A new fund manager code of conduct (FMCC) comes into effect in Hong Kong this month, but many fund firms are ill-prepared for it, according to regulatory and legal experts.
The key areas of enhancements under the new FMCC relate to securities lending and repurchase agreements, custody of fund assets, liquidity risk management, and disclosure of leverage by fund managers.
The exhaustive list of regulatory requirements, which come into effect on November 17, will apply to all intermediaries licenced to carry out type 9 (asset management) registered activities in Hong Kong.
Set to be introduced by the city’s Securities and Futures Commission (SFC), they will have significant repercussions for the funds industry, including public and private funds and investors.
“The FMCC Implementation Guide uncovers the importance of ongoing industry dialogue around the expectations placed upon fund managers and their constituents.
“Increasingly our members look to AIMA for direction surrounding areas of compliance and regulation. This guide addresses many of the queries circulating the market, offering relatable examples and easy-to-understand summaries of the SFC’s position,” Jack Inglis, AIMA chief executive at the Alternative Investment Management Association (AIMA), said in a statement.
As a result of the looming changes, investors stand to benefit from significantly higher levels of disclosure from the funds they invest in, especially private ones such as hedge funds and private funds.
The flip side for the funds industry is a greater regulatory burden, which some fund managers could struggle to cope with, potentially leading to a shakeout, according to experts.
The FMCC will be implemented three months after a new Code of Conduct for licenced and registered corporations, which is also applicable to IAMs, came into effect in August.
The new Code of Conduct introduces regulation for discretionary portfolio managers and restricts the use of the term ‘independent’ by intermediaries.
Companies that do not comply with the FMCC over time will feel the full weight of the SFC.
In recent years, the SFC has not shied away from flexing its regulatory muscles if companies fail to adhere to the required regulatory norms. In 2017 it levied a record $63.7m in fines – a 632% increase on the 2016 total.