Hong Kong Fund Management Company FAQs

A fund manager in Hong Kong is an entity or individual licensed by the Securities and Futures Commission (SFC) to engage in the regulated activity of asset management, specifically Type 9 regulated activity. This includes managing securities, futures contracts, or real estate investment schemes, such as mutual funds, hedge funds, or real estate investment trusts (REITs).

To become a licensed fund manager in Hong Kong, you must apply for a Type 9 license from the SFC. The Type 9 license application process involves submitting detailed information about your business plan, organisational structure, financial resources, and compliance arrangements. You must appoint at least two responsible officers who meet the SFC’s competency requirements, including relevant industry experience and who have passed the regulatory examinations.

The SFC assesses applicants based on their fitness and propriety, ensuring they have robust systems in place to manage risks and comply with regulations.

Fund managers in Hong Kong must comply with several regulatory requirements, including:

• Fund Manager Code of Conduct (FMCC): this sets standards for governance, risk management, valuation, and disclosure, ensuring investor protection and operational integrity.
• Financial Resources Rules: this refers to the maintenance of adequate capital to support operations and mitigate financial risks.
• Anti-Money Laundering Measures: implementation of policies to prevent money laundering and terrorist financing, as mandated by the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (AMLO).
• Marketing and Distribution Compliance: ensuring all promotional activities adhere to SFC guidelines, particularly when targeting retail or professional investors.

Marketing and Distribution Compliance: ensuring all promotional activities adhere to SFC guidelines, particularly when targeting retail or professional investors.

Licensed fund managers can manage a variety of funds in Hong Kong, including:

• Mutual Funds and Unit Trusts: authorised by the SFC for public offering in Hong Kong.
• Private Funds: such as hedge funds and private equity funds, typically offered to professional investors.
• Real Estate Investment Trusts (REITs): focused on real estate investments.
• Exchange-Traded Funds (ETFs): traded on stock exchanges.

The specific funds managed depend on the license scope and whether the fund requires SFC authorisation for public distribution.

Fund managers operating in Hong Kong must submit regular reports to the SFC, including:

• annual financial statements audited by a qualified auditor
• compliance reports detailing adherence to regulatory requirements
• notifications of significant changes, such as key personnel departures or material breaches
• reports on suspicious transactions related to AML compliance.

Additionally, fund managers must provide investors with periodic disclosures, such as fund performance reports, financial statements, and risk disclosures, to ensure full transparency.

Retail funds offered to the public must be authorised by the SFC under Section 104 of the SFO and comply with the Code on Unit Trusts and Mutual Funds (UT Code). This includes stringent requirements for fund managers, such as having at least two key personnel with five years of experience in managing regulated funds, and specific custodian arrangements. Private funds, typically offered to professional investors (e.g., institutional investors, high-net-worth individuals), are exempt from authorisation if not marketed publicly, subject to conditions such as limiting offerees to 50 in Hong Kong. Private funds have fewer regulatory burdens, such as relaxed disclosure and valuation requirements, but still require a Type 9 license for asset management activities. The distinction is critical for operational planning and compliance costs.

Introduced in 2017, the MIC regime requires licensed corporations to designate senior managers as (MICs) for core functions, such as overall management oversight, key business lines, and compliance. MICs must be approved by the SFC and meet fit and proper criteria, enhancing personal accountability. This regime aligns with global governance standards, ensuring senior management is directly responsible for regulatory compliance. For fund managers, it means restructuring organisational charts, potentially licensing additional responsible officers, and reporting MIC details to the SFC, impacting governance by fostering a culture of accountability.

Type 9 licensed fund managers must comply with the Securities and Futures (Financial Resources) Rules, which require a minimum paid-up share capital and liquid capital to ensure financial soundness. For fund managers not subject to the specified licensing conditions (i.e., those not restricted from holding client assets), the minimum paid-up capital and liquid capital are HK$5 million and HK$3 million, respectively. Whereas for fund managers subject to a specified licensing condition, the minimum paid-up capital and the liquid capital are nil and HK$0.1 million, respectively. These requirements ensure fund managers can absorb operational risks, with additional capital needed if holding client assets, aligning with the SFC’s risk-based supervision.

The marketing of funds in Hong Kong is governed by Part IV of the SFO, requiring SFC authorisation for public offers under Section 103, unless exemptions apply, such as private placements to professional investors. Private placements must limit offerees to 50 in Hong Kong and comply with the professional investor regime. Marketing materials must be fair, clear, and not misleading, adhering to the Fund Manager Code of Conduct (FMCC). Cross-border marketing requires compliance with both Hong Kong and foreign regulations, adding complexity for international fund managers.

