access or leakage.
6. Regulation of hedge funds
6.1 Key requirement
Managers managing a hedge fund (whether local or foreign) in or from Hong Kong must be licensed for Type 9 (asset management) regulated activity and must comply with the FMCC, which applies to managers of both authorised and unauthorised funds.
A hedge fund manager must be fit and proper to be and remain licensed, including having the ability to carry on the regulated activity competently. In assessing competence, the SFC will consider whether the manager has the proper business structure, good internal systems and qualified personnel to enable it to properly manage the risks it will encounter in carrying on its business as detailed in its business plan.
6.3 Valuation and pricing
The Fund Manager Code of Conduct (FMCC) requires a manager to value the portfolio regularly and on the valuation basis disclosed to clients, and sets out the default rules of valuation for securities. The manager must ensure that a valuation is carried out, in accordance with the fund’s constitutional documents, to calculate accurately the net asset value of the fund.
6.4 Systems and controls
In addition to risk management systems and controls, hedge fund managers should comply with the SFC’s recommendations set forth in its Management, Supervision and Internal Control Guidelines for Persons Registered with or Licensed by the Securities and Futures Commission (Guidelines), which cover a range of internal control matters such as segregation of duties, training and audit policies. A failure to substantially follow the Guidelines tends to reflect adversely on the manager’s fitness and properness as a licensed corporation (see above, Risk).
6.5 Insider dealing and market abuse
Hedge funds or their managers will be liable if they engage in (or attempt to, assist, counsel or procure another person to engage in) any of the six forms of market misconduct prohibited under the SFO:
- Insider dealing
- False trading
- Disclosure of information about prohibited transactions
- Disclosure of false or misleading information, inducing transactions
- Stock market manipulation
The civil sanctions include:
- Disgorgement of profits;
- Cease and desist orders;
- Cold shoulder orders (banning a person or entity from operating on a securities market);
- Disqualification from directorship or management of a company; and
- Suspension or revocation of an SFC licence.
Criminal penalties include up to ten years’ imprisonment and fines of up to HK$10 million.
6.6 Money laundering
The Anti-Money Laundering and Counter-Terrorist Financing (Financial Institutions) Ordinance (AMLO) applies to licensed corporations including hedge fund managers. The AMLO imposes customer due diligence and record keeping requirements. A fund manager will commit an offence if it knowingly fails to take all reasonable measures to ensure proper safeguards exist to prevent non-compliance or generally to mitigate money laundering and terrorist financing risks.
Managers must also:
- Not engage in certain prohibited acts which may facilitate money laundering or terrorist financing activities under the Organised and Serious Crimes Ordinance, the Drug Trafficking (Recovery of Proceeds) Ordinance and the United Nations (Anti-Terrorism Measures) Ordinance.
- Have systems in place to prevent a failure to report those activities and the tipping off of persons involved in those activities in accordance with these ordinances.
6.7 Disclosure of interests
A hedge fund which becomes interested in 5% or more of the voting shares of a company listed on the Hong Kong Stock Exchange has an obligation to disclose that interest to the Exchange and the company concerned normally within 3 business days. Further notices must be given of any increase or decrease in that interest which crosses a whole percentage figure above 5% (e.g. an increase from 5.9 to 6.2%). Once a hedge fund holds 5% of a Hong Kong listed company, it must also disclose any short position of more than 1% and any increase or decrease in the short position which crosses a whole percentage figure.
6.8 Short selling
The SFO prohibits “naked” short selling, which means that short sellers must arrange to borrow stocks before they execute short sales. “Covered” short selling is only allowed for more liquid stocks (including collective investment schemes) designated by the Stock Exchange of Hong Kong Limited (SEHK). The SEHK imposes the “uptick rule” under which short sales cannot take place at less than the best ask price, in order to prevent short sales having an abnormal effect on market prices.
Short sellers must also report to the SFC, on a weekly basis, short positions in certain listed securities (including collective investment schemes) on the SEHK that reach the lower of:
- HK$30 million in value; or
- 0.02% of the issued share capital of the particular listed company,
under the Securities and Futures (Short Position Reporting) Rules.
