June 2011 saw the completion of a major restructuring to the SFC's regulatory regime for investment products and the commencement of the new regulatory regime for credit rating agencies ("CRAs").
In June last year, the SFC introduced new regulatory requirements under its new SFC Handbook for Unit Trusts and Mutual Funds, Investment-Linked Assurance Schemes and Unlisted Structured Products ("SFC Handbook"). SFCauthorised funds and investment-linked assurance schemes ("ILAS") were given a 12-month transitional period to comply with certain new requirements such as the provision of product key facts statements to investors. The transitional period ended on 24 June 2011.
The Securities and Futures and Companies Legislation (Structured Products Amendment) Ordinance 2011 ("Amendment Ordinance") was also gazetted and took effect on 13 May 2011. The Amendment Ordinance transferred the regulation of public offers of structured products from the prospectus regime of Companies Ordinance ("CO") to the regime for public offers of investments under the Securities and Futures Ordinance ("SFO"). Together with the introduction of new regulatory requirements on structured products under the SFC Handbook, this completed the restructuring of the SFC's regulation of structured products.
Additionally, the new regulatory regime governing CRAs operating in Hong Kong became effective on 1 June 2011. Under the new regime, CRAs and their rating analysts who provide credit rating services in Hong Kong are required to be licensed for Type 10 regulated activity and are subject to supervision by the SFC. Licensed CRAs are required to comply with the SFC's new Code of Conduct for Persons Providing Credit Rating Services and with other legal and regulatory requirements that are generally applicable to all SFC licensees. As at 1 June 2011, the SFC had licensed five CRAs in Hong Kong.
Enhanced global regulatory requirements on CRAs have required Hong Kong to introduce the new regulatory regime for Hong Kong based CRAs to ensure that the Hong Kong based CRAs are regulated in Hong Kong in a manner that is generally consistent with the enhanced standards that have been adopted in a number of other jurisdictions and so that the Hong Kong licensed CRAs will be recognised internationally.
Remarks - The new regulatory regime for structured products will require the issue of advertisements and offer documents for structured products to be authorised by the SFC (unless exempted under the SFO). Previous reliance on safe harbours in Schedule 17 of the CO (in particular (i) an offer with a minimum denomination/consideration of not less than HK$500,000; and (ii) an offer to not more than 50 persons) will no longer be available to structured products in the form of shares and debentures, instead the exemptions in section 103 of the SFO will apply.
We previously reported on both the Amendment Ordinance in the article "Transfer of structured products supervision" and on the new SFC Handbook in the article "SFC issues conclusions on enhancing protection for the investing public" in Issue 14 of this Newsletter.