What is a collective investment scheme?

Collective investment scheme
Professional investor

Collective investment scheme

"Collective investment scheme" (CIS) is broadly defined in Schedule 1 to the Securities and Futures Ordinance (SFO) to mean investment products of a collective nature.

Many investment products offered in Hong Kong are CIS. Common types of CIS familiar to investors include, for example, mutual funds and unit trusts, mandatory provident fund schemes and real estate investment trusts.


Relevant elements of a CIS

Generally speaking, a CIS has four relevant elements:

  • the scheme must involve an arrangement in respect of property*;
  • participants do not have day-to-day control over the management of the property even if they have the right to be consulted or to give directions about the management of the property;
  • the property is managed as a whole by or on behalf of the person operating the arrangements; and/or the contributions of the participants and the profits or income from which payments are made to them are pooled; and
  • the purpose of the arrangement is for participants to participate in or receive profits, income or other returns from the acquisition or management of the property.

*Property is widely defined under the SFO and could include, for example, money, goods, choses in action and real estate, whether located in Hong Kong or elsewhere.


Authorization and offering documents

It is an offence to issue an invitation (eg advertisements and offering documents) to the Hong Kong public to invest in CIS, unless the issue is authorised by the Securities and Futures Commission (SFC) or an exemption applies under the SFO.This restriction applies irrespective of the medium by means of which the issue is made, including, for example, an electronic medium.

The authorisation requirements for the CIS and their offering documents seeking SFC's authorisation are set out in the SFC's product codes. The SFC has published such product codes in respect of various types of CIS eg the Code on Unit Trusts and Mutual Funds, SFC Code on MPF Products and the Code on Real Estate Investment Trusts. Such product codes typically set out structural requirements such as the eligibility of scheme operators and investment restrictions, and disclosure requirements for the scheme such as the need for offering documents to contain all the key features and key risks for investors to make an informed decision. These product codes also set out various ongoing disclosure requirements for the relevant CIS.


If you are in doubt, seek professional advice

As a major international finance centre, Hong Kong has a multitude of financial institutions and markets which provide a wide range of financial products and services to local and international consumers and investors. As such, you may be invited to participate in an investment arrangement that may be a CIS. For example, a CIS may cover real estate, whether located in Hong Kong or overseas.

To protect your interest, whenever you receive solicitation for participating in any investment arrangement, you should check:

  • if the arrangement has the relevant elements of a CIS;
  • whether it is an SFC-authorised CIS, you may check the authorised CIS including its offering documents from the List of Investment Products on the SFC website; and
  • if the intermediary that promotes the arrangement to you has an SFC licence. The SFC regulates 10 types of business activities in Hong Kong. Companies or persons engaged in dealing with or giving advice to the investing public on the regulated business activities are required to be licensed by or registered with the SFC. You may check the licensing status of an intermediary on the Public Register of Licensed Persons & Registered Institutions. Promoting a CIS may constitute carrying on a business in a regulated activity which requires a licence from the SFC, failing which may also lead to an offence under the SFO.

It is always in your best interest to do thorough due diligence and think twice before making any commitment. If in doubt, you are advised to seek professional advice.