FAQs – Publicly offered investment products: Application Procedures for Authorization of Unit Trusts and Mutual Funds under the Revamped Process

The Securities and Futures Commission of Hong Kong (SFC) published revised „Frequently Asked Questions (FAQs) on Application Procedures for Authorization of Unit Trusts and Mutual Funds under the Revamped Process“. These FAQs cover issues such as
(1) basic documentary requirements for fund application such as the forms to be filed as well as some general information as regards the application fees;
(2) the revamped fund authorization process in general and the steps involved in this process;
(3) matters relating to the offering documents such as the languages to be used for the documents; and
(4) the criteria the SFC will consider when deciding of whether or not to approve an authorization.
In comparing this latest revised version with the previous version, we have identified changes throughout the document, whereby most changes were minor, editorial in nature. However, there were two FAQs which involved large scale changes, including the following – as quoted:
FAQ 5 – What is the SFC’s “two-stream” approach to processing new fund applications?
Answer: As mentioned in the Circulars, from the Effective Date and the Adoption Date the SFC will adopt a “two-stream” approach to processing new fund applications under the Revamped Process. Under this approach, new fund applications will be classified into the “Standard Applications” stream and “Non-standard Applications” stream. In determining the stream under which a new fund application will be processed, the SFC will have regard to the criteria as set out in Q.5A below. For the avoidance of doubt, the SFC has the discretion to determine the type of applications (ie, Standard Applications or Non-standard Applications) for the purpose of processing an application.
A more efficient authorization process that focuses more on key risks can meet the fund providers’ wish to reduce their funds’ “time to market” for public offering. To achieve this, applicants must provide proper and quality submissions in a timely manner. The SFC believes the Revamped Process will help promote fund providers’ self-compliance and reduce the overall processing time without compromising investor protection. The SFC expects applicants to ensure that their applications are in good order and supported by documents that meet all applicable regulatory requirements both at the time of submission and throughout the application process.
In general, all applications (both “Standard Applications” and “Non-standard Applications”) are expected to be well-prepared in accordance with the Guide and the Information Checklist, and in compliance with all applicable requirements for clearance by the SFC. The Guide has set out detailed guidance for applicants to prepare their applications and comply with the requirements under the Handbook, the UT Code and other applicable regulatory requirements as may be issued by the SFC from time to time. Among others, the Guide contains a set of disclosure guidance for the funds’ offering documents to facilitate applicants’ preparation of their funds’ offering documents. With respect to their applications, applicants must exercise professional judgment at all times to ensure compliance with applicable regulatory requirements.
On this basis and taking into account the nature and classification of the Standard Applications and Non-standard Applications, the SFC has formulated the Response Time Limits (as defined and set out in Q.7 below) to facilitate an efficient and effective authorization process.
FAQ 5A – What types of applications will be eligible for the “Standard Applications” stream?
“Standard Applications” are intended to cover applications that are simple or less complicated in nature. In general, a new fund application will be processed as a Standard Application if the following criteria are met:
i. the fund(s) under application is/are sub-funds(s) under an existing SFC-authorized umbrella fund;
ii. the relevant new sub-fund is:
– (a) a fund which complies with Chapter 7 of the UT Code or a UCITS fund with net derivative exposure of not more than 50% of its net asset value;
– (b) a physical passive exchange-traded fund (ETF) or unlisted index fund tracking an index which is adopted by other existing SFC-authorized fund(s) or
is a plain vanilla index; or
– (c) an active ETF which complies with paragraph 8.10 of the UT Code;
iii. the new sub-fund(s) is/are not seeking authorization as approved pooled investment fund(s) under the SFC Code on MPF Products;
iv. the new sub-funds(s) is/are managed by existing approved management company/delegated investment managers managing other existing SFC-authorized fund(s) with good regulatory records, or by existing approved management company and new delegated investment manager(s)2 with good regulatory records;
v. the trustee/custodian of the new sub-fund(s) is acting as trustee/custodian of other existing SFC-authorized fund(s) which has confirmed its continuous compliance with the requirements applicable to trustees/custodians of SFC-authorized funds;
vi. the application documentation is complete, in good order and of good quality; and
vii. there are no material issues and/or policy implications relating to the application as considered by the SFC.