The consultation paper, launched by the Financial Services and the Treasury Bureau (FSTB), seeks views from the public and the financial services industry on the policy and legal framework for OFCs, and following a recent announcement in the 2013-14 budget which unveiled measures to boost the fund industry.
Currently, the open-ended investment funds in the country are structured in the form of unit trusts, but not in corporate form due to various restrictions on capital reduction under the Companies Ordinance.
Hong Kong has proposed the OFCs to be introduced as an additional legal structure to complement the existing unit trust structure.
According to the proposals, OFCs will have the flexibility to vary its share capital in order to meet shareholder application and redemption requests and will also not be bound by restrictions on the distribution out of share capital.
With this additional option, the government hopes market participants will have more flexibility in establishing and operating funds in Hong Kong and attract more funds to domicile there.
This will also complement the existing fund distribution network and develop Hong Kong into a full fund service centre, which would increase opportunities for fund administration and fund servicing work, creating more employment opportunities, the report said.
The proposals have been drafted, taking into consideration the legal framework and regulatory regimes of other major asset management jurisdictions, including the United Kingdom, Ireland, Luxembourg and Cayman Islands.
In November, the Financial Services Development Council of Hong Kong had put forward its proposals to broaden the fund structures permitted in the territory.
Similar discussions are going on in Singapore too, with PwC recently proposing a revamp of investment fund structures. According to the PwC research paper, a majority 90% of fund managers preferred an open-ended investment company structure.
Key details of HK OFC
The new OFC vehicle will be established under the Securities and Futures Ordinance (SFO) and the Securities and Futures Commission (SFC) would be the primary regulator for registration and regulation of funds.
The OFC will be structured in a corporate form with limited liability and variable share capital. The proposed structure will have a separate legal personality, governed by a board of directors and the liability of its shareholders will be limited to their shares in the company.
The assets of the OFC will be held by an independent SFC approved custodian.
The OFC may be created as an umbrella fund meaning that the OFC could consist of a number of separately pooled sub-funds, provided there is a legal segregation of liabilities between different sub-funds.
OFCs may be set up as a public or private fund, with the latter having more flexibility in investment strategies.
The day-to-day management and investment functions of the OFC would be delegated to an investment manager licensed by or registered with SFC to carry out asset management regulated activity and appointed by the OFC board. This will ensure professional management as well as additional oversight.
The name of the OFC must end with “open-ended fund company” or the abbreviation of “OFC”, so as to distinguish it from conventional companies incorporated under the Companies Ordinance.
The consultation paper is available on the FSTB website until 19 June.
