Métodos de análisis de datos

Description Legal form and investors’ rights

The definition of CIS in Schedule 1 of the SFO is functionally based and does not make reference to legal form. The UTC envisages that CIS are mutual funds (whether they are based on contract, companies with variable capital or otherwise) or unit trusts (see definition of CIS in UTC 3.2).

In practice, Hong Kong domiciled funds are established as unit trusts. These local unit trusts are governed by the provisions of the trust deeds under which they are constituted. Non Hong Kong based funds are mostly either unit trusts or mutual funds.

All authorized schemes, regardless of their legal form, must comply with the general principles in the OP Section of the Products Handbook and the requirements of the UTC relating to, among other things:

a. key operating parties; b. operational features; c. investment restrictions;

d. disclosure in offering documents; and e. post-authorization obligations.

The SFO empowers the SFC to authorize schemes offered to the public in Hong Kong pursuant to section 104 of the SFO.

UTC 6.6 requires the constitutive documents of a scheme to contain the information listed in UTC Appendix D. The content required by Appendix D reflects rules set out in the UTC and includes provisions relating to:

a. participating parties, representative, trustee/custodian, and investment adviser (if any) b. obligations of the management company;

c. investment and borrowing restrictions; d. valuation of property and pricing; e. suspension and deferral of dealing; f. fees and charges;

g. meetings;

h. transactions with connected persons; i. distribution policy and date;

j. annual accounting period; k. base currency;

l. modification of the constitutive documents; and m. termination of scheme.

trustee/custodian, management company or directors of the scheme can be exempted from any liability to holders imposed under Hong Kong law or the law of the scheme’s place of domicile or breaches of trust through fraud or negligence, nor may they be indemnified against such liability by holders or at holders’ expense.

Disclosure

Details about a CIS and its organization must be set out in offering documents that comply with UTC Appendix C (see discussion under Principle 26). UTC 6.1 provides that a scheme must issue an up-to-date offering document, which should contain the information necessary for investors to be able to make an informed judgement of the investment proposed to them. Responsibility for monitoring compliance with form and structure requirements A scheme requires prior authorization from the SFC before it can be offered to the public in Hong Kong (section 103 of the SFO). Offering documents are also subject to prior approval by the SFC (section 105).

Among the duties of the trustee or custodian of a CIS is the obligation to take reasonable care to ensure that the scheme is managed in accordance with the provisions of the constitutive documents (UTC 4.5).

As part of its ongoing supervision of funds and their management companies, the SFC monitors compliance with form and structure requirements.

Investment and borrowing restrictions

UTC Chapters 7 (Core Requirements) and 8 (specialized schemes) set out the investment and borrowing restrictions that apply to schemes generally and to different types of schemes. UTC Appendix D requires the scheme’s constitutive documents to include a statement to list the restrictions on the investment of the deposited property and the maximum borrowing limit of the scheme.

UTC 7.23 provides that, if the investment limits are breached, the management company must take all steps as are necessary within a reasonable period of time to remedy the situation, taking due account of the interests of the holders.

Changes to investor rights Approval of holders

UTC 6.15(f) provides that an extraordinary general meeting must be called:

a. to modify, alter or add to the constitutive documents, except as provided in UTC 6.7 (see below);

b. to terminate the scheme (unless the means of termination of the scheme are set out in the constitutive documents, in which case termination must be effected as required);

or directors of the scheme; or d. to impose other types of fees

Under UTC 6.7, the constitutive documents of a scheme may be altered by the management company and the trustee/ custodian, without consulting holders, provided that the trustee/ custodian certifies in writing that in its opinion the proposed alteration:

a. is necessary to make possible compliance with fiscal or other statutory or official requirements;

b. does not materially prejudice holders’ interests, does not to any material extent release the trustee/ custodian, management company or any other person from any liability to holders and does not increase the costs and charges payable from the scheme property; or

c. is necessary to correct a manifest error. SFC approval

UTC 11.1 provides that prior approval of the SFC is required for proposed changes to a scheme. They include changes to:

a. constitutive documents;

b. key operators (including the trustee/ custodian, management company and its delegates and Hong Kong representative) and their regulatory status and controlling shareholder;

c. investment objectives, policies and restrictions d. fee structure;

e. dealing and pricing arrangements; and

f. any other changes that may materially prejudice holders’ rights or interests.

UTC 11.1A provides that for changes to a scheme that require the SFCs prior approval, the SFC determines whether holders should be notified and the period of notice (if any) that should be applied before the changes are to take effect. In practice, the SFC requires prior notification to be given to the investors before the changes take effect. Normally, the SFC expects one month’s prior written notice, or a longer period if required under applicable laws or the provisions of the offering or constitutive documents. The SFC may permit a shorter period of notice if the change is not significant or may require a longer period of notice (up to three months) in exceptional circumstances.

