Member Article

On 18 October 2007, the Securities and Futures Commission (SFC) issued a circular which allows delegation of investment management functions by managers of authorised funds to affiliates not based in an Acceptable Inspection Regime (AIR), subject to certain requirements being met.

Previously the fund management company of an SFC authorised fund, and all of its delegates with investment discretion, had to be based in Hong Kong or an AIR. As the list of AIR includes only Australia, France, Germany, Ireland, Luxembourg, the U.K. and the U.S., this made it difficult to have SFC authorised funds managed by managers in any non-AIR countries, which had caused problems for groups with investment management hubs in regions such as Japan, Singapore, Canada, Latin America and many European jurisdictions.

The SFC has now issued a checklist of the additional documents and information to be submitted to the SFC in respect of an application for authorisation of delegation to a non-AIR affiliate. The main points to be noted are as follows:

• Requirement for an affiliate relationship between the management company and the non-AIR delegated investment firm
• Information on how the delegated investment firm will be supervised (a monitoring plan)
• Undertakings to the SFC from the management company are to be given to the effect that:
  • It will remain responsible for the activities of the delegate;
  • It will report to the SFC any breaches of laws administered by the principal regulator of the delegate;
  • It will make available for inspection relevant transaction records; give the SFC access to the delegate’s personnel in case of enquiries; and give access to the books and records of the fund in case of inspection by the SFC with such cost to be borne by the management company.
• Undertaking from the delegate to make the appropriate arrangements to enable the management company to carry out its duties as summarised above.

The requirement for an affiliate relationship between the management company and the non- AIR delegated investment firm limits the usefulness of the new provisions for groups with multi-manager planforms for third party managers as delegation to non-affiliates of the management company will only be considered on a case- by- case and exceptional basis. However, the circular will be welcomed by large international groups.

 

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