Beruflich Dokumente
Kultur Dokumente
November 2017
November 2016 SFC conclusions on
asset management 17 November 2018
Consultation Paper on
Soft consultation with regulation and point-of-
Proposals to Enhance
the industry sale transparency and Effective date of FMCC
Asset Management
further consultation on provisions
Regulation and Point-of-
disclosure requirements
sale Transparency
for discretionary
accounts
MORGAN STANLEY PRIME BROKERAGE WORKSHOP: THE SFC’S REVISED FUND MANAGER CODE OF CONDUCT CLIFFORD CHANCE | 2
SCOPE OF APPLICATION
CLIFFORD CHANCE | 3
FUND MANAGER RESPONSIBLE FOR OVERALL
OPERATION OF A FUND
While FMCC generally applies to all licensed/registered fund managers and their delegates, certain
requirements are only applicable to a fund manager that is responsible for the overall operation of a
fund.
Needs fact-based review to ascertain whether fund manager in substance is responsible for the day-
to-day operation and management of the fund
Further guidance in SFC FAQs published in November 2017
No intention to give legal effect to “de facto control” concept
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FUND MANAGER RESPONSIBLE FOR OVERALL
OPERATION OF A FUND (CONT’D)
Examples when the fund manager IS Examples when the fund manager IS NOT
considered to be responsible for the overall considered to be responsible for the overall
operation of the fund operation of the fund
Where the senior management or shareholders A Hong Kong fund manager appointed by an
of a fund manager constitute a majority of the overseas management company as sub-
board of directors of the fund. manager to manage a fund or an allocated
Where the representatives of the fund manager portion of the fund.
or its subsidiaries constitute a majority of the Senior management of Hong Kong fund
board of directors of the fund. manager’s overseas affiliate sits on the board
Where the fund is in the form of a limited of directors of the fund while the Hong Kong
partnership and the fund manager is the fund manager acts as sub-manager.
general partner, and the general partner has
the responsibility in law to serve as the
governing body of the fund.
Where the fund manager is responsible for
day-to-day management of the fund despite
having to seek the agreement of the trustee on
significant matters.
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RISK MANAGEMENT CONTROL TECHNIQUES
RISK MANAGEMENT CONTROL TECHNIQUES
A fund manager should maintain satisfactory risk management governance structure and procedures
commensurate with the nature, size, complexity and risk profile of the firm and the investment strategy
adopted by each of the funds under its business management.
General risk management:
The fund manager should establish and maintain effective policies and procedures as well as a
designated risk management function to identify and quantify the risks, whether financial or
otherwise, to which the fund manager and, if applicable, the funds are exposed. The fund manager
should take appropriate and timely action to contain and otherwise adequately manage such risks
Also need to comply with SFC Internal Control Guidelines
Review the risk management policies and procedures with appropriate frequency and enhance
such policies and procedures whenever necessary
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RISK MANAGEMENT CONTROL TECHNIQUES
(CONT’D)
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RISK MANAGEMENT CONTROL TECHNIQUES
(CONT’D)
Liquidity risk
Set and enforce concentration limits with respect to the funds’ investments, collateral, markets and
business counterparties
Establish and regularly monitor measures of maturity liquidity mismatches between the funds’
underlying investments and their redemption obligations using quantitative metrics or qualitative
factors.
Establish appropriate arrears and default procedures to alert staff member(s) responsible for
liquidity management to potential problems and to provide them with adequate time to take
appropriate action to minimise the impact of fund counterparty liquidity problems.
Issuer and counterparty credit risk
Establish and maintain an effective credit assessment system to evaluate the creditworthiness of
the funds’ counterparties and the credit risk of the fund’s investments (or, if applicable, the relevant
issuers).
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RISK MANAGEMENT CONTROL TECHNIQUES
(CONT’D)
Operational risk
In designing the policies, procedures, and internal controls to reduce operational risk, a fund
manager should consider, amongst other considerations, physical and functional segregation of
incompatible duties, maintenance and timely production of proper and adequate accounting and
other records, the security and reliability of accounting and other information, staffing adequacy and
prompt reconciliation of trading information.
Fund manager should establish, implement and maintain a business continuity and transition plan.
The plan should include policies and procedures that ensure, in the case of a business disruption or
an interruption to the fund manager’s operations.
The business continuity and transition plan, including the adequacy of the plan and the
effectiveness of its implementation, should be reviewed at least annually. Records of such reviews
should be maintained.
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RISK MANAGEMENT CONTROL TECHNIQUES
(CONT’D)
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LIQUIDITY MANAGEMENT AND SIDE POCKETS
LIQUIDITY MANAGEMENT
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LIQUIDITY MANAGEMENT (CONT’D)
The extent of application of these liquidity management principles will depend on the nature,
liquidity profile and asset-liability management of the fund. Applies in principle to both closed-
ended and open-ended funds.
liquidity stress testing on an ongoing basis to assess the impact of plausible severe adverse
changes in market conditions (part of general risk management controls).
