SFC provided additional guidance on licensing obligations of family offices
ISSUING AUTHORITY:
Securities and Futures Commission of Hong Kong
DATE OF ISSUANCE:
September 8, 2020
EFFECTIVE DATE:
September 8, 2020
On January 7, 2020, the Securities and Futures Commission of Hong Kong (“SFC”) issued a circular seeking to provide guidance on the licensing obligations of family offices. Subsequently, on 8 September 2020, the SFC published a set of frequently asked questions (“FAQs”) to provide additional guidance on the implications of the licensing regime to single family offices and multi-family offices.
The SFC does not define “family” or “family office”. The licensing regime does not hinge on whether an entity is called a family office or whether its clients are families. The issue of whether a family office is required to be licensed under the Securties and Futures Ordinance (the “Ordinance”) is determined by reference to three key factors, all of which must be present in order for a licensing obligation to arise: (i) the services provided by the family office constitute one or more regulated activity as defined under the Ordinance, (ii) the family office is carrying on a business in the provision of such services, and (iii) the business is carried on in Hong Kong.
It is noteworthy that where a single family office provides asset management services solely to its related entites, which are defined as its wholly owned subsidiaries, its holding company which holds all its issued shares or that holding company’s other wholly owned subsidiaries, could avail itself of the intra-group carve-out contained in the Ordinance, and therefore, exempt itself from the licencing obligations.
As an international financial centre and asset management hub, Hong Kong is an attractive place for family offices, which are typically set up to manage the financial affairs of high net worth families. These family offices shall duly observe the licensing requirements imposed by the SFC so as to avoid enforcement actions taken against them and the consequential penalties.
Reference:
SFC’s FAQs on the licensing obligations of family offices
Securities and Futures Ordinance (Cap. 571)
Court of Appeal restated three core requirements for winding up foreign company
ISSUING AUTHORITY:
Court of Appeal, High Court of Hong Kong
DATE OF ISSUANCE:
August 5, 2020
EFFECTIVE DATE:
August 5, 2020
In Shandong Chengming Paper Holdings Ltd v Arjowiggins HKK 2 Ltd [2020] HKCA 670, the Court of Appeal (“CA”) re-visited the propositions in the Court of First Instance (“CFI”) decision, and considered the core requirements that need to be fulfilled to enable a court to exercise its statutory jurisdiction to wind up a foreign incorporated company under section 327 of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32).
Hong Kong courts have long developed the following three core requirements which must be satisfied for the winding-up of a foreign incorporated company: (i) there has to be a sufficient connection with Hong Kong, but this does not necessarily have to consist of the presence of assets within the jurisdiction; (ii) there must be a reasonable possibility that the winding-up order will benefit those applying for it; and (iii) the court must be able to exercise jurisdiction over one or more persons in the distribution of the company’s assets.
In the present case, the CA held that the CFI judge had erred in concluding that the second core requirement was capable of moderation, or being dispensed with, in appropriate circumstances and that the requirement, on the contrary, was always essential. The CA went on to conclude that the leverage arising out of the prospect of a winding-up order being made was sufficient to satisfy the second core requirement, and it was not improper to exert pressure to pay by presenting a winding-up petition provided that the debt was not disputed.
The CA took the view that the debt owed by the Plaintiff (Shandong Chenming) to the Defendant (Arjowiggins) was indisputable. Hence, it was satisfied that there was a real possibility of benefit to the Defendant in making of a winding-up order against the Plaintiff and the appeal was accordingly dismissed.
Reference:
Shandong Chengming Paper Holdings Ltd v Arjowiggins HKK 2 Ltd [2020] HKCA 670
Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32)
SFC proposed enhancements to the Open-Ended Fund Company regime
ISSUING AUTHORITY:
Securities and Futures Commission of Hong Kong
DATE OF ISSUANCE:
September 2, 2020
EFFECTIVE DATE:
Plesase see below
In July 2018, Hong Kong launched the Open-Ended Fund Company (“OFC”) regime to provide the option for Hong Kong-domiciled open-ended investment funds to be structured in a corporate form rather than as unit trusts.
On September 2, 2020, the Securities and Futures Commission of Hong Kong (“SFC”) released the Consultation Conclusions on Proposed Enhancements to the OFC Regime and Further Consultation on Customer Due Diligence Requirements (the “Consultation Conclusion”). The Consultation Conclusion summarises the feedback from the industry and the SFC’s response regarding its consultation paper issued on 20 December 2019. The Consultation Conclusion proposed, inter alia, the following enhancements to private OFCs:
● Expanding custodian eligibility requirements to allow intermediaries licensed or registered for Type 1 regulated activity, i.e. dealing in securities, to act as custodians for private OFCs.
● Expanding the investment scope of private OFCs to allow investments in all asset classes the management of which may not amount to a regulated activity.
● Removing all investment restrictions on private OFCs under the Code on Open-Ended Fund Companies (the “OFC Code”). Meanwhile, new provisions will be included in the OFC Code to require that investment managers and custodians have sufficient expertise and experience in managing and safekeeping asset classes in which an OFC invests, with corresponding enhancement on risk disclosure in the offering documents, and to keep proper records.
● Allowing overseas corporate funds to be re-domiciled to Hong Kong as OFCs where they satisfy the key requirements for the registration of an OFC currently applicable to newly established OFCs.
The proposals to expand the custodian eligibility requirements for private OFCs and remove the investment restrictions on private OFCs will take immediate effect upon gazettal of the revised OFC Code. However, the proposal to introduce a re-domiciliation mechanism to enable overseas corporate funds to re-domicile to Hong Kong will take immediate effect upon completion of the legislative process.
Reference:
Code on Open-Ended Fund Companies