6.9 Assets portfolio
The Fund Manager Code of Conduct (FMCC), which applies to managers of both authorised and unauthorised hedge funds, requires a fund manager to ensure that the assets entrusted to it are properly safeguarded. This means that it should either:
- retain the responsibility for safekeeping in a segregated trust account, if permitted by the terms of its licence; or
- arrange for the appointment of a custodian, taking all reasonable steps to:
- ensure that the custodian is properly qualified for the performance of its functions;
- satisfy itself as to the continued suitability and financial standing of the appointed custodian on an on-going basis.
A custodian appointed by a fund manager should be a registered trust company, an authorised financial institution or the subsidiary of a licensed bank, or equivalents regulated overseas, or another appropriately qualified institution appointed with the client’s prior written consent.
6.10 Filing requirements
Except as mentioned above, there are no prescribed disclosure or filing requirements for an unauthorised hedge fund.
However, in relation to side letters which typically include preferential terms, the SFC expects hedge fund managers, as a matter of good practice, to disclose material terms to all existing and potential investors and highlight, where applicable, that side letters have been entered into only with investors with a significant shareholding or interest.
6.11 Transfers to third parties
There are no regulatory restrictions on the right of participants to transfer their interests to third parties. Where the transferor is selling as principal it can do so without a licence. Marketing an interest to sell, however, will usually amount to dealing in securities. However, funds commonly impose restrictions on transfers to persons whose holding of interests in the fund would be illegal or which could result in regulatory, pecuniary, legal, taxation or material administrative disadvantage for the fund or its unitholders or shareholders generally.
7. Tax treatment
7.1 Tax treatment of funds
Profits tax (currently at a rate of 16.5%) may be payable by an unauthorised fund if the fund is treated as carrying on a trade or business in Hong Kong, in respect of any trading profits which arise in or derive from Hong Kong. These amounts may include profits arising from:
- the sale of securities (except those held as capital assets) listed on SEHK;
- off-exchange transactions in the sale of unlisted securities where the contracts of sale and purchase are effected in Hong Kong.
Non-Hong Kong resident funds are exempt from profits tax in respect of specified types of transactions (and incidental transactions not exceeding a certain threshold) which are carried out through, or arranged by, a licensed corporation such as a Type 9 manager. Place of incorporation is not a decisive factor in determining residency and the fund’s central management and control must not be exercised in Hong Kong. This generally means that most of the directors of a corporate fund should be resident outside of Hong Kong and its board meetings conducted offshore.
7.2 Resident investors
Profits tax is charged on a person carrying on a trade, profession or business in Hong Kong, in respect of income profits (and excluding capital gains profits) arising in or derived from Hong Kong from that trade, profession or business. However, profits tax will not normally be payable by investors in respect of profits or income derived from their investments in funds for the following reasons:
- Investors typically hold investments in funds for investment purposes rather than as part of a trade, profession or business.
- A gain from disposing of shares or units in a fund will normally be a capital gain.
- Dividends received by an investor in corporate funds are specifically excluded from profits tax.
Notably, there are anti-avoidance deeming provisions whereby a Hong Kong resident investor who is deemed to derive taxable profits by reference to his interest in an exempt non-Hong Kong resident fund if, alone or jointly with his associates, he:
- holds a beneficial interest of 30% or more in that fund; or
- holds any level of interest and is an associate of that offshore fund.
This does not apply if the Hong Kong Inland Revenue Department is satisfied that the underlying interests in the fund are bona fide widely held.
7.3 Non-resident investors
Exposure to Hong Kong profits tax is unlikely as non-resident investors are unlikely to be carrying on a trade, profession or business in Hong Kong (see above, Resident investors).
8. Shanghai-Hong Kong Stock Connect
The Hong Kong-Shanghai and Hong Kong-Shenzhen Stock Connect programmes enable Hong Kong-based fund managers to invest in Shanghai-listed and Shenzhen-listed stocks directly. Existing RQFII funds including ETFs can now utilise Stock Connect as a cheaper conduit to gain direct access to A shares. The Stock Connect’s design was based on a desire to ensure minimal change to the regulatory structure of both markets and the control of cross-border fund flow. The model has also been extended to bonds under the Bond Connect programme. The Mainland-Hong Kong mutual recognition of funds scheme (MRF) which came into effect on 1 July 2015 is also based on the Stock Connect model.
