Fund authorization


Key Messages:

  • Funds must be authorized by the SFC before they can be marketed to the public in Hong Kong.
  • Authorized funds have to comply with requirements of the Code on Unit Trusts and Mutual Funds. These include a proper structure, well-defined investment guidelines and restrictions, ongoing disclosure requirements and other requirements related to the fund's daily administration.

To obtain SFC's authorization, funds and their operators, including the fund manager, trustee/custodian must meet relevant requirements. A fund itself or the SFC has the right to withdraw the fund's authorization at any stage.

What is "authorization" and why is it necessary?

Funds must be authorized by the SFC before they can be marketed in Hong Kong. They must meet the requirements of the Code on Unit Trusts and Mutual Funds (UT Code). This covers investment restrictions, the eligibility of the fund manager / custodian / trustee, information disclosure and operational policy. It is an offence to offer unauthorized funds to the public in Hong Kong unless an exemption applies.

Any schemes that does not have a product key facts statement (KFS) and/or a revised offering document that complies with the "other disclosure requirements" as contemplated in the SFC Handbook for Unit Trusts and Mutual Funds, Investment-Linked Assurance Schemes and Unlisted Structured Investment Products (SFC Handbook) shall not be marketed to the public in Hong Kong. In case of doubt, you should consult your intermediaries or the relevant product issuers.

For details about KFS, you can read the article "Key Facts Statements Offer Quick Synopsis of Investment Products".

What are the roles of the SFC in regulating fund-related activities?

  • The basis of SFC authorization is to facilitate investors getting adequate information from the offering documents so that investors can make informed decisions. However, SFC authorization is not an official recommendation of a fund nor does it guarantee a good return.
  • All fund managers and intermediaries selling or providing investment advice on funds must be licensed by the SFC. The SFC monitors the compliance of these licensed fund managers and intermediaries.
  • The SFC can investigate complaints related to authorized funds and licensed fund managers and intermediaries and take any necessary action.

Am I protected when I invest in an authorized fund?

The SFC offers investor protection by insisting on:

  • Proper structure - An authorized fund should appoint a fund manager, trustee / custodian acceptable to the SFC.
  • Well-defined investment - An authorized fund must follow investment guidelines and restrictions specified in the offering or constitutive documents. The fund should be liquid and diverse.
  • Accurate and sufficient disclosure - An offering document containing essential information about the fund should be available to help you make an informed investment decision. A semi-annual report and an audited annual report must be published. Investors must be notified of major events, e.g. increase in fees, proposed merger or de-authorization, within a designated timeframe. Marketing materials must not be false, misleading or deceptive.
  • Other related requirements - These cover a fund's daily administration such as price calculation, dealing procedures, charging of fees and other matters.

To verify whether a fund is authorized, call the SFC at 2231 1222 or check the "List of Investment Products" on the SFC website.

Can an authorized fund seek de-authorization?

A fund may apply for de-authorization when it no longer targets the Hong Kong public, or it is to be terminated or merged with another fund. The fund normally needs to give at least three months' notice to investors, explaining clearly the reasons for de-authorization and the consequences, as well as any alternatives offered (e.g. a right to switch to another authorized fund). The SFC has the right to de-authorize an authorized fund in case of any breach of the UT Code.

What can I do if my fund is to be de-authorized?

As a holder of an authorized fund, you may:

  • redeem your fund units or shares before the de-authorization takes effect;
  • keep your investment in the same fund after de-authorization;
  • switch to another fund if an alternative is available.

Is it illegal to buy unauthorized funds?

In general, funds selling to the Hong Kong public require SFC's authorization. Unauthorized funds can be placed privately and the onus is on the fund manager to ensure that laws are not contravened. A buyer does not break the law by buying into an unauthorized fund. But an unauthorized fund is not subject to the regulation of the SFC, its structures and operations may not be governed by any rules or regulations in Hong Kong and the offering document may not have been vetted by Hong Kong authorities.

The fund, however, may be regulated by a foreign regulator. So, when you consider buying an unauthorized fund, check if it is regulated in an overseas jurisdiction and the investor protection measures adopted by that regime.

Remember: Investing in an authorized fund does not mean that you are free from normal investment risks.