In a speech last Friday to the Hong Kong investment Funds Association, Ashley Alder, CEO of the Hong Kong Securities And Futures Commission (SFC) described the SFC's ambitious asset management strategy.
The SFC's strategy for Hong Kong, which aims to enable Hong Kong to become a global, full-service asset management center, includes:
- developing Hong Kong as an onshore fund management hub and a domicile for investment funds:
- the Shanghai-Hong Kong Stock Connect and the Mainland-Hong Kong Mutual Recognition of Funds are key drivers for this, and work on the Shenzhen-Hong Kong Stock Connect is underway;
- the SFC is now in discussions about mutual recognition with other markets, including some in Europe.
- streamlining the SFC's product authorisation process – a pilot program set up late last year has reduced the overall processing time has shorted and improved the quality of offer documents. The SFC therefore intends to adopt the new process permanently once the 6-month pilot period ends in May 2016.
- diversifying fund distribution channels, potentially through:
- an Exchange-sponsored platform for primary market subscription and redemption of funds;
- developing online fund distribution platforms in Hong Kong and other markets for investors to access directly
An internal working group set up within the SFC to look at clarifying its expectations of how the suitability requirement should be implemented across different business models, including exchange and online platforms. The SFC is looking to issue formal guidance later this year.
- legislative change, which will enable funds to be set up in corporate form under Hong Kong law (open-ended fund companies, in addition to the unit trust structure). The amendment bill is currently with LegCo.
- the approval of more futures-based ETFs (e.g. for crude oil); the SFC also supports the call for an increase in the RQFII quota to expand the use of RMB products in the market.
- enhancing the existing regulation of the asset management industry – the SFC aims to launch public consultations later this year which will:
- comprehensively review expectations about conduct, such as in relation to disclosure of commissions and independent advice;
- consider safe custody of fund assets, including the responsibilities of fund managers and custodians;
- consider liquidity risk management – and in particular the need to give guidance to implement IOSCO principles, including the requirement to conduct regular stress tests.
Ashley Alder also noted that IOSCO and the FSB are considering system-wide stress tests for funds, to address financial stability risks in relation to funds. The question of whether larger funds/asset managers should be designated as "non-bank non-insurer global systemically important financial institutions" and be subject to special measures has been deferred.
He also highlighted the shift from active to passive management in the global funds industry – the SFC is looking to engage more with companies and asset managers about the implications of this shift for both investors and companies, and in relation to the stewardship role of traditional active funds.