Hong Kong financial watchdog proposes oversight of custodians

Hong Kong's SFC is proposing a new type of licensed activity for trustees and custodians of collective investment schemes (CIS). 

By Joe Parsons

Hong Kong’s financial regulator is proposing that trustees and custodians that look after domestic investment funds should come under their oversight.

The Securities and Futures Commission (SFC) has launched a consultation that depositaries and custodians of collective investment schemes (CIS) should be subject to a new type of licensed activity.

This will cover depositaries for SFC-authorised unit trusts, mutual funds, open-ended fund companies (OFCs), real estate investment trusts and pooled retirement trusts.

“It is vital that depositaries of public funds which operate in Hong Kong are subject to the SFC’s direct regulation,” said Ashley Alder, the SFC’s chief executive officer. “The proposed regime will provide better protection for scheme assets and help safeguard the interests of retail investors.”

Trustees and custodians of public funds in Hong Kong are not currently subject of any specific licensing regime for their activities for public funds.

The proposals are part of the SFC’s strategy to strengthen Hong Kong as an international, full-service asset management service, as well as enhance the regulation of public funds.

Last year, Hong Kong regulators established new rules allowing investment managers to establish investment funds in corporate form as an OFC, the preferred hedge fund structure. They would also be required to appoint a SFC-authorised custodian.