SFC reforms to boost Hong Kong’s fund hub status: new rules on private credit, derivatives Hong Kong’s securities regulator has proposed sweeping rule changes to give retail investors broader access to private credit markets and allow fund managers greater flexibility in using derivatives – part of a push to align the city’s fund regime with global standards and enhance its competitiveness as an international financial hub. The Securities and Futures Commission (SFC) on Wednesday launched a three-month public consultation on proposed amendments to the Code on Unit Trusts and Mutual Funds, which governs how authorised funds are structured and operated. “The proposed amendments are aimed at ensuring SFC regulation of our mutual fund sector is in line with international standards, promoting product innovation and enhancing the competitiveness of Hong Kong as an international financial centre,” said Christina Choi Fung-yee, the SFC’s executive director of investment products, in an interview. “We want the rule changes to attract more fund managers from the US and Europe to bring their fund products to Hong Kong, while also allowing retail investors to have more product choice,” she added. Under the proposal, unlisted mutual funds would be allowed to invest up to 50 per cent of their assets in private credit or other illiquid assets, up from the current cap of 15 per cent. The move follows a February decision that gave listed closed-end funds the freedom to invest in private equity and alternative assets without limit. “These measures would enable retail investors to access private credit, so as to allow them to have more choice of investment,” Choi said. The regulator’s initiative reflects the growing global popularity of private credit as an asset class, as investors search for stable returns outside public markets. The SFC also plans to replace the current exposure-based limit on derivatives trading with a value-at-risk (VaR) approach – a methodology already adopted in major US and European markets. The VaR model would allow fund managers more flexibility in designing investment strategies while maintaining appropriate risk controls. “Many US and European markets have already adopted a value-at-risk model, and Hong Kong needs to catch up to ensure these fund companies will bring their products to the city,” Choi said. The consultation paper further proposes the introduction of new liquidity risk-management requirements to ensure authorised funds maintain sufficient liquid assets to meet investor redemption requests. The changes follow recommendations from the International Organisation of Securities Commissions (IOSCO) in May, after global episodes of large-scale redemptions underscored the need for stronger safeguards. Additional proposals include greater flexibility for feeder funds to invest in SFC-authorised master funds without requiring separate authorisation. The SFC will review feedback after the three-month consultation and proceed with implementation once the amendments are gazetted. No specific timeline has been set, Choi said. The reform package marks one of Choi’s final major initiatives as head of investment products. She will take over as the SFC’s executive director of corporate finance from November 1. According to the regulator, total assets under management in Hong Kong climbed to HK$35.14 trillion (US$4.5 trillion) in 2024, just shy of the all-time high of HK$35.55 trillion recorded in 2021. The rebound was supported by a surge in net fund inflows, which rose 81 per cent year on year to HK$705 billion. The number of Hong Kong-domiciled, SFC-authorised funds also expanded by 64 per cent, from 607 in mid-2015 to 993 as of June 2024, while their assets more than doubled to HK$2.09 trillion. During her tenure, Choi has helped introduce multiple cross-border fund-trading schemes with mainland China and overseas markets. Among them is the Mutual Recognition of Funds (MRF) programme, which allows cross-border fund sales between Hong Kong and the mainland. A relaxation of the MRF scheme in January – raising the quota for cross-border investment – has spurred renewed interest from mainland investors, who poured 118.8 billion yuan (US$16.7 billion) into Hong Kong mutual funds by July, up 178 per cent from a year earlier, according to SFC data. https://www.scmp.com/business/article/3329958/sfc-reforms-boost-hong-kongs-fund-hub-status-new-rules-private-credit-derivatives (ICE HONG KONG)

Fonte notizia: South China Morning Post