8.1 Stocks Eligible for Northbound Trading
Hong Kong and international investors can currently trade the following Shanghai-listed A shares:
- all constituent stocks of the SSE 180 and SSE 380 Indices; and
- all SSE-listed A shares that are not constituent stocks of the relevant indices but which have corresponding H shares listed on the Hong Kong Stock Exchange (HKEx).
Other product types such as B shares, Exchange Traded Funds (ETFs), bonds and other securities are not included under the initial stage.
The following shares are excluded:
- SSE-listed shares which are not traded in RMB; and
- SSE-listed shares which are included in the risk alert board.
Northbound trading is currently limited to secondary market trading. Hong Kong and overseas investors are not therefore able to participate in initial public offerings (IPOs) on the SSE. The full list of SSE Securities eligible for trading is published on the HKEx website.
HKEx provides the following guidance on eligibility for Northbound Trading in the following circumstances:
SSE-listed security not accepted as a SSE Security upon the launch of Stock Connect due to its being under “risk alert”
It will be accepted as an SSE Security upon its subsequent removal from the “risk alert board”, if it is still a constituent stock of the relevant indices, or if its corresponding H share continues to be listed and traded on the HKEx.
Investors will be allowed to sell the SSE Security but restricted from further buying.
A PRC company seeks simultaneous listing on both SSE (as A share) and HKEx (as H share)
The relevant A share will be accepted as an SSE Security after both the A share and H share have passed the stabilisation period.
Where a PRC company whose share is listed on HKEx (as an H share) seeks an A share listing on SSE
The A share will be accepted as an SSE Security after the A share has passed the stabilisation period required by the SSE. Where practicable, announcements will be made to inform the market of the date of an individual stock becoming an SSE Security after the stabilisation period.
The corresponding H share of an SSE Security is suspended from trading on HKEx
Investors can continue to buy and sell the SSE Security which is not suspended from trading on SSE.
As of May 2015, the SFC had authorised a total of 91 RQFII/Renminbi Stock Connect funds and ETFs. After the completion of its first year in 2015, the Shanghai and Hong Kong stock connect traded HK$2.534 trillion worth of shares under the scheme. Northbound trade with international investors dealing was at a total of 1.471 trillion yuan (HK$1.756 trillion) worth of Shanghai-listed A-shares in 2015 via Hong Kong brokers, while the southbound trade with mainlanders hit a total of HK$777.73 billion worth of Hong Kong stocks. The average daily turnover under the connect scheme represent about 1 per cent of trades in the entire market while only 40 per cent of the quota of 300 billion yuan in northbound and 250 billion yuan in southbound was used. In the first quarter of 2016, Northbound trade into Shanghai was approximately at 180 billion yuan (HK$215 billion), which was a 41% decrease year-on-year; while southbound trade into Hong Kong was approximately at 125 billion yuan, which was a 64% increase year-on-year.
9. Hong Kong-China Mutual Recognition of Funds Scheme
On 1 July 2015, Mainland-Hong Kong Mutual Recognition of Funds Scheme (MRF) was launched with a total investment quota of RMB 600 billion (RMB 300 billion for in and out fund flows each way). It is based on a Memorandum of Regulatory Cooperation on Mainland-Hong Kong Mutual Recognition of Funds sighed by Hong Kong’s Securities and Futures Commission (SFC) and the China Securities Regulatory Commission (CSRC), which allows Mainland and Hong Kong funds authorised for retail distribution in their home jurisdiction to follow a streamlined procedure to obtain authorisation for retail distribution in the other market. However, the initiative does not permit funds authorised for retail distribution in their home market to be privately placed in the other market.
The MRF represents a further step in the opening up of Mainland China’s capital market and follows the success of the Shanghai-Hong Kong stock connect programme launched in November 2014. The SFC and CSRC expect the MRF to enhance the international competitiveness of both Mainland and Hong Kong fund markets and fund management companies and encourage the provision of more diverse fund investment products for Mainland and Hong Kong investors. The MRF is expected to further consolidate Hong Kong’s position as Asia’s leading asset management centre since only funds domiciled in Hong Kong and managed by an SFC-licensed fund manager will be eligible to apply for authorisation for Mainland retail distribution under the MRF.
The SFC has prepared the “Circular on Mutual Recognition of Funds between the Mainland and Hong Kong”4 (the MRF Circular). This document sets out the eligibility criteria, the procedures for application, the operational requirements and the MRF’s regulatory arrangements.
The basic principle underlying the MRF is that funds that have been authorised or registered with the relevant authority in one jurisdiction (the Home Jurisdiction) may seek authorisation or approval for retail distribution in the other jurisdiction (the Host Jurisdiction). In general, funds seeking retail distribution authorisation under the MRF must:
- satisfy the eligibility requirements imposed by the regulator of the Home Jurisdiction;
- remain authorised by or registered with the Home Jurisdiction regulator and be permitted to be marketed to the public in the Home Jurisdiction;
- generally operate and be managed in accordance with relevant laws and regulations of the Home Jurisdiction and their constitutive documents;
- be sold and distributed in the Host Jurisdiction in compliance with the laws and regulations of the Host Jurisdiction;
- comply with the additional rules released by the relevant authority in the Host Jurisdiction relating to authorisation or registration, post-authorisation and on-going compliance, and the sale and distribution of the fund in the Host Jurisdiction; and
- treat investors in the Home and Host Jurisdictions fairly and equally, including in respect of investor protection, exercise of rights, compensation and disclosure of information. Responsibility for this is placed on the fund manager.
The CSRC has issued Provisional Rules for Recognised Hong Kong Funds (the Provisional Rules) explaining the eligibility requirements for Hong Kong funds seeking authorisation for distribution in the Mainland as a Recognised Hong Kong Fund.
Types of Funds Allowed
Initially, only the following fund types are eligible for MRF authorisation:
- general equity funds;
- bond funds;
- mixed funds;
- unlisted index funds; and
- physical index-tracking ETFs.
The MRF may be extended to include other fund types in the future.
Funds seeking CSRC authorisation must satisfy the following requirements:
- they must be established and operated in Hong Kong in accordance with Hong Kong laws and regulations;
- they must be authorised by the SFC for retail distribution and regulated by the SFC;
- they must have been established for at least 1 year;
- they must have a custody arrangement and have a trustee and custodian that meet the relevant SFC requirements;
- they must have a minimum size of at least RMB 200 million or its foreign currency equivalent;
- the value of the fund’s shares/units which are sold to investors in the Mainland must be 50% or less of the value of the fund’s total assets;
- where the trust deed or constitutive documents provide for dispute resolution by way of litigation, the Mainland courts must not be excluded from entertaining an action in relation to the fund; and
- they must not primarily invest in the Mainland market. The requirement that funds must be established in Hong Kong means that funds that are established outside Hong Kong but are authorised for public distribution in Hong Kong, such as UCITS funds, will not be able to obtain authorisation under the MRF for Mainland distribution.
Requirements for Fund Managers of Hong Kong Funds
The Provisional Rules require the fund manager of a Recognised Hong Kong Fund to:
- be licensed by the SFC to conduct Type 9 (Asset Management) regulated activity;
- not have been subject to any material penalty imposed by the SFC during the previous 3 years (or since the date of its establishment if it has been established for less than 3 years); and
- not delegate its investment management function to a party operating outside Hong Kong.
The CSRC requires a Recognised Hong Kong Fund to engage a Mainland agent that is qualified to perform public fund management or custodial activities in Mainland China to be responsible for:
- the Recognised Hong Kong Fund’s registration and distribution in Mainland China;
- conducting compliance reviews;
- the distribution agreements with Mainland distributors (which can also be appointed by the fund manager);
- disclosure of information to Mainland investors via designated hubs;
- Mainland customer service; and
- regulatory reporting to the CSRC.
The Provisional Rules also require the fund manager to sign an agency agreement with the Mainland agent which clearly outlines matters such as the obligations of each party and the arrangements for expiry or termination of the agreement.
Sale, Distribution and Relevant Disclosure
Hong Kong laws and regulations govern the type of ongoing disclosure documents, the format, content, timing and frequency of disclosure, and the matters to be disclosed, unless the Provisional Rules provide otherwise.
The offering document of a Recognised Hong Kong Fund must be based on its SFC-approved offering document and must include additional information to address:
- risk factors and information specific to the MRF;
- the type, timing and means of fund disclosures to Mainland investors, including where these documents can be inspected;
- the rights and obligations of parties to the fund, including the procedures and requirements for fund investor meetings, the grounds on which fund documents may be terminated, and the dispute resolution mechanism;
- the types and nature of services provided to fund investors and relevant contact details;
- any major difference between the rights of Mainland and Hong Kong investors, and any other material information relevant to Mainland investors.
Recognised Hong Kong Funds are required to make the following documents available to Mainland investors 3 days prior to their Mainland distribution:
- a supplementary statement and disclosure of specific risks associated with Recognised Hong Kong Funds under the MRF in the product key facts statement;
- announcement of offering of fund units informing investors about matters such as account opening, settlement and clearance, registration, timing, and the fund’s distribution channels; and
- the fund’s trust deed or constitutive documents.
Announcements and financial reports in relation to Recognised Hong Kong Funds are required to be:
- released simultaneously to Mainland and Hong Kong investors;
- filed with the CSRC and SFC at the same time; and
- published on a website designated by the CSRC or on the Mainland agent’s own website.
Recognised Hong Kong Funds are required to prepare their offering document and other documents, including notices and announcements made to Mainland investors, in simplified Chinese and they should ensure that translation from other languages gives a true and accurate reflection of the original version, taking into account market practice and customary use of Chinese language in Mainland China.
As mentioned above, a qualified Mainland distributor is required to be appointed either by the fund manager or the Mainland agent. The parties need to sign a distribution agreement outlining their respective responsibilities.
Distribution of Hong Kong Recognised Funds under the MRF is also subject to relevant Mainland laws on marketing and promotion. The Provisional Rules provide that:
- the Mainland agent will be responsible for reviewing and commenting on marketing or promotional materials (where these are produced by the fund manager or another entity engaged by the manager) to be distributed to Mainland investors as to compliance with relevant Mainland laws and for filing the materials with the CSRC within 5 days of issue; and
- where marketing or promotional materials are prepared by the Mainland fund distributors, their senior management will be responsible for reviewing and commenting on those materials as to compliance with relevant Mainland laws and for filing the materials with the CSRC within 5 days of issue;
- marketing and promotional materials for Recognised Hong Kong Funds should be comprehensive, accurate and clear, and should indicate that the establishment, operation and disclosure of information regarding the funds are governed by Hong Kong law and regulations; and
- marketing and promotional materials which refer to appraisals or ratings by non-Mainland institutions should clearly indicate any difference in appraisal methods and results between non-Mainland and Mainland appraisal institutions.
CSRC Authorisation Application Procedures
An eligible Hong Kong fund may apply to the CSRC for authorisation for Mainland distribution under the MRF by submitting:
- a letter of application;
- The fund’s constitutive documents or trust deed;
- The offering document and product key facts statement;
- The latest audited annual report;
- An agency agreement between the fund manager and the appointed Mainland agent;
- Documents establishing the qualifications of the fund manager, trustee and custodian and of the Mainland agent under Mainland law;
- a legal opinion;
- other materials as may be requested by the CSRC; and
- an explanation of any key differences between the version of the above documents authorized by the SFC and the version submitted to CSRC.
The CSRC will review the application in accordance with Article 55 of the Fund Laws and inform applicants of the results of authorisation within 6 months of accepting the application.
Enforcement and Regulator Briefings
The CSRC and SFC have established cooperation mechanisms for cross-border regulation and enforcement to ensure the protection of Hong Kong and Mainland investors.
Both the SFC and CSRC plan to hold briefing sessions to explain the application procedures and requirements.
 “Combined fund management business” comprises fund management business and SFC-authorised real estate investment trusts (REITs) management business.
 SFC. “Fund Management Activities Survey 2016”. July 2017
 Source: SFC FAQs on Licensing Related Matters, Topic 10 – Incidental Exemption, Question 10.6
 Part 1 of Schedule 1 to the SFO.
 The CSRC maintains a list of qualified custodians in PRC (Chinese only): http://www.csrc.gov.cn/pub/zjhpublic/G00306208/201504/t20150424_275543.htm