SFC proposes to enhance Hong Kong's retail fund code to bolster global competitiveness

Hong Kong is planning to ease retail mutual fund rules in a bid to bolster global competitiveness and broaden product offerings for investors.

The city’s securities watchdog has launched a three-month consultation on proposed amendments to the Code on Unit Trusts and Mutual Funds, with key revisions including allowing an alternative approach for managing derivative investments in retail funds, updating requirements for fund liquidity risk management, and enhancing the requirements for money market funds.

The Securities and Futures Commission will adopt a step-by-step approach to facilitate new fund offerings for retail access to private markets, first, by admitting listed closed-ended alternative assets funds, and then by allowing greater flexibility for SFC-authorized unlisted funds to invest a larger portion in illiquid assets, subject to robust safeguards on the fund’s overall liquidity risk management.

It proposes to accept the Value-at-Risk approach alongside the existing net derivative exposure limit, which allows eligible and well-experienced fund managers greater flexibility in using derivatives and aligns with the practices in major fund jurisdictions like Europe and the US, thus expanding product offerings for investors and enhancing the competitiveness of Hong Kong’s fund regime, according to the consultation paper and a statement by the regulator.

The watchdog also suggests further strengthening the money market funds requirements, including mandatory use of at least one anti-dilution liquidity management tools, and funds offering a constant net asset value.

Once implemented, the proposals will not only drive fund market growth but also strengthen the resilience of the city’s asset management sector, the SFC said.