The highly anticipated and controversial Securities and Futures and Companies Legislation (Structured Products Amendment) Bill 2010 was passed on 4 May 2011.
The amended legislation will be gazetted and come into effect on 13 May 2011. This alert describes the key impacts of which you need to be aware.
All financial institutions should immediately assess their implementation plans to ensure full compliance with the Bill.
Structured products will now be regulated
Stop selling under the safe harbours of the Companies Ordinance
The offer of any unlisted product with a derivative element to the retail public (eg an equity-linked note) needs Securities and Futures Commission (SFC) approval.
Previous ‘safe harbours’ that applied to product offers under the Securities and Futures Ordinance will no longer apply. That is - no more private placements under the ³ HK$500,000 or £ 50 investor safe harbours, unless the product is a plain vanilla share or debenture regulated under the Companies Ordinance.
However, some relief is available. For example, interest rate and currency-linked products issued by banks will be exempt (but they will need an “Important Fact Statement”).
Structured products needing SFC approval are already subject to the new SFC Handbook, which came into force on 25 June 2010. See our June 2010 alert for further details.
Impacts for issuers, distributors and others
Do you need a licence? Do you meet the SFC Handbook requirements?
Issuers, guarantors and arrangers of retail structured products offered to the public now need to meet the new requirements set out the SFC Handbook, as described in our June 2010 alert.
What about licensing?
- The proposed new SFC approval requirement for unlisted structured products offered to the public will also broaden the scope of regulated activities under Schedule 5 to the SFO, which are subject to licensing requirements.
- Derivatives that are currently not “securities” for the purposes of the SFO (eg a vanilla OTC interest rate derivative) and therefore outside regulated activities such as Type 1 (dealing in securities), Type 4 (advising on securities) and Type 8 (securities margin financing), will be deemed “securities” under the new regime if they are offered to the public and require SFC approval.
- There is a grace period for 6 months for licensing. This sounds like a long time, but it is not - the licensing process usually takes four months after submission.
The SFC’s press release dated 5 May 2011 is also available here