UTC 11.1B requires the management company to inform holders as soon as reasonably practicable of any material adverse change in the financial condition or business of the key counterparties to a scheme that it is aware of. UTC 11.2A provides that notices to holders must be filed with the SFC within one week from the date of its issuance.

SFC approval is also required if a scheme intends not to maintain its authorization (UTC 11.4) and for mergers or termination of schemes (UTC 11.5). Three months' notice must be given to holders in the first case and in the second case, notice period is as determined by the SFC. Separation of assets/safekeeping

the SFC (UTC 4.1).CIS in the form of unit trusts must appoint a trustee to hold scheme assets; mutual funds must appoint a custodian. Criteria for appointment are set out in Chapter 4 of the UTC and in practice require the trustee/custodian to be a bank.

UTC 4.5(a)(i) and 4.5(a)(ii) require the trustee/custodian to take into its custody or under its control all the property of the scheme and hold it in trust for the holders (in case of a unit trust) or the scheme (in case of a mutual fund corporation) in accordance with the provisions of the constitutive documents, and to register cash and registrable assets in the name of or to the order of the trustee/custodian.

The assets of the scheme therefore should be segregated and not commingled with the assets of the management company and will not form part of the liquidation assets of the

management company.

Related party trustee-custodian

UTC 4.8 permits the appointment of a trustee/custodian that is connected to the management company UTC in defined circumstances. If the trustee/custodian and the management

company are both bodies corporate having the same ultimate holding company, whether incorporated in Hong Kong or outside Hong Kong, the trustee/custodian and the

management company are deemed to be independent of each other if:- a.

i. they are both subsidiaries of a substantial financial institution; The SFC has interpreted this requirement to mean a bank.

ii. neither the trustee/custodian nor the management company is a subsidiary of the other;

iii. no person is a director of both the trustee/custodian and the management company; and

iv. both the trustee/custodian and the management company sign an undertaking that they will act independently of each other in their dealings with the scheme; or b. the scheme is established in a jurisdiction where the trustee/custodian and the

management company are required by law to act independently of one another. Most SFC-authorized funds have a non-related trustee/custodian. At 31 July, 2013, 78 percent of the SFC-authorized funds had an unrelated and independent trustee/custodian and management company arrangement. As at 31 July 2013, a total of 50 entities act as the trustees/custodians for the 1,854 SFC-authorized funds. 11 of these trustees/custodians are domiciled in Hong Kong. Among them, there were 4 banking groups with trustees/custodians acting as the trustees/custodians of approximately 60 percent of the SFC-authorized funds. Winding up

Appendix C24 and Appendix D17 of the UTC require that a summary of the circumstances in which the scheme can be terminated be disclosed in the offering document and constitutive documents respectively. To terminate the scheme in circumstances not specified in the constitutive documents, UTC 6.15(f) requires an extraordinary general meeting to be called. If a scheme is to be terminated, UTC 11.5 requires that, in addition to following any

procedures set out in the scheme’s constitutive documents or governing law, notice must be given to investors as determined by the SFC. This notice must be submitted to the SFC for prior approval and contain the reasons for the termination, the relevant provisions under the constitutive documents that enable such termination, the consequences of the termination and their effects on existing investors, the alternatives available to investors (including, if possible, a right to switch without charge into another authorized schemes), the estimated costs of the termination and who is expected to bear them.

The SFC can use its power under section 213(2)(d) of the SFO to apply to the court for an order to appoint an administrator over the property of a person if any person commits any of the wrongdoings specified in section 213(1)(a) or it appears to the SFC that any such matter has occurred, is occurring or may occur (section 213(1)(b)). Section 213(2)(d) applies to mutual fund corporations and trustees of unit trusts. The SFC can also present a petition to wind up a CIS that is in corporate form (for example, a mutual fund corporation) where it is just and equitable provided that the corporation is of a class of corporations which the Court of First Instance has jurisdiction to wind up under the CO (section 212(1)).

The SFC has no power to appoint an administrator or a manager directly without going through the court process.

Assessment Fully implemented

Comments Best practice for CIS requires that all CIS have fully independent trustees/custodians. However, the IOSCO Principles do not prohibit custody by a related party; but they do require that additional safeguards be in place. As explained in the description the assessors believe that such safeguards are in place in HK as (i) custodian can only be regulated entities (and

substantial financial institutions – in practice banks), and therefore subject itself to supervision by a financial regulator (ii) and additional rules are in place to foster independence including the prohibition that the custodian be a subsidiary of the management company and that they are not permitted to have common directors.

Principle 26. Regulation should require disclosure, as set forth under the principles for issuers, which is