10 January 2018
Hong Kong
Reporter: Jenna Lomax

Hong Kong’s SFC revamps securities lending safeguards

The Securities and Futures Commission (SFC) of Hong Kong has proposed additional safeguards on the use of securities lending, repo and derivatives transactions in a new consultation.

The UT Code also introduced new chapters for exchange-traded funds to facilitate the development of new products.

The SFC said its three-month consultation, which began in December and runs until 19 March, on its code for unit trusts and mutual funds (UT Code) was launched to “ensure that regulations in Hong Kong are aligned with international requirements and those of major overseas markets”.

In terms of securities lending and investments, an additional SFC safeguard looks to promote an overall limit of 50 percent on the use of derivatives for investment purposes by public funds, if approved by those questioned.

The SFC said “this is an effort to allow flexibility in the deployment of investment objectives and strategies to deliver value to investors”.

Unit trusts and mutual funds account for a large portion of the financial products authorised by the SFC for offerings to the Hong Kong public as collective investment schemes.

The proposals aim to ensure that the regulatory regime for SFC-authorised funds is up-to-date, by appropriately addressing the opportunities and risks presented by financial innovation and market development.

The consultation also included the proposal to increase the minimum capital requirement for management companies to HKD 10 million in an effort to provide more flexibility and strengthen requirements for management companies, trustees and custodians.

The SFC proposed to provide more flexibility to allow management companies with multinational presence to leverage group resources in meeting the five-year public fund investment management experience requirement.

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