On 15 January 2019, the Securities and Futures Commission (SFC) and Commission de Surveillance du Secteur Financier (CSSF) signed a memorandum of understanding establishing a bilateral framework for mutual recognition of cross-border offering to retail investors in Hong Kong and Luxembourg (Luxembourg-HK MRF).
Accessing Hong Kong
The Luxembourg fund (Luxembourg Covered Fund) must be a UCITS fund authorised by the CSSF. It must be managed by a Luxembourg management company licensed to conduct asset management activities with minimum paid-up capital and non-distributable capital reserves of HK$10 million (or equivalent in Euro). Both the Luxembourg Covered Fund and its management company must have a clear regulatory record within the past three years. At the moment, only the following types of funds are eligible:
a) equity funds, bond funds, mixed funds or
b) feeder funds of equity, bond or mixed funds.
As with most other UCITS funds, the Luxembourg Covered Fund must appoint a Hong Kong representative to handle dealing requests as well as enquiries from the Hong Kong investors. The manager of the Luxembourg Covered Fund must also ensure that investors receive fair treatment, including adequate investor protection, compensation and timely disclosure of information. The offering documents and notices available to Hong Kong investors must be published in both English and Chinese.
The Hong Kong-domiciled fund (Hong Kong Covered Fund) must be authorised by the SFC and managed by a Hong Kong-domiciled management company licensed to conduct Type 9 regulated activity (asset management). Besides the requirement to appoint a Luxembourg paying agent, eligible fund types and other requirements are the same between the two jurisdictions. The Hong Kong Covered Fund’s offering documents, notices, financial reports, advertisements and constitutive documents provided to Luxembourg investors must either be in English, French, German or Luxembourgish.
New Luxembourg UCITS seeking to access Hong Kong can benefit from the streamlined authorisation process and its key operators (management company and trustee/custodian) are deemed to be compliant with relevant Hong Kong laws and regulations once they are compliant with Luxembourg laws and regulations. Note that the Luxembourg-HK MRF do not extend to self-managed Luxembourg UCITS which fall outside of the scope of the regime.
Despite not being a passport to the EU, the Luxembourg-HK MRF will facilitate the retail offering of Luxembourg as well as Hong Kong domiciled funds in each other’s markets. The Luxembourg-HK MRF will be the latest addition to the suite of mutual recognition schemes already in place between Mainland China, France, Switzerland and the United Kingdom, thus further enhances Hong Kong as an asset management hub in Asia.
The SFC’s press release is available via this link.