Last Friday, the SFC published the conclusions to its consultation on amendments to the Securities and Futures (Professional Investor) Rules (PI Rules), to standardise the rules for prescribing individual and corporate professional investors (PIs).

The SFC has over the years granted modifications to the PI Rules to intermediaries on a case-by-case basis under section 134 of the Securities and Futures Ordinance (SFO), to aid in the efficiency of the operations of the intermediaries and their clients. There are currently around 40 subsisting modifications of this nature. The proposed amendments to the PI Rules seek to formalise and standardise such modifications, thereby enhancing transparency and promoting market consistency.

The proposed amendments only relate to individual and corporate PIs (ie, not institutional PIs), and are targeted for implementation on 13 July 2018, subject to negative vetting by the Legislative Council (LegCo).

KEY AMENDMENTS TO THE PI RULES

Assets which can be taken into account when determining whether an individual meets the relevant threshold to qualify as a PI:

  1. The share of a portfolio held in an account jointly owned by the individual with non-associates, including individuals, corporations and partnerships
  • The share of the portfolio will be based on either the share specified in the written agreement between the account holders, or an equal share of the portfolio in the absence of a written agreement.
  • An “associate” is defined as a spouse or child. The existing PI Rules allow an individual to take into account the whole portfolio (as opposed to a share of it) held in a joint account with associates when determining whether s/he meets the threshold to qualify as a PI.

2. The portfolio of a corporation which has its principal business the holding of investments and is wholly owned by the individual

  • After considering the responses to the consultation, the SFC will not take forward the proposal to allow an individual to count the portfolio held by a corporation if s/he partially owns the corporation.

Categories of corporations which qualify as PIs will be expanded to include the following:

  1. A corporation which has its principal business the holding of investments and is wholly-owned by one or more PIs.
  2. A corporation which wholly-owns another corporation which is a qualified PI.

Alternative forms of evidence will be allowed to demonstrate qualification as a PI, such as:

  1. public filings made under legal or regulatory requirements;
  2. certificates issued by custodians;
  3. certificates issued by auditors or certified public accountants.

WAY FORWARD

Subject to negative vetting by the LegCo, the revised PI Rules are targeted to take effect on 13 July 2018.

Once the revised PI Rules are implemented, the SFC will revoke the modifications previously granted under section 134 of the SFO.