Hong Kong’s Hedge Fund Regulation ‘Will Not Be Compromised’ Says SFC
by Mary Swire, Tax-News.com, Hong Kong
11 October 2004

Responding to media reports that Hong Kong is relaxing entry rules for hedge funds, the city’s financial regulator stressed last week that all funds, regardless of whether they are offered to retail or experienced investors, remain obliged to satisfy all necessary licensing and authorisation requirements before setting up shop in the territory.

“We would like to reiterate that licensing is a gate-keeping function established to ensure that only fit and proper intermediaries can carry out financial services in Hong Kong,” the SFC explained in a statement.

It went on to add: “While we will facilitate and expedite market players to enter into the industry as far as possible, the regulatory standards will not be compromised.”

With regard to the establishment of retail hedge funds, the SFC pointed out that further authorisation is required in addition to the normal licensing application before funds may approach potential clients.

“As hedge funds have their own risks and may not be suitable to every investor, there must be vigorous regulatory thresholds to protect the interests of retail investors,” the regulator noted.

The SFC introduced the Guidelines on Hedge Funds and the Guidelines on Hedge Funds Reporting Requirements in 2002, and Hong Kong is one of the few jurisdictions that allow the sale of hedge funds to the retail end of the market.

According to the SFC, 13 retail funds have been authorised so far, managing some US$1.13 billion (HK$8.8 billion) in assets.

The SFC intends to use the experience of managing the retail sector of the hedge fund market as the basis for a review of general hedge fund guidelines within the current financial year.

This review, which will also encompass the fund of hedge funds sector, aims to strengthen disclosure requirements and increase transparency for investors.

Upon completion of the review, discussions will begin between the SFC and interested parties, and a consultation paper will be published.

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