15 January 2019: Luxembourg CSSF and Honk-Kong SFC issued a Memorandum of Understanding (MoU) on mutual recognition regime for investment funds and management companies
The Commission de Surveillance du Secteur Financier (CSSF) and The Security and Futures Commission (SFC) signed a Memorandum of Understanding (CSSF/SFC MoU) concerning a mutual recognition regime for funds and management companies aiming to enhanced cross-border asset management activities.
The purpose of the MoU is to promote reciprocal market access for Luxembourg and HK funds and fund providers.
The mutual recognition of funds foresees a cross-border distribution of eligible funds to retail investors:
- The public offering of eligible Luxembourg Covered Funds in Hong Kong; and
- The public offering of eligible Hong Kong Covered Funds in Luxembourg
The MoU for management companies foresees a mutual recognition for management companies:
- For licensed Hong Kong Management Companies in Luxembourg; and,
- For authorised Luxembourg Management Companies in Hong Kong.
The CSSF-SFC MoU, together with the SFC circular and CSSF instruction, have been published on 15th of January 2019 by both regulators on their respective websites and are directly applicable.
Executive Summary
The reciprocal market access for fund providers facilitating cross-border activities for the public offering of eligible funds, public offering meaning the marketing to retail investors in Luxembourg, and the offer of Luxembourg UCITS to the public in HK. It covers:
- The rules relating to the mutual recognition of funds, including; the eligibility requirements applicable to funds, the streamlined one-month notification process and the marketing requirements;
- The rules relating to the mutual recognition of management companies, including; the eligibility requirement and the delegation rules;
- The cooperation between both CSSF and SFC, including the mutual recognition of authorities and related national regimes, the exchange of information and the mutual assistance thereto, the supervision of the fund providers and funds in their home jurisdictions and the supervision of activities in the host jurisdictions.
The CSSF-SFC MoU provides a mutual recognition regime framework for both Luxembourg and HK funds and management companies to operate and enhance their activities on the reciprocal market.
This CSSF-SFC mutual recognition framework is structured on the following pillars:
- Eligibility requirements applicable to fund and management companies;
- A mutual recognition regime, including market access, applicable requirements and conditions for operating activities in the reciprocal market;
- An application process for authorization and ongoing supervision of activities.
Eligibility requirements
The key reciprocal eligibility requirements to be met for Luxembourg Covered Funds and Hong Kong Covered funds:
- Eligible funds categories are equity, bond, mixed and feeder fund (of a master feeder which is an equity, bond or mixed fund)
- No leverage exceeding 100%
- Additional restrictions relating to physical commodities, crypto-assets or crypto-currencies, nor certificates representing them
- No hedging other than currency hedging
- A redemption of at least one dealing day every two weeks
Application process, notification
The recognition framework includes a two-month application process where both CSSF and SFC grant authorisation to a Covered Fund for public distribution into their respective jurisdictions.
Any change to a Covered Fund affecting investors of the host market must be made in accordance with the terms of the CSSF-SFC mutual recognition framework and must be filed with the host competent authority. Events of termination are also covered by the CSSF-SFC MoU.
A breach against the CSSF-SFC mutual recognition framework may lead to
1. A prompt remedy by the Covered Management Company
2. A withdrawal of the authorisation from the host authority
The management company of a Covered Fund may apply for withdrawal to its authorisation in the host jurisdiction in compliance with CSSF-SFC mutual recognition requirements.
Please contact us for more information about this CSSF-SFC MoU.
Sources:
CSSF Streamlining requirements and process for mutual recognition of Hong Kong funds: http://www.cssf.lu/fileadmin/files/Metier_OPC/Mutual_recognition_of_HK_funds.pdf (CSSF, 15/01/2019)
Mutual Recognition of Funds (MRF) between Luxembourg and Hong Kong: https://www.sfc.hk/edistributionWeb/gateway/EN/circular/openFile?refNo=19EC2 (SFC, 15/01/2019).