Hong Kong SFC issues circular to clarify expected standards for asset managers

SFC circular sets out irregular practices under close supervision

THE Hong Kong Securities and Futures Commission (SFC) recently released a circular outlining its views on how asset managers should address certain conflicts of interest between private funds and separately managed accounts and avoid practices that undermine market integrity.

The circular sets out several examples of inappropriate conduct on the part of asset managers and informs the industry of the relevant standards expected by the SFC.

In particular, the SFC considered the following practices as irregular:
• Failure to act in the best interests of the integrity of the market
• Inadequate or improper risk management practices
• Failure to act fairly and to avoid conflicts of interests

The SFC warns that it will closely supervise asset managers and will take enforcement action for failure to comply with regulatory requirements. Boards and senior management of asset managers should bear in mind that they are expected to maintain adequate oversight of their firms’ business activities, and that they are primarily responsible for maintaining the appropriate standards of conduct.

The SFC says that asset managers should have in place and maintain effective risk management policies and procedures to identify and manage the risks to which each fund or discretionary account is or may be exposed. An important aspect is the management of liquidity risks, as asset managers should endeavour to ensure that they are able to meet investors’ redemption requests in accordance with the terms set out in the funds’ offering documents. Undue concentration of illiquid or interconnected stocks, especially if coupled with the use of leverage, should be carefully reviewed.

Date

10 Oct 2017

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