Investor liquidity terms: Need to disclose preferential treatment (e.g. side letters) and the
material terms in relation to redemption to all relevant potential and existing fund investors
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SIDE POCKETS
Before any side pocket is introduced in a fund, a fund manager that is responsible for the overall
operation of a fund should disclose to the fund investors:
limit of total assets to be put in the side pocket
overall fee structure and charging mechanism
that the redemption lock-up period for a side pocket would be different from ordinary
units/shares of fund
how the fund manager defines and categorises investment products which are to be put into the
side pocket and the policies and rationale for transferring investments in and out of side pockets
where the assets in side pockets are allowed to be transferred to another investment vehicle,
the circumstances under which transfers are allowed and the pricing mechanism for such
transfers.
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SIDE POCKETS (CONT’D)
In setting up and managing side pockets in Where a fund manager decides to side pocket
respect of fund assets, a fund manager should any fund asset, it should arrange clear
ensure that it has: disclosure to fund investors of:
risk management competency in managing creation of the side pocket
side pockets asset which has been side-pocketed
valuation policy covering side-pocketed how the asset has been valued at the time of
assets which complies with the fund side pocketing and the ongoing valuation of
portfolio valuation requirements the asset.
operational checks and controls for
transferring investments in and out of side
pockets
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LIQUIDITY MANAGEMENT AND SIDE POCKETS
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CUSTODIAN AND THIRD PARTY DELEGATES
CUSTODIAN / SAFE CUSTODY OF FUND ASSETS
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DELEGATION
Fund managers to exercise due skill, care and diligence in the selection and appointment of
third-party delegates
Where functions are delegated to third parties, ongoing monitoring of the competence of
delegates to ensure that the principles of the FMCC are followed
Although the investment management role of the fund manager may be sub-contracted, the
responsibilities and obligations of the fund manager to the funds it manages may not be
delegated
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CUSTODY AND DELEGATION
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PORTFOLIO VALUATION
FUND PORTFOLIO VALUATION
Where fund manager is responsible for overall operation of a fund (or is delegated responsibility for
fund valuation), it should ensure that:
Appropriate policies and procedures are established so that a proper and independent valuation
can be performed.
Detailed valuation requirements for different type of assets in FMCC
Valuation methodologies to be consistently applied to the valuation of similar types of fund assets
Valuation policies and procedures should describe process for deviating from valuation policies and
procedures:
requiring the Fund Manager to document the reason for any price override or deviation
ensuring an appropriate review of the price override or deviation by a functionally independent
party
describing the method for determining the appropriate price
All fund assets managed by a fund manager should be valued on a regular basis. Where a Fund
Manager is responsible for the overall operation of a fund it should disclose the frequency of
valuation and dealing and basis of valuation to fund investors.
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FUND PORTFOLIO VALUATION (CONT’D)
Fund manager should have regard to applicable generally accepted accounting principles as well
as best industry standards and practices in valuing fund assets, unless otherwise specified in the
fund’s constitutive documents.
Valuation policies, procedures and process should be periodically reviewed (at least annually) by a
competent and functionally-independent party such as a qualified independent third party or a
person performing an independent audit function.
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NET ASSET VALUE CALCULATION AND PRICING
AND RECONCILIATIONS
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FUND PORTFOLIO VALUATION AND NAV
CALCULATION
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OTHER AMENDMENTS
DISCLOSURE OF LEVERAGE
SFC considers leverage a key piece of information for investors in private funds.
Where the fund manager is responsible for the overall operation of a fund it should disclose to
fund investors:
the expected maximum level of leverage which it may employ on behalf of the fund; and
basis of calculation of leverage should be reasonable and prudent.
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REPORTING OBLIGATIONS TO THE SFC
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SECURITIES LENDING AND REPOS
The securities lending requirements are only applicable to fund managers that engage in securities
lending, repos and reverse repo transactions on behalf of the funds managed by them.
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SECURITIES LENDING AND REPOS (CONT’D)
Reporting to fund investors (applicable to Fund manager responsible for the overall
operation of a fund)
Provide information on a fund’s securities lending, repo and reverse repo transactions to fund
investors at least on an annual basis.
At a minimum, certain information should be provided to fund investors from time to time (e.g.
concentration data, aggregate securities lending, repo and reverse repo transaction data, re-use
and re-hypothecation data, number of custodians and the amount of collateral assets
received/held by each custodians).
Disclose a summary of the securities lending, repo and reverse repo transactions policy and the
risk management policy to fund investors.
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HOUSE ACCOUNTS AND AUDITED FINANCIAL
STATEMENTS
House accounts
Aggregation of house orders with client orders should only be made if it is in the best interests of
clients.
If a client which is an institutional professional investor requests otherwise, allocation can be
effected on the terms specified by the client.
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REQUIREMENTS FOR DISCRETIONARY ACCOUNTS
REQUIREMENTS FOR LICENSED OR REGISTERED
PERSONS CONDUCTING DISCRETIONARY
ACCOUNTS MANAGEMENT
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CONTACT
MORGAN STANLEY PRIME BROKERAGE WORKSHOP: THE SFC’S REVISED FUND MANAGER CODE OF CONDUCT CLIFFORD CHANCE | 36
Clifford Chance, 27th Floor, Jardine House, One Connaught Place, Hong Kong
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