Fund managers, as licensed corporations, must comply with the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (AMLO) and the SFC’s Guidelines on Anti-Money Laundering and Counter-Financing of Terrorism. These requirements include implementing policies and procedures to prevent money laundering and terrorist financing, conducting customer due diligence (CDD), reporting suspicious transactions, and maintaining comprehensive records.

Fund managers must:

• Identify and Verify Customers: use reliable, independent sources, such as passports, national identity cards, or certificates of incorporation, to verify customer identities.
• Understand Business Purpose: determine the nature of the customer’s business and the intended purpose of the account.
• Assess Risk: evaluate the risk of money laundering or terrorist financing, applying enhanced due diligence for high-risk customers, such as politically exposed persons (PEPs).
• Ongoing Monitoring: regularly review customer information to ensure it remains current and relevant (SFC AML FAQs).

Fund managers must report any transactions they know, or suspect involve money laundering or terrorist financing to the Joint Financial Intelligence Unit (JFIU) as soon as practicable. Reports should be filed via the JFIU’s STREAMS platform, selecting appropriate reasons for disclosure, such as “National Security Law” if applicable. Fund managers must have systems to detect suspicious activities, such as unusual transaction patterns or inconsistencies in customer information.

• Appointing a Money Laundering Reporting Officer (MLRO): to oversee AML compliance and coordinate with regulatory authorities.
• Staff Training: regular training on AML policies, procedures, and red flags for suspicious activities.
• Risk-Based Procedures: implement CDD and ongoing monitoring tailored to the risk profile of customers.
• Record-Keeping: maintain records of customer identification, transactions, and CDD measures for at least five years.
• Independent AML Program Audits: conduct periodic reviews of the AML program to ensure effectiveness and compliance.

Non-compliance with AML regulations in Hong Kong can lead to severe consequences, including:

• Fines: imposed by the SFC for breaches of AML guidelines.
• License Suspension or Revocation: loss of the Type 9 license, halting operations.
• Criminal Prosecution: under the AMLO, individuals or entities may face imprisonment or significant fines.
• Reputational Damage: loss of investor trust and business opportunities. The SFC actively enforces AML compliance through inspections and disciplinary actions to ensure adherence.

Dealing with international investors requires Hong Kong fund managers to navigate both Hong Kong’s AML regulations under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (AMLO) and the AML standards of the investors’ jurisdictions. This includes enhanced due diligence for high-risk jurisdictions listed by the Financial Action Task Force (FATF), understanding foreign regulatory expectations, and ensuring compliance with cross-border reporting obligations. Fund managers must also consider data privacy laws, such as the Personal Data (Privacy) Ordinance, when sharing investor information internationally.

Virtual asset funds face heightened AML risks due to the anonymity of transactions, cross-border nature, and potential for illicit activities such as ransomware or dark web funding. The SFC’s regulatory framework for virtual asset portfolio managers, introduced in 2023, requires robust transaction monitoring, source of funds verification, and compliance with the AMLO. Fund managers must implement blockchain analytics tools, conduct enhanced due diligence on virtual asset exchanges, and report suspicious activities to the Joint Financial Intelligence Unit (JFIU).

The SFC’s Guidelines on Anti-Money Laundering and Counter-Financing of Terrorism expects Hong Kong fund managers to adopt a risk-based approach, classifying customers into low, medium, and high-risk categories based on factors such as jurisdiction, transaction volume, and beneficial ownership complexity. This involves applying simplified due diligence for low-risk clients, enhanced due diligence for high-risk cases (e.g., politically exposed persons), and adjusting monitoring intensity. Fund managers must document their risk assessments and regularly review them to align with evolving threats.

Under the AMLO, Hong Kong fund managers must identify and verify beneficial owners, defined as natural persons who ultimately own or control 25% or more of the entity, or exercise control through other means. This involves looking through corporate structures, using reliable sources such as company registries, and verifying identities with documents such as passports or national IDs. For complex structures, such as trusts or nominee arrangements, additional due diligence is required to prevent money laundering through layered ownership.

Preparing for SFC inspections involves maintaining comprehensive AML documentation, including customer due diligence records, transaction monitoring logs, and staff training records, for at least five years as required by the AMLO. Fund managers should conduct internal audits or engage mock inspections from external providers to identify gaps, ensure staff are trained in AML procedures, and establish a response protocol for inspections. During the SFC inspections, they must cooperate fully, provide requested information promptly via the SFC’s online portal, and address any findings or recommendations, which may include remedial actions or fines.