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Following is a question by the Dr Hon David Li and a reply by the Secretary for Financial Services and the Treasury, Professor K C Chan, in the Legislative Council today (July 4):
Question:
The Securities and Futures Commission (SFC) issued a circular on June 11, 2007, detailing, among other measures, a more streamlined and simplified licensing process for overseas hedge fund firms wishing to operate in Hong Kong. Given that Hong Kong is the largest hedge fund centre in Asia and that the presence of an active hedge fund industry enhances Hong Kong's position as a leading international financial centre, will the Administration inform this Council of:
(a) the steps it will take to publicise and promote the SFC's aforesaid initiatives; and
(b) the other measures it will take to maintain Hong Kong's lead as a hedge fund centre?
Reply:
Madam President,
To maintain Hong Kong's competitiveness as an international financial centre, and to facilitate the development of Hong Kong's fund management business, the Securities and Futures Commission (SFC) announced on June 11, 2007 a set of initiatives to streamline the licensing procedures for overseas fund managers (including overseas hedge fund managers), which include expediting the licensing process for firms that are already registered as investment managers or advisors in specified overseas countries; clarifying SFC's existing licensing policies; and simplifying the licensing process for overseas fund firms wishing to operate in Hong Kong.
The recent SFC initiative illustrates a pragmatic approach to regulate the fund management business, especially the fast growing hedge fund business. Several facts about the funds industry are noteworthy. For instance, the hedge fund industry in Asia has been experiencing above-average growth relative to the global industry. Amongst the Asian markets, Hong Kong is one of the largest hedge fund management centres in Asia, with the amount of Assets Under Management (AUM) totalling US$33.5 billion. Furthermore, most of the hedge funds managed in Hong Kong serve institutional investors, both here and overseas. To facilitate the development of Hong Kong as a fund management centre, we should take into account the operating mode and nature of the fund management industry, and offer an expedited licensing process to attract qualified fund managers to locate in Hong Kong.
Under the streamlined licensing process announced by SFC on June 11, firms that are already licensed in US and UK as investment managers or advisors, with a good compliance track record and which serve only professional investors can expect to benefit from an expedited licensing process. Responsible Officers (ROs) of fund managers who fulfill the necessary criteria can be exempted from the local examination requirement. A broader range of relevant past industry experience will also be recognised as satisfying the competence requirements for ROs. Furthermore, overseas fund managers based in Hong Kong will also be exempted from the licensing requirement if they merely provide research to the group companies outside Hong Kong.
To publicise and promote SFC's new initiatives, the SFC has met with the trade to explain the new guidelines. According to SFC, the relevant intermediaries and advisers have informed the relevant overseas fund managers of the details of the new initiatives. SFC's senior executives have also actively publicised the new initiatives at recent public events. Fund managers also meet with SFC from time to time to discuss their business plans in Hong Kong. The Administration, in conjunction with the local financial services sector, have also visited a number of places over the past year to promote Hong Kong's fund management business and our strengths as an international financial centre, including the policies that we have implemented to facilitate market development. We will continue our efforts in this regard.
The new initiatives and promotion efforts mentioned above will simplify and expedite the licensing process for fund managers. I would however like to stress that, in accordance with the Securities and Futures Ordinance, the SFC would not approve any licence applications unless they are satisfied that the applicant is a fit and proper person for licence issuance. The SFC shall protect the interests of investors through the licensing regime by ensuring that only those who are fit and proper persons would be licensed.
Notwithstanding Hong Kong is already a leading fund management centre in the region and the largest hedge fund centre in Asia, we will continue to implement various initiatives to maintain our lead in asset and fund management business. Indeed, the Government and SFC have been adopting multi-pronged measures to promote the further development of our fund management business in Hong Kong. These include:
(1) Facilitation of Market Development
To promote the further development of our fund management business, we need to provide a business-friendly environment for fund managers. Apart from streamlining the licensing procedures, SFC will continue to review its licensing requirements to ensure that they meet industry developments and needs. For instance, SFC conducted a review on their retail hedge fund guidelines in 2005.
(2) Enhance Investor Education
To enhance investor education, Hong Kong has put in place a robust regulatory regime. As one of the first jurisdictions in the world to allow the sale of hedge funds to the retail public, the SFC requires publicly offered hedge funds to meet specific structural and operational safeguards and disclosure requirements, so as to protect investors and help maintain market confidence in publicly offered fund products. The SFC has also been working closely with members of the International Organization of Securities Commissions on issues relating to the best practice standards for hedge fund valuation.
(3) Tax Measures
The Government has abolished estate duty and exempted offshore funds from profit tax since last year. The abolition of estate duty will help boost Hong Kong's attractiveness to investors such that more people, including local and overseas investors will hold assets in Hong Kong, thereby promoting the development of our asset management industry. On the other hand, exempting offshore funds from profit tax will attract new offshore funds to come here and encourage existing ones to continue to invest in Hong Kong, which will lead to an increase in market liquidity as well as employment opportunities in the financial services and related sectors.
(4) Human Resources Development
Adequate and high quality human resources are crucial to the development of our fund management industry, which requires experts in different fields, including fund managers, economic analysts, lawyers and accountants. In this connection, the Government has set up an Advisory Committee on Human Resources Development in the Financial Services Sector with members drawn from industry organisations, professional bodies, regulatory bodies, training institutions and the relevant policy bureaux. We will continue to enhance talent training and planning in order to consolidate our competitiveness as Asia's leading fund management centre.
(5) Seizing Opportunities in the Mainland
Finally, with the rapid development of Mainland's economy, the Government will continue to seize business opportunities in the Mainland for our fund management industry. In the past two months, the China Banking Regulatory Commission and the China Securities Regulatory Commission have respectively announced new measures under the Qualified Domestic Institutional Investors Scheme, i.e. QDII, which include allowing Mainland commercial banks, securities firms and fund management companies to invest in, among other things, funds authorised by SFC and Hong Kong stocks. This has presented immense opportunities for the further development of Hong Kong's fund management business. Our financial regulators will continue to maintain close co-operation and communication with the relevant authorities in the Mainland, and fully capitalise on Hong Kong's strengths in enhancing our role as an investment platform and bridge to facilitate the flow of huge deposits from the Mainland to the international market.
Conclusion
With the implementation of the above mentioned measures, coupled with our fundamental strengths, including the rule of law, free flow of capital and information, simple and low tax regime, world-class infrastructure and a well established regulatory system, our fund management business has continued to flourish in the past years. Looking ahead, the Government and our financial regulators will continue our efforts in promoting the development of hedge funds in Hong Kong to maintain our lead as a hedge fund centre and our position as an international financial centre.
Ends/Wednesday, July 4, 2007
Issued at HKT 15:53
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