The FCA-SFC MoU laid down a mutual recognition regime in both jurisdictions to facilitate UK fund providers to market UK funds in HK and HK fund providers to market HK funds in the UK.
The reciprocal market access for fund providers facilitates cross-border activities for the public offering of eligible funds – public offering meaning the marketing of HK funds to retail investors in the UK, and the offer of UK UCITS funds to the public in HK.
This also covers:
- The rules relating to the mutual recognition of funds, including; inter alia, the applicable eligibility requirements, a streamlined two-month notification process, and marketing requirements
- The cooperation between the FCA and the 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 fund products in their home jurisdictions and the supervision of activities in the host jurisdictions
The FCA-SFC MoU establishes a mutual recognition regime for both UK and HK funds to operate and enhance their activities on the reciprocal market.
This FCA-SFC mutual recognition regime is structured over the following pillars:
- Eligibility requirements applicable to funds 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 authorisation and ongoing supervision of activities.
Eligibility requirements
The FCA-SFC MoU provides reciprocal eligibility requirements to be met by any fund and management company from the UK or from Honk Kong to be eligible for mutual recognition in the other jurisdiction, including inter alia:
- Strategies restricted to equity, bond and mixed funds
- Types of funds restricted to regular funds, funds of funds, index funds, ETFs and feeder funds where underlying are eligible
- No leverage exceeding 100%
- No hedging other than currency hedging
- Additional restrictions relating to real estate products and physical commodities
FCA/SFC mutual recognition regime
The FCA-SFC mutual recognition regime provides a set of rules and conditions for a UK Covered Fund to be offered to the public in HK , and for a HK Covered Fund to be marketed to retail investors in the UK, including inter alia:
- Market access and distribution approach
- Local representative agent
- Disclosure, advertisement and other requirements
Application process, notification
The FCA-SFC mutual recognition framework includes a two-month application process where both FCA and SFC grant authorisation to a Covered Fund for public distribution into their respective territories.
Any change to a Covered Fund affecting investors of the host market must be made in accordance with the terms of the FCA-SFC mutual recognition and must be filed with the host competent authority. Events of termination are also covered by the FCA-SFC MoU.
A breach against the FCA-SFC mutual recognition may entail the following:
- A prompt remedy by the management company of the Covered Fund
- 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 FCA-SFC mutual recognition requirements.
Please contact us for more information about this FCA-SFC MoU.