The Securities and Futures Commission (the “SFC”) has recently published a circular to licensed corporations engaged in asset management business – Deficiencies and substandard conduct noted in the management of private funds and discretionary accounts (the “Circular”). According to the Circular, the SFC has conducted supervision of certain licensed corporations engaged in managing private funds and discretionary accounts (“asset managers”), and identified various deficiencies and substandard conduct including lack of integrity of asset managers or their senior management, and failure of the senior management to provide effective supervision. Those deficiencies and substandard conduct are in breach of the asset managers’ obligations under the Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission (the “Code of Conduct”), the Fund Manager Code of Conduct (the “FMCC”) and the Management, Supervision and Internal Control Guidelines for Persons Licensed by or Registered with the Securities and Futures Commission (the “Internal Control Guidelines”).
In particular, the SFC reminds asset managers to focus on areas such as conflicts of interest, risk management and investment within mandate, information for investors, and valuation methodologies. For detailed examples of regulatory breaches in each of these areas, please refer to the Circular.
When an asset manager becomes aware of any material breach, infringement or non-compliance with any regulatory requirements, it is obliged to report to the SFC immediately under paragraph 12.5 of the Code of Conduct. We observe that the SFC takes this obligation seriously. The SFC often takes into consideration asset manager’s initiative to self-report to the SFC when determining any potential disciplinary action against it.
The SFC will continue to supervise asset managers’ ongoing compliance with applicable regulatory requirements by offsite monitoring, on-site inspections and thematic reviews to ensure their compliance with regulations. The SFC also emphasized that in the coming year, they will prioritize combating misconduct in the asset management industry. Thus, the board of directors and senior management of asset managers should continue to strengthen their supervisory and compliance functions to ensure full compliance with all regulatory requirements.
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Alfred Leung, Partner
(E: alfredleung@hkytl.com T: +852 3468 7202)
Tiffany Lee, Of Counsel
(E: tiffanylee@hkytl.com T: +852 3468 7038)
This article is introductory in nature. Its content is current at the date of publication. It does not constitute legal advice and should not be relied upon as such. You should always obtain legal advice based on your specific circumstances before taking any action relating to matters covered by this article. Some information may have been obtained from external sources, and we cannot guarantee the accuracy or currency of any such information.
