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The Hong Kong financial regulator, the Securities and Futures Commission, has announced immediate changes to its licensing procedures for fund managers serving sophisticated investors in a bid to boost the territory's attractiveness to the alternative investment sector amid strong competition from regional rival Singapore.
The SFC says that the series of 'pragmatic and flexible' initiatives it has drawn up to streamline and simplify its licensing processes, starting with the fund management industry, represent the start of a wholesale commitment to ease its regulatory processes affecting all financial market intermediaries.
The regulator says it is particularly addressing overseas hedge fund managers 'because there appears to be insufficient understanding among this group as to the SFC's licensing requirements', but it intends to apply similar principles to the licensing of fund managers more generally, where they are serving only professional investors.
Under the new rules, firms that are already licensed or registered in the US or UK as investment managers or advisers, and which only serve professional investors and have good compliance records, will benefit from an expedited licensing process.
Individuals nominated to be the responsible officers of hedge fund managers that fulfil the necessary criteria can be exempted from the local regulatory examination, with a broader range of relevant past industry experience being recognised as satisfying the competence requirements for this role.
The SFC says experience acquired by an individual from a broad range of activities and investment strategies, including asset management, proprietary trading, research, private equity, special situations, as well as experience in dealing with other alternative investments, will be considered as industry experience directly relevant to hedge fund management.
The regulator has also underlined to overseas hedge fund managers that the Securities and Futures Ordinance exempts Hong Kong-based firms from the requirement to be licensed where they merely provide research to group companies outside Hong Kong.
The SFC has also clarified its policies concerning the use of serviced offices by hedge fund managers, which is permissible as long as the premises are secure and non-public material such as price-sensitive information and client data are safeguarded, as well as the need for at least one of a fund's responsible officers, of which there must be at leas two, to be physically present and contactable in Hong Kong.
Says Alexa Lam, the SFC's executive director of intermediaries and investment products: 'We are always open to adopting new measures to better regulate and facilitate market development. These initiatives will make the licensing process easier for fund managers and particularly for overseas hedge fund managers.
'They are not intended to lower our regulatory requirements, because we recognise that these contribute to Hong Kong's reputation amongst investors as being a jurisdiction in which appropriate standards are insisted upon amongst its market participants.
'We encourage all fund manager applicants and their advisers to meet us to discuss circumstances that are specific to them and which do not fall precisely within the ambit of the circular, or to seek further clarification of our licensing policies and the manner in which we implement them in practice.'
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