Lexology: Hong Kong’s SFC publishes consultation on asset manager regulations, collateral rehypothecation to be reported

Hong Kong’s financial regulator, the Securities and Futures Commission (SFC) published its consultation conclusions on proposals to enhance asset management regulation and point-of-sale transparency (the Proposals). The SFC has also launched a further consultation on disclosure requirements applicable to discretionary accounts.

The SFC received 38 written submissions from key players in the asset management industry and, as the majority of respondents supported the Proposals, the SFC has largely adopted them and the proposed changes to the Fund Manager Code of Conduct (FMCC) and the Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission (Code of Conduct), with certain modifications or clarifications of the regulatory intent. The SFC will also provide further guidance to the industry by way of a set of Frequently Asked Questions (FAQs), which will be updated from time to time.

From the consultation report:

On the reporting of collateral rehypothecation, the SFC’s response indicated that it will require fund managers to disclose re-use and re-hypothecation data to investors as items for disclosure under the overall requirement to report information relating to securities lending, repo and reverse repo transactions to fund investors:

(i) share of collateral received that is re-used or re-hypothecated, compared to the
maximum authorised amount if any; and
(ii) information on any restrictions on type of collateral